© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 11 Managerial Problem Solving and Decision Making

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Describe how managers solve problems and make decisions. Describe the problem-solving, decision- making process. Identify the conditions under which managers must make decisions and solve problems.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives Discuss the role of creativity in solving problems. Describe the rational and behavioral models of decision making. Describe decision-making techniques, including payoff matrices and decision trees.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Nature of Problem Solving and Decision Making Managers as Problem Solvers – Problem solving: manager faces unfamiliar situation for which there are no established procedures that specify how to handle problem. Managers as Decision Makers – Decision making: process of choosing one alternative from among a set of alternatives.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process Recognizing and Diagnosing the Situation – Recognize need for a decision and to define its parameters.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process Generating Alternatives – Identify standard and obvious alternatives and innovative and unusual ones. – Brainstorming: bringing people together and encouraging free and open discussion of creative solutions to a problem.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process Evaluating Alternatives – Stage one: evaluate each alternative in terms of feasibility, satisfactoriness, acceptability of its consequences. – Stage two: continue gathering information and analyze remaining alternatives in terms of their potential for solving problem or taking advantage of the opportunity.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process Selecting the Best Alternative – Evaluation phase: eliminates some alternatives; remaining will have positive and negative points. – Consider way in which decision originally defined. – May choose more than one alternative by developing contingency plans.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process Implementing the Alternative – Key to effective implementation is proper planning (contingency and strategic).

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process Evaluating the Results – Restate desired consequences of decision; estimate how long it will take. – Alternative implemented as part of normal organizational procedures. – Reevaluate alternative to see if it is working; if not implement another contingency plan.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Problem-Solving and Decision-Making Process

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managerial Problems: Types and Conditions Routine Decisions and Nonroutine Problems – Programmed decisions: factors familiar or have occurred in the past. – Nonprogrammed decisions: unique situations.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managerial Problems: Types and Conditions Certainty, Risk, and Uncertainty – Certainty: manager knows exactly what the alternatives are and that each alternative is guaranteed. – Risk: basic understanding of options; can estimate with some confidence probabilities associated with each alternative.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managerial Problems: Types and Conditions Certainty, Risk, and Uncertainty – Uncertainty Probabilities hard to assess. List of available alternatives not clear. Manager may not be able to identify all feasible alternatives that should be considered.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managerial Problems: Types and Conditions Creativity – Way of thinking that generates new ideas or concepts. – Five-step process: Preparation Frustration Incubation Illumination Verification

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Approaches to Decision Making The Rational Model – Assumes decision makers objective, have complete information, consider all alternatives and consequences when making decisions.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Approaches to Decision Making The Behavioral Model – Recognizes managers have incomplete information about situation, alternatives, and their evaluation, limiting potential for making best possible decision. – Bounded rationality and satisficing. See Table 11.1: Rational and Behavioral Models of Decision Making.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Approaches to Decision Making Other Behavioral Processes – Escalation of commitment: continue with course of action when evidence indicates project doomed to fail. – Decision framing: way decision situation perceived by decision maker; potential gain or loss. – Behavioral forces: power, political behavior, coalitions.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Tools for Improving Problem Solving and Decision Making The Payoff Matrix – Calculation of expected values for two or more alternatives, each associated with probability estimate.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Tools for Improving Problem Solving and Decision Making Decision Trees – Extension of a payoff matrix; diagrams alternatives and includes second- and third-level outcomes that can result from first outcome.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Tools for Improving Problem Solving and Decision Making Other Techniques – Inventory model: helps managers plan optimal level of inventory to carry. – Queuing model: helps plan waiting lines. – Distribution model: helps managers plan routes for distributing products.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Problem solving: manager faces unfamiliar situation for which there are no established procedures to handle problem. Decision making: choosing the best alternative from among a set of alternatives. Problem-solving and decision-making process involves six steps.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Programmed decisions: occur in situations that are routine in nature. Nonprogrammed decisions: nonroutine decision situations; do not occur frequently. Creativity: way of thinking that generates new ideas or concepts. – Five steps: insight, preparation, incubation, illumination, verification.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Two approaches to decision making: rational model and behavioral model. – Rational model assumes perfect information. – Behavioral model assumes imperfect information.

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Summary Techniques to aid in making decisions: – Payoff matrix – Decision trees – Inventory model – Queuing model – Distribution model