1. Copyright Atomic Dog Publishing, 2003 Managerial Decision Making Chapter 7

2. Copyright Atomic Dog Publishing, 2003 2/42 Management Decision Making  Management decision making is a complex mix of knowledge, experience, creative thinking, and risk taking. It is often a rapid-fire, fragmented process  More and more companies are pushing critical decision making down to the level of the organization most affected by the decision  A decision can be defined as a conscious choice among alternatives followed by action to implement the decision  Decision-making process is a series of steps that is followed, either consciously or unconsciously, to make a choice and undertake action

3. Copyright Atomic Dog Publishing, 2003 3/42 Management Decision Making (cont.)  Managers must learn how to deal with a decision- making environment that emphasizes communicating, working with others, and working with incomplete information  Decisions are often based on impressions, estimates, and personal experience  Management researchers have developed a set of useful concepts to understand the phenomenon  Individual decision making differs from group decision making

4. Copyright Atomic Dog Publishing, 2003 Types of Managerial Decisions

5. Copyright Atomic Dog Publishing, 2003 5/42 Types of Managerial Decisions  Programmed and Non-Programmed Decisions  Proactive and Reactive Decisions  Intuitive and Systematic Decisions

6. Copyright Atomic Dog Publishing, 2003 6/42 Programmed and Non-Programmed Decisions  Programmed Decisions  One that would be made if a particular situation occurs and a routine procedure or policy has been established to handle it  Repetitive and routine  A large number in daily operations  Although they should be made with care and concern about effectiveness, they should be made efficiently without needlessly tying up organizational resources

7. Copyright Atomic Dog Publishing, 2003 7/42 Programmed and Non-Programmed Decisions (cont.)  Non-Programmed Decisions  No pre-existing structure or decision- making procedure in place  Have significant implications for the future of the organization and must be made only after careful analysis

8. Copyright Atomic Dog Publishing, 2003 8/42 Proactive and Reactive Decisions  Proactive Decision  Made in anticipation of an external change or other conditions  Can prevent many common problems  Reactive Decision  Made in response to changes that have already occurred

9. Copyright Atomic Dog Publishing, 2003 9/42 Intuitive and Systematic Decisions  Intuitive Decision Making  Use of estimates, guesses, or hunches to decide among alternative courses of action  “Voice of experience” that speaks to managers when faced with a decision situation  Don’t rely on intuition alone; supplement intuition with systematic information gathering and analysis  Systematic Decision Making  Organized, exacting, data-driven process  Requires a clear set of objectives, a relevant information base, and a sharing of ideas among key managers and other employees

10. Copyright Atomic Dog Publishing, 2003 The Decision-Making Process

11. Copyright Atomic Dog Publishing, 2003 11/42 The Decision-Making Process  Clarify the problem or opportunity  Develop alternative courses of action  Evaluate and select a course of action  Implement the decision  Monitor its effectiveness

12. Copyright Atomic Dog Publishing, 2003 12/42 Step 1: Clarify the Problem or Opportunity  Problems are defined as the realization that a discrepancy exists between a desired state and current reality  Several common biases or mistakes managers make when identifying and clarifying a problem:  Perceptual inaccuracies  Defining problems in terms of solutions  Identifying symptoms as problems  Consider an issue from a variety of perspectives  Consult various perspectives before making decisions

13. Copyright Atomic Dog Publishing, 2003 13/42 Step 2: Develop Alternative Courses of Action  Examine the organization’s internal and external environments for information and ideas that may lead to creative solutions to a problem  A popular approach to this is known as benchmarking (identify and study firms who are leaders in a given area of business)  Managers should encourage creativity and innovation among employees  Encourage a diversity of approaches to problem solving can lead to better solutions and courses of action

14. Copyright Atomic Dog Publishing, 2003 14/42 Step 3: Evaluate Alternatives and Select a Course of Action  Select the alternatives that will produce the most favorable outcomes and the least unfavorable outcomes  Two cautions should be kept in mind  Keep this step distinct from the previous step—especially in a group context  Be wary of solutions that are evaluated as being “perfect”  Rather than being an optimizer, the decision maker is said to be a “satisficer” — a person who accepts a reasonable alternative course of action that isn’t necessarily the optimum course of action

