1. Managerial Decision Making
Chapter Three
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. Learning Objectives
LO1 Describe the kinds of decisions you will face as a manager.
LO2 Summarize the steps in making “rational” decisions.
LO3 Recognize the pitfalls you should avoid when making decisions.
LO4 Evaluate the pros and cons of using a group to make decisions.

3. Learning Objectives (cont.)
LO5 Identify procedures to use in leading a decision-making group LO6 Explain how to encourage creative decisions LO7 Discuss the process by which decisions are made in organizations LO8 Describe how to make decisions in a crisis

4. Characteristics of Managerial Decisions
Figure 3.1

5. Lack of Structure Programmed decisions Nonprogrammed decisions
Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations.
Nonprogrammed decisions
New, novel, complex decisions having no proven answers.

6. Comparison of Types of Decisions
Table 3.1

7. Uncertainty and Risk Certainty Uncertainty
The state that exists when decision makers have accurate and comprehensive information.
Uncertainty
The state that exists when decision makers have insufficient information.

8. Uncertainty and Risk Risk
The state that exists when the probability of success is less than 100 percent and losses may occur.

9. Conflict
Conflict
Opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups.

10. Two Levels of Conflict
Individual decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive
Conflict arises between people

11. The Phases of Decision Making
Generating alternative solutions
Evaluating alternative solutions
Making the choice
Implementing the decision
Evaluating the decision
Identifying and diagnosing the problem

12. Identifying and Diagnosing the Problem
Typically, a manager realizes some discrepancy between the current state (the way things are) and a desired state (the way things ought to be).

13. Identifying and Diagnosing the Problem
Such discrepancies may be detected by comparing current performance against (1) past performance, (2) the current performance of other organizations or units, or (3) future expected performance as determined by plans and forecasts.

14. Generating Alternative Solutions
Ready-made solutions
Ideas that have been seen or tried before
Custom-made solutions
New, creative solutions designed specifically for the problem

15. Evaluating Alternatives
Involves determining the value or adequacy of the alternatives that were generated
Which solution will be the best?

16. Evaluating Alternatives
Contingency plans
Alternative courses of action that can be implemented based on how the future unfolds.

17. Making the Choice Maximizing
A decision realizing the best possible outcome

18. Question
___________ is achieving the best possible balance among several goals.
Maximizing
Satisficing
Optimizing
Minimizing
The correct answer is c – optimizing. See next slide

19. Making the Choice Satisficing Optimizing
Choosing an option that is acceptable, although not necessarily the best or perfect
Optimizing
Achieving the best possible balance among several goals

20. Implementing the Decision
Determine how things will look when the decision is fully operational.
Chronologically order the steps necessary to achieve a fully operational decision.
List the resources and activities required to implement each step.
Estimate the time needed for each step.
Assign responsibility for each step to specific individuals.

21. Implementing the Decision
What problems could this action cause?
What can we do to prevent the problems?
What unintended benefits or opportunities could arise?
How can we make sure they happen?
How can we be ready to act when the opportunities come?

22. Evaluating the Decision
Feedback that suggests the decision is working implies that the decision should be continued and applied elsewhere in the organization.
Negative feedback means that either (1) implementation will require more time, resources, effort, or thought or (2) the decision was a bad one

23. Question
___________ is the process in which a decision maker carefully executes all stages of decision making.
Innovation
Quality
Satisficing
Vigilance
The correct answer is d – vigilance. See next slide.

24. The Best Decision Vigilance
A process in which a decision maker carefully executes all stages of decision making

25. Barriers to Decision Making
Psychological biases
Time pressure
Social realities

26. Psychological Biases Illusion of control Framing effects
People’s belief that they can influence events, even when they have no control over what will happen
Framing effects
A decision bias influenced by the way in which a problem or decision alternative is phrased or presented.

27. Psychological Biases Discounting the future
A bias weighting short-term costs and benefits more heavily than longer-term costs and benefits.

28. Pros and Cons of Using a Group to Make Decisions
Table 3.2

29. Potential Problems of Using a Group
Groupthink
occurs when people choose not to disagree or raise objections because they don’t want to break up a positive team spirit
Goal displacement
A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges.

30. Managing Group Decision Making

31. Constructive Conflict
Cognitive conflict
Issue-based differences in perspectives or judgments.
Affective conflict
Emotional disagreement directed toward other people.

32. Constructive Conflict
Devil’s advocate
A person who has the job of criticizing ideas to ensure that their downsides are fully explored.
Dialectic
A structured debate comparing two conflicting courses of action.

33. Encouraging Creativity
Creation
Synthesis
Modification
bring a new thing into being ( creation )
join two previously unrelated things (synthesis)
improve something or give it a new application ( modification ).

34. Brainstorming Brainstorming
A process in which group members generate as many ideas about a problem as they can; criticism is withheld until all ideas have been proposed.

35. Models of Organizational Decision Processes
Bounded rationality
A less-than-perfect form of rationality in which decision makers cannot be perfectly rational because decisions are complex and complete information is unavailable or cannot be fully processed
Incremental model
Model of organizational decision making in which major solutions arise through a series of smaller decisions

36. Models of Organizational Decision Processes
Coalitional model
Model of organizational decision making in which groups with differing preferences use power and negotiation to influence decisions.
Garbage can model
Model of organizational decision making depicting a chaotic process and seemingly random decisions.

37. Two Disasters
Table 3.3

38. Decision Making in a Crisis
What kinds of crises could your company face?
Can your company detect a crisis in its early stages?
How will it manage a crisis if one occurs?
How can it benefit from a crisis after it has passed?

39. Elements of a Crisis Plan
Strategic actions
Technical and structural actions
Evaluation and diagnostic actions
Communication actions
Psychological and cultural actions

40. Video: PODs What decision led to the creation of PODS?
What common decisions do startups often face?