Managers as Decision Makers Exploring Management Chapter 4 Managers as Decision Makers

Chapter 4 How do managers use information to solve problems? What are the five steps in the decision-making process? What are some current issues in managerial decision making? In general, the more we know about the decision making process, the better the decision is likely to be.

4.1 Using Information to Solve Problems Managers deal with problems posing threats and offering opportunities. Managers can be problem avoiders, problem solvers, or problem seekers. Managers make programmed and nonprogrammed decisions when solving problems. Managers can use systematic and intuitive thinking. Decision makers have different styles.

4.1 Continued Using Information To Solve Problems Managers use different cognitive styles to process information for decision making Managers make decisions under conditions of certainty, risk, and uncertainty. Problems have varying degrees of risk, information available and frequency of occurrence. Many decisions may be delegated with training.

Performance Opportunity USING INFORMATION TO Solve Problems Problems Pose Threats And Opportunities Problem Solving Identifying and taking action to solve problems. Knowledge Workers Use information to solve problems, describes managers well. Performance Threat A situation where something is wrong or likely to be wrong. Performance Opportunity A situation that offers the possibility of a better future, if the right steps are taken. The quality of a decision often depends on the quality of information available. That’s one more reason knowledge workers are so valuable.

USING INFORMATION TO Solve Problems Problems Pose Threats And Opportunities There are also different types and sources of information. The quality of the information is as important as the quantity of information. At times, we can even have too much information.

USING INFORMATION TO Solve Problems Problem Solving Approaches Problem avoiders – prefer not to make decisions and ignore problems Problem solvers – react to problems as they occur Problem seekers – proactive in anticipating threats and opportunities Problem avoiders often lack confidence and training. The name Problem Seekers sounds a little like they create problems, but they do not. They are good at identifying potential threats and opportunities by being tuned into the external environment.

USING INFORMATION TO SOLVE PROBLEMS Types of Decisions Programmed decisions applies a solution from past experience to a routine problem Non-programmed decisions applies a specific solution crafted for a unique problem Programmed decisions are also used where strict rules and policies apply equally to everyone. Programmed decisions are a good way to ensure uniform decision making throughout an organization when decisions are delegated to supervisors.

USING INFORMATION TO SOLVE PROBLEMS Problem Solving Approaches Systematic Thinking Approaches problems in a rational and analytical fashion. Intuitive Thinking Approaches problems in a flexible and spontaneous fashion. A systematic thinker using data and logic in the decision making process. An intuitive thinker uses experience and intuition in the decision making process. Most people use both. For a pop culture example, ask students to apply the decision making styles of Mr. Spock and Capt. Kirk in Star Trek.

USING INFORMATION TO SOLVE PROBLEMS Problem Solving Approaches Sensation Thinkers impersonal, realistic, prefer facts Intuitive Thinkers impersonal, abstract, idealistic, likes unstructured problems Intuitive Feelers relationship oriented, abstract, flexible Sensation Feelers relationship oriented, analytical, realistic Managers use different cognitive styles Managers need to know their individual style so they can be aware of it’s strengths and limitations. This also would help a manager understand how he or she fits in a task or people oriented leadership style.

USING INFORMATION TO SOLVE PROBLEMS Problem Solving Environments Managers make decisions with various amounts of information Certain environment offers complete information on possible action alternatives and their consequences Risk environment lacks complete information but offers probabilities of the likely outcomes for possible action alternatives Uncertain environment lacks so much information that it is difficult to assign probabilities to the likely outcomes of alternatives These environments were developed with systematic decision making in mind. However, they can also be applied to intuitive decision making.

USING INFORMATION TO SOLVE PROBLEMS Problem Solving Environments The number of nonprogrammed decisions increases with the level of management responsibility. The higher the level, the more nonprogrammed decisions.

4.2 Steps In The Decision Making Process Step 1 is to identify and define the problem. Step 2 is to generate and evaluate alternative courses of action. Step 3 is to decide on a preferred course of action. Step 4 is to implement the decision. Step 5 is to evaluate results. These are steps in the decision making process. They apply to systematic and intuitive thinkers.

4.2 Steps In The Decision Making Process

THE DECISION MAKING PROCESS Step 1 – Identify And Define The Problem Gather information and decide what should be accomplished Common mistakes include Identifying the problem too broadly Dealing with symptoms rather than problems Choosing the wrong problem Step One may take a considerable amount of time with a complex problem. It’s very important to correctly identify the problem rather than the symptoms one sees.

Who are the stakeholders and how will the alternatives affect them? THE DECISION MAKING PROCESS Step 2 – Generate And Evaluate Alternatives Who are the stakeholders and how will the alternatives affect them? Criteria for evaluating alternatives Cost benefit analysis Timeliness Acceptability Ethical soundness For complex problems, stakeholders such as employees may be recruited to help develop alternatives. Often, stakeholder participation in the process helps facilitate implementation, even when time is short.

Two different outcomes THE DECISION MAKING PROCESS Step 3 – Decide On A Preferred Course Of Action Two different outcomes Behavioral model leads to satisficing decisions Classical model leads to optimizing decisions There is no perfect world for managers. If there were, the decision would be programmable. Typically both models are used.

THE DECISION MAKING PROCESS Step 4 – Implement The Decision Take action on the selected alternative Lack of participation error occurs when parties necessary for supporting the decision were not included in the process Who makes the decision can be very important in determining if the decision will be properly implemented. Result evaluation is critical to making better decisions in the future.

THE DECISION MAKING PROCESS Step 5 – Evaluate Results Did the decision solve the problem? Results must be evaluated against objectives set at the beginning of the process. Result evaluation is critical to making better decisions in the future.

THE DECISION MAKING PROCESS Ethical Reasoning Is Important Make the ethics “double check”. Ethical reasoning Utility Does the decision satisfy all constituents or stakeholders? Rights Does the decision respect the rights and duties of everyone? Justice Is the decision consistent with the canons of justice? Caring Is the decision consistent with my responsibilities to care?

THE DECISION MAKING PROCESS Ethical Reasoning Is Important Spotlight questions How would I feel if my family found out about this decision? How would I feel if this decision were published in the local newspaper or posted on the Internet?” What would the person I know who has the strongest character and best ethical judgment say about my decision?” A good question for students at this point is how ethics fit with the classical and behavioral decision models. Is it possible to find a perfect decision? Is it advisable to settle for less or compromise where ethics are concerned?

4.3 Current Issues In Decision Making Personal factors help drive creativity in decision making. Group decision making has both advantages and disadvantages. Judgmental heuristics and other biases and traps may cause decision-making errors. Managers must be prepared for crisis decision making. The external environment is always changing and we’re constantly learning about more effective ways to make decisions.

ISSUES IN DECISION MAKING Personal Factors Drive Creativity Task Expertise Task Motivation Creativity Skills Creativity can be learned. The book “A Whole New Mind” by Dan Pink is a short, interesting book on creativity and it’s importance in the economy.

ISSUES IN DECISION MAKING Personal Factors Help Drive Creativity Creativity – generating a novel idea or unique approach Personal creativity drivers Task expertise is expanding an existing skill Task motivation is the drive to work hard Creativity skills include imagination, intuition, holistic processing, right brain characteristics Creativity can be described as the ability to think “out of the box”.

ISSUES IN DECISION MAKING Group Decision Making Why group decisions are often good: More information, expertise, and viewpoints are available to help solve problems. More alternatives More alternatives are generated and considered during decision making. Increased understanding There is increased understanding and greater acceptance of decision by group members. Greater commitment There is increased commitment of group members to work hard and support the decision. Why group decisions can be bad: Conformity with social pressures Some members feel intimidated by others and give in to social pressures to conform. Domination by a few members A minority dominates; some members get railroaded by small coalition of others. Time delays More time is required to make decisions when many people try to work together. A crisis is an unexpected problem that can lead to disaster if not resolved quickly and appropriately. Generally speaking, groups are most useful in planning and organizing and not so useful in leading and controlling.

ISSUES IN DECISION MAKING Decision Making Errors Heuristics simplify decision making when time or information are scarce. Examples include a “rule of thumb” or “trial and error”. Rules of thumb can be useful, particularly if time is a critical factor, but they can also result in poor decisions.

ISSUES IN DECISION MAKING Decision Making Errors Availability Heuristic occurs when people use information “readily available” as a basis for assessing a current event or situation. Representative Heuristic occurs when people assess the likelihood of something occurring based on its similarity to a stereotyped set of occurrences. Anchoring and Adjustment Heuristic involves making decisions based on adjustments to a previously existing value, or starting point. They can also be mistaken for experience. In general, they should be avoided.

ISSUES IN DECISION MAKING Decision Making Errors Framing Error - solving a problem in the context perceived for example, positive or negative. Confirmation Error – only pay attention to information that confirms the decision that has been made. Escalating Commitment – adding resources to a course of action even if it’s not working. Escalating commitment can result in very serious negative results. It is human to want to prove that your decision is the right one but it is better to recognize when you are wrong.

ISSUES IN DECISION MAKING Decision Making Errors How to avoid the escalation trap • Set advance limits on your involvement and commitment to a particular course of action; stick with these limits. • Make your own decisions; don’t follow the lead of others, since they are also prone to escalation. • Carefully determine just why you are continuing a course of action; if there are insufficient reasons to continue, don’t. • Remind yourself of the costs of a course of action; consider saving these costs as a reason to discontinue. It’s often difficult to determine when effort ceases to be perseverance in the face of adversity and becomes an “escalating commitment”. These guidelines can help.

ISSUES IN DECISION MAKING Decision Making In A Crisis Crisis – unexpected situations that can lead to disaster if not handled quickly Crisis management programs train managers in decision making and establish plans to handle emergencies Crisis is an extreme example of a non-programmed decision opportunity. They are usually either unforeseen situations, or situations with so many variables that decisions cannot be made with much certainty. Some organizations such as Fire Departments deal with them every day, and fire fighters depending on training to guide their actions.

ISSUES IN DECISION MAKING Decision Making In A Crisis Figure out what is going on Remember that speed matters Remember that slow counts too Respect the danger of the unfamiliar Value the skeptic Be ready to “fight fire with fire” After the crisis has passed, it’s important to review everything learned so it may not be forgotten during the next crisis. Organizations can also learn from the crises of other organizations and competitors.

Decision making steps Describe how you would follow the five step decision-making process in buying a used car. You have $7,000 to spend. Create a group consensus ranking of the top 5 criteria you would use to evaluate your selection. Where would you look for the cars? How many cars or models would you examine before you would feel comfortable making the decision? What are the benefits of looking at more cars? What are the disadvantages, if any? Were you able to optimize or satisfice?