15. Copyright Atomic Dog Publishing, 2003 15/42 Step 4: Implement the Selected Alternative Course of Action  A decision is an abstraction if it isn’t implemented  Actions must be implemented effectively if it is to achieve an objective  Implementing decisions involves delegating responsibilities to people  Here are six steps to effective delegation:  Define the task clearly  Give guidelines to begin to follow  Give authority to accomplish the task  Monitor the tasks, but don’t hover  Give feedback along the way  Reward and recognize effort as well as results

16. Copyright Atomic Dog Publishing, 2003 16/42 Step 5: Control and Assess the Consequences of the Action  Periodic assessment of the results of the chosen course of action  If actual results aren’t meeting planned results, changes must be made  Two types of feedback that managers use to gather the necessary information:  Formative  Summative

17. Copyright Atomic Dog Publishing, 2003 Influences on Individual Decision Making

18. Copyright Atomic Dog Publishing, 2003 18/42 Influences on Individual Decision Making  Importance of the decision  Time pressures  Manager’s values  Manager’s propensity for risk

19. Copyright Atomic Dog Publishing, 2003 19/42 The Importance of the Decision  Numerous yardsticks for measuring the importance of a decision exist, including the amount of resources involved, the number of people influenced by the decision, and the time required to make the decision  Managers must allot more time and attention to significant problems

20. Copyright Atomic Dog Publishing, 2003 20/42 Time Pressures  Managers must make the most of their decisions in others’ time frames  When time pressures are significant, managers may be unable to gather enough information  Time management is a priority  Managers who effectively manage their time feel less stress and tend to make better decisions than their stress-filled counterparts

21. Copyright Atomic Dog Publishing, 2003 21/42 The Manager’s Values  An individual’s values become guidelines when s/he confronts a choice  Values are one of the most important influences on human behavior  Values are the likes, dislikes, shoulds, oughts, judgments, and prejudices that determine how the world is viewed  Value-based decision making is methodical and ensures that organizational values enter into all major decisions  Although people don’t think consciously about their values and rarely arrange them in any kind of order, managers should be very aware of their values  Serious conflicts can occur among values

22. Copyright Atomic Dog Publishing, 2003 22/42 The Manager’s Propensity for Risk  People vary greatly in their propensity to take risks  The issue for managers is not whether to take risks, but how to take reasonable risks

23. Copyright Atomic Dog Publishing, 2003 Group Decision Making

24. Copyright Atomic Dog Publishing, 2003 24/42 Group Decision Making  A great deal of decision making is achieved through committees, teams, task forces, “virtual teams,” etc.  Decisions made on non-programmed problems being made by one individual on a regular basis are unusual  Use of the collective approach to a decision- making process is increasing  Many managers spend as much as 80% of their working time in committee meetings

25. Copyright Atomic Dog Publishing, 2003 25/42 Individual vs. Group Decision Making  Groups usually take more time to reach a decision  Consensus decisions with five or more participants are superior to individual decision making, majority vote, and leader decisions  Problems with group decision making:  Pressure to conform  Influence of a dominant personality  Status incongruity  Attempt of certain participants to influence others

26. Copyright Atomic Dog Publishing, 2003 26/42 Individual vs. Group Decision Making (cont.)  Non-programmed decisions appear to be better suited to group decision making  As we move from “individual” to “consensus,” the quality of the decision improves  For a complex problem requiring pooled knowledge, the quality of the decision is likely to be higher as the group moves toward achieving consensus

27. Copyright Atomic Dog Publishing, 2003 27/42 Creativity in Group Decision Making  If groups are better suited to non-programmed decisions than individuals, then it is important that an atmosphere fostering group creativity be created

28. Copyright Atomic Dog Publishing, 2003 28/42 Techniques for Stimulating Creativity  Brainstorming  The Delphi Technique  The Nominal Group Technique

