Principles of Management DECISION MAKING Principles of Management

DECISION MAKING The Decision Making Process What is Decision – Making a choice from two or more alternatives. Eg. Top level managers make decisions about their ogzn’s goals, where to locate manufacturing facilities, what new markets to move into, and what products or services to offer. Middle and lower level managers- make decisions about setting weekly or monthly production schedules, handling problems that arise, allocating pay raises and selecting or disciplining employees How do managers make those decisions? Decision making is typically describes as “choosing” among alternatives”- but it is not too simplistic.

Decisions in the Management functions Planning What are the ogzn’s long term objectives? What strategies will best achieve those objectives? What should the ogzn’s short term objectives be? How difficult should individual goals be?

Organizing How many employee should I have report directly to me? How should jobs be designed? When should the ogzn implement a different structure?

Leading How do I handle employees who appear to be low in motivation? What is most effective leadership style in a given situation? When is the right time to stimulate conflict? Controlling What activities in the ogzn need to be controlled? How should those activities be controlled? What type of management information system should the ogzn have?

THE MANAGER AS DECISION MAKER Making decisions: Rationality, Bounded rationality and intuition 1. RATIONAL DECISION MAKING Describes choices that are consistent and value maximizing within specified constraints. Assumptions of rationality The problem is clear and unambiguous; A single and well defined goal is to be achieved; All alternatives and consequences are known; Preferences are clear; Preferences are constant and stable;

No time of cost constraints exist; Final choice will maximize payoff. All of the assumptions above would lead us the Rational Decision Making. Making decisions using rationality would consistently lead toward selecting the alternative that maximizes the likelihood of achieving that goal.

2. BOUNDED RATIONALITY Behavior that is rational within the parameters of a simplified decision making process. Which is limited ( or bounded) by an individuals ability to process information. Because managers cant possibly analyze all information on all alternatives, managers satisfice rather than maximize. That is they accept solutions that are ‘good enough’ ( they make decisions based on alternatives that are satisfactory).

However, managers decision making also may strongly influenced by the ogzn’s culture, internal politics, power considerations and by a phenomenon called escalation of commitment.

3. ROLE OF INTUITION A subconscious of process of making decisions on the basis of experience and accumulated judgement. Researches studying managers use of intuitive decision making identified five different aspects of intuition. cognitive affect initiated experience values and ethics subconscious mental processing

Process in Rational Decision Making. Identify the problem, Form alternatives, Analyse the alternatives, Select the best alternative and Implement a decision, take follow-up action and perform evaluation.