Chapter 7 Making Better Decisions

7- 2 Management 1e 7- 2 Management 1e Learning Objectives  Describe the seven steps of the decision making process  Identify problems by analyzing causes and effects  Describe how managers generate alternatives  Predict possible consequences of alternatives  Demonstrate how managers select the most desirable alternative  Describe the manager’s role in implementing alternatives  Explain the patterns of behavior and delayed results for decisions made - 2

7- 3 Management 1e 7- 3 Management 1e 7- 3 Decisions That Make a Difference (p. 170)  Types of decisions (p. 171) Programmed decision – based on preestablished rules in response to a recurring situation (p. 172) Nonprogrammed decision – based on reason and/or intuition in response to a unique situation that requires a tailored decision Classical model – normative model that leads to an optimal decision, assuming full availability of information, sufficient time, and rationality of the decision maker  Optimal decision – best possible decision given all the needed information

7- 4 Management 1e 7- 4 Management 1e 7- 4 Decisions That Make a Difference (cont.)  Classical model Figure 7.2

7- 5 Management 1e 7- 5 Management 1e 7- 5 Decisions That Make a Difference (cont.)  Seven steps to better decision making (p. 173) Figure 7.3

7- 6 Management 1e 7- 6 Management 1e 7- 6 Decisions That Make a Difference (cont.)  Adaptive management (p. 173) Approach to decision making that requires managers to use critical thinking, collaboration, and reflection skills to make nonprogrammed decisions Important in a rapidly changing business environment

7- 7 Management 1e 7- 7 Management 1e 7- 7 Identifying and Understanding the Problem (p. 173)  Ambiguity (p. 175) Information about the situation, goals, or criteria that is incomplete or can be interpreted in multiple ways  Symptomatic effects (p. 176) Observable behaviors related to underlying causal variables Problems – undesirable behaviors  Are noticed due to their symptomatic effects

7- 8 Management 1e 7- 8 Management 1e 7- 8 Identifying and Understanding the Problem (cont.)  Underlying causes (p. 176) Behaviors that lead to a desired or undesired symptomatic effect  Intermediate causes – plausible and easily found  Root causes Revealed by:  Systemic-based analysis – takes into account the array of all known variables associated with a problem and its symptoms, including behavior over time  Policy-based analysis – isolates the variables in a system that can truly be addressed through management innovation (p. 178)

7- 9 Management 1e 7- 9 Management 1e 7- 9 Identifying and Understanding the Problem (cont.)  Systems archetype of causal variables for customer satisfaction Figure 7.6

7- 10 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Drifting goals system archetype Figure 7.7

7- 11 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Policy-based analysis (p. 178) Following a systemic-based analysis, can examine specific policies that could be contributing to undesirable effects with stock-and-flow diagrams Figure 7.8

7- 12 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Front desk manager’s “guest expectation gap” explanation Figure 7.9

7- 13 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Dolphin Resort: Annualized revenue and profit Figure 7.10

7- 14 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Dolphin Resort revenue per available room Figure 7.11

7- 15 Management 1e Management 1e  Dolphin Resort: Annualized room rate Identifying and Understanding the Problem (cont.) Figure 7.12

7- 16 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Dolphin Resort: Annualized occupancy percentage Figure 7.13

7- 17 Management 1e Management 1e Identifying and Understanding the Problem (cont.)  Dolphin Resort: Guest expectation variables Figure 7.14

7- 18 Management 1e Management 1e  Certainty Decision maker knows all alternatives and their outcomes  Uncertainty all alternatives and outcomes are not known  Level of certainty determined by: Time Cognitive ability Information Generating Alternatives (p. 182)

7- 19 Management 1e Management 1e Generating Alternatives (cont.)  Groupthink (p. 182) Unconscious mode of group decision making in which individuals prioritize agreement over analysis  Production blocking Loss of productivity during a brainstorming session because individuals are overwhelmed by the number of possibilities being generated  Heuristics (“rule of thumb”) Set of informal rules used to simplify and expedite the decision making process

7- 20 Management 1e Management 1e Generating Alternatives (cont.)  Expectation gap between price and drifting goals Figure 7.15

7- 21 Management 1e Management 1e Generating Alternatives (cont.)  Brainstorming (p. 183) Creating as many alternatives as possible, without making value judgments about any idea Figure 7.16

7- 22 Management 1e Management 1e Evaluating Alternatives (p. 184)  Predict and assess the outcomes of each alternative Risk – degree to which the outcomes of an alternative can be predicted  Nominal group technique Group members rate proposed solutions and the total tally determines the final decision  Delphi technique Group of experts propose and question ideas until a consensus is reached

7- 23 Management 1e Management 1e Evaluating Alternatives (cont.)  Prior-hypothesis bias (p. 186) Basing decisions on beliefs or assumptions despite evidence to the contrary Process may be unconscious  Dialectical inquiry A proposal and a conflicting counterproposal are given equal consideration Used to prevent prior-hypothesis bias

7- 24 Management 1e Management 1e Path Selection (p. 186)  Intuitive (“gut”) decision Based on feelings, previous experience, and existing knowledge  Satisficing Choosing an acceptable solution rather than an optimal solution balances time, information, and ability to consider and implement alternatives

7- 25 Management 1e Management 1e Path Selection (cont.)  Reasoned judgment (p. 187) Decision based on extensive information gathering, careful analysis, and generation of alternatives  Administrative model Recognizes the limits of information, time, and individuals and seeks a satisficing rather than an optimum solution Bounded rationality – rational decision making that is limited by time, cognitive abilities, and available information  Representative bias – generalizing from too small a sample

7- 26 Management 1e Management 1e Implementation (p. 188)  Successful implementation involves connecting strategy, people, and operations  Illusion of control Overestimating one’s ability to control evens and activities

7- 27 Management 1e Management 1e Feedback and Results (p. 188) Figure 7.20

7- 28 Management 1e Management 1e Feedback and Results (cont.)  In systems thinking analysis, managers track patterns of behavior associated with variables and understand that there is a delay in altering behavior after decisions have been made (p. 189) Figure 7.21

7- 29 Management 1e  Reinforcing engine (p. 190) A system behavior indicative of growth coupled with an unintended consequence in another part of the system “limits to success” Feedback and Results (cont.) Figure 7.22

7- 30 Management 1e Feedback and Results (cont.)  Reinforcing engine (cont.) Delayed behavior over time – “limits to success” Figure 7.23

7- 31 Management 1e Feedback and Results (cont.)  Balancing correction (p. 191) A system behavior in which long-term problems are created through short-term fixes “fixes the fail” Figure 7.24

7- 32 Management 1e Feedback and Results (cont.)  Balancing correction (cont.) Delayed behavior over time – “fixes that fail” Figure 7.25

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