29. Copyright Atomic Dog Publishing, 2003 29/42 Brainstorming  Brainstorming promotes the generation of ideas while at the same time avoiding the inhibitions many people feel in group settings  The basic rules are:  No idea is too ridiculous  Each idea presented belongs to the group, not to the person stating it  No idea can be criticized

30. Copyright Atomic Dog Publishing, 2003 30/42 The Delphi Technique  The Delphi technique comprises the solicitation and comparison of anonymous judgments on the topic of interest through a set of sequential questionnaires that are interspersed with summarized information and feedback of opinions from earlier responses

31. Copyright Atomic Dog Publishing, 2003 31/42 The Delphi Technique (cont.)  The advantage is having several judges while removing the biasing effects that might occur during face-to-face interaction  Basic approach is to collect anonymous judgments from group members by mail questionnaire  A process administrator then summarizes the responses as the group consensus, and feeds this summary back along with a second questionnaire for reassessment  Respondents independently evaluate their earlier responses  Underlying belief is that the consensus estimate will result in a better decision after several rounds of anonymous group judgment

32. Copyright Atomic Dog Publishing, 2003 32/42 The Nominal Group Technique (NGT)  The NGT comprises processes that bring people together but do not allow them to communicate verbally. Thus, the collection of people is a group “nominally,” or “in name only”

33. Copyright Atomic Dog Publishing, 2003 33/42 The Nominal Group Technique (NGT) (cont.)  A structured group meeting proceeds as follows:  A group of individuals (7 to 10) sit around a table but do not speak to one another  Each person writes ideas on a pad of paper  A recorder writes the ideas on a flip chart in full view of the entire group  This continues until all of the participants indicate that they have no further ideas to share  Each idea receives attention before a vote is taken  Each participant, in private, selects priorities by ranking or voting  The group decision is the mathematically pooled outcome of the individual votes

34. Copyright Atomic Dog Publishing, 2003 Information Technology and Decision Making

35. Copyright Atomic Dog Publishing, 2003 35/42 Information Technology and Decision Making  In decision-making situations, managers can’t possibly use “all available information”  The challenge for managers is to collect, process, and warehouse the most relevant information to make effective decisions in the present and future  Tools for warehousing and retrieving information for use throughout their firms:  Data warehousing  Data mining  Data marts  Search engines  Software agents

36. Copyright Atomic Dog Publishing, 2003 36/42 Attributes of Useful Information  Accessible  Timely relevant  Accurate  Verifiable  Complete  Clear

37. Copyright Atomic Dog Publishing, 2003 37/42 Information Sharing  Organizations that train people in the value of information and how to use it and share it gain competitive advantage over those who don’t

38. Copyright Atomic Dog Publishing, 2003 Decision Support Systems (DDS)

39. Copyright Atomic Dog Publishing, 2003 39/42 Decision Support Systems (DDS)  DDS is an interactive information system that enables managers to gain instant access to information in a less structured format than a traditional management information system or database  Must obtain information about the firm, competitors, and the business environment  May include links to the World Wide Web, and have built-in artificial intelligence that adjusts to group behaviors and needs  DDS is inherently user friendly

40. Copyright Atomic Dog Publishing, 2003 40/42 Decision Support Systems (cont.)  Supports managerial skills at all levels of decision making by providing instant response to managers’ information needs  An executive information system (EIS) is a user-friendly DDS designed specifically for executives  Consolidate the analysis provided by a DDS, interpret it considering the firm’s strategic goals, and present the results of executives in an easily understandable format

41. Copyright Atomic Dog Publishing, 2003 41/42 Expert Systems and Artificial Intelligence  Artificial intelligence allows computers to solve problems involving imagination, abstract reasoning, and common sense  Expert systems refers to computer systems that can make decisions without human interaction, by imitating human thinking and offer advice or solutions to complex problems in much the same way as a human expert would

42. Copyright Atomic Dog Publishing, 2003 End of Chapter 7