Introduction to Management Bob Fast Chapter 5 Week 3B Sept 27 I M 471.11 Fall 2011 Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

5 Decision Making Part Two: Planning CHAPTER Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Chapter Objectives After studying this chapter and the case exercises at the end, you should be able to: Demonstrate the importance of decision- making in management jobs. Explain the difference between programmed and non-programmed decisions. Describe the steps a manager must take to work through the rational decision-making process. Apply the suggestions for making better decisions to a real problem. Develop a decision matrix for solving a management problem. Avoid the decision traps that managers face. Understand how to use groups more effectively in the decision-making process. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Understanding Decision Making A choice made between available alternatives. Decision Making The process of developing and analyzing alternatives and making a choice from among them. Problem A discrepancy between a desirable and an actual situation. Judgment The cognitive, or “thinking,” aspects of the decision-making process. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Types of Decisions Programmed Decision Nonprogrammed Decision A decision that is repetitive and routine and can be made by using a definite, systematic procedure. Nonprogrammed Decision A decision that is unique and novel. The Principle of Exception “Only bring exceptions to the way things should be to the manager’s attention. Handle routine matters yourself.” Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Decision-Making Models The Classical Approach Have complete or “perfect” information about the situation. Distinguish perfectly between the problem and its symptoms. Identify all criteria and accurately weigh all the criteria according to preferences. Know all alternatives and can assess each one against each criterion. Accurately calculate and choose the alternative with the highest perceived value. Make an “optimal” choice without being confused by “irrational” thought processes. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Decision-Making Models (cont’d) The Administrative Approach Bounded Rationality (Herbert Simon) Managers’ decisions are only as rational as their unique values, capabilities, and limited capacity for processing information permit them to be. Satisfice To look for solutions until a satisfactory one is found. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Steps in the Decision-Making Process Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Step 1. Define the Problem It’s trickier than it appears. Start by writing down your initial assessment of the problem. Dissect the problem. What triggered this problem (as I’ve assessed it)? Why am I even thinking about solving this problem? What is the connection between the trigger and the problem? Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Step 2. Clarify Your Objectives Write down all the concerns you hope to address through your decision. Convert your concerns into specific, concrete objectives. Separate ends from means to establish your fundamental objectives. Clarify what you mean by each objective. Test your objectives to see if they capture your interests. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Step 3. Identify Alternatives Generate as many alternatives as you can yourself. Expand your search, by checking with other people, including experts. Look at each of your objectives and ask, “how?” Know when to stop. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Step 4. Analyze the Alternatives Mentally put yourself into the future. Process Analysis Solving problems by thinking through the process involved from beginning to end, imagining, at each step, what actually would happen. Eliminate any clearly inferior alternatives. Organize your remaining alternatives into a table (matrix) that provides a concise, bird's-eye view of the consequences of pursuing each alternative. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Consequence Matrix Figure 5.3 Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Step 5. Make a Choice Analyses are useless unless the right choice is made. Under perfect conditions, simply review the consequences of each alternative, and choose the alternative that maximizes benefits. In practice, making a decision—even a relatively simple one like choosing a computer—usually can’t be done so accurately or rationally. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

How to Make Better Decisions Be creative The process of developing original, novel responses to a problem Cultivate creativity Check your assumptions Think through the process Get more points of view Provide physical support Encourage anonymous input Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Looking at the Problem in Just One Way Source: Lester A. Lefton and Laura Valvatine, Mastering Psychology, 4th ed. Copyright © 1992 by Allyn & Bacon. Reprinted by permission. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved. FIGURE 5.4

The Advantage of Not Just Looking at the Problem in One Way Source: Max H. Bazerman, Judgment in Managerial Decision Making. Copyright © 1994 Wiley, p. 93. Reprinted by permission of Wiley. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved. FIGURE 5.5

Using Creativity to Find a Solution Source: Applied Human Relations, 4th ed., by Benton/Halloran cW 1991. Reprinted by permission of Prentice-Hall, Upper Saddle River, NJ. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved. FIGURE 5.6

How to Make Better Decisions (cont’d) 2. Increase Your Knowledge Ask questions. Who, What, Where, When, Why, and How Get experience. 3. Use Your Intuition A cognitive process whereby a person instinctively makes a decision based on his or her accumulated knowledge and experience. Beware of the limitations Be realistic about risks Avoid over-confidence Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Are You More Rational or More Intuitive? Source: Adapted and reproduced by permission of the Publisher, Psychological Assessment Resources. Inc., Odessa FL 33556, from the Personal Style Inventory by William Taggart, Ph.D., and Barbara Hausladen. Copyright 1991, 1993 by PAR, Inc. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved. FIGURE 5.7

How to Make Better Decisions (cont’d) Weigh the Pros and Cons Quantify realities by sizing up your options, and taking into consideration the relative importance of each of your objectives. Don’t Overstress the Finality of Your Decision Remember that few decisions are forever. Knowing when to quit is sometimes the smartest thing a manager can do. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Decision Matrix Figure 5.8 Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Decision-Making Shortcuts and Traps Using a Heuristic Applying a rule of thumb or an approximation as a shortcut to decision making. Perception (Personal Bias) The selection and interpretation of information we receive through our senses and the meaning we give to the information. Managers’ experiences and functional roles mould and influence how problems are perceived Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Decision-Making Shortcuts and Traps (cont’d) Inaccurate Framing of the Problem Misdefining the problem may be the biggest barrier to making good decisions. Anchoring Unconsciously giving disproportionate weight to the first information you hear. Adopting a Psychological Set The tendency to rely on a rigid strategy or point of view when solving a problem. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Decision-Making Shortcuts and Traps (cont’d) Organizational Barriers “Organizational politics” Time pressure Lack of involvement in decision-making Escalation of Commitment Increased commitment to a previously chosen course of action even though it has been shown to be ineffective Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Pros and Cons of Using Groups to Make Decisions Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Tools for Improving Group Decision-Making Brainstorming Devil’s-Advocate Approach Delphi Technique Nominal Group Technique Stepladder Technique Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

How to Lead a Group Decision-Making Discussion Ensure that all group members participate. Distinguish between idea generation and idea evaluation. Do not respond to each participant or dominate the discussion. See that effort is directed toward overcoming surmountable obstacles. Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Case Study 5 - 2 Make a Decision Now Page 160 Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.

Next Class – October 4 Read: Due: Coming up: Chap 6 – Planning Process Chap 7 – Strategic Management Due: Reading Assessment #1 “Values and organization” Coming up: Guest presenter – Oct 11th Copyright © 2004 Pearson Education Canada, Inc. All rights reserved.