Ch. 3 Outline Managerial Decision Making Characteristics of Managerial Decisions The Stages of Decision Making The Best Decision Barriers to Effective Decision Making Decision Making in Groups Managing Group Decision Making Organizational Decision Making

Characteristics of Decisions

Lack of Structure Non-programmed Decisions Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations Non-programmed Decisions New, novel, complex decisions having no proven answers Although some decisions managers face are routine and clear-cut, for most there is no automatic procedure to follow. Problems are novel and unstructured, leaving the decision maker uncertain about how to proceed. It is important for students to understand the difference between programmed and nonprogrammed decisions. Managers will primarily face nonprogrammed decisions. They have a variety of possible solutions, all of which have merits and drawbacks. The decision maker must create or impose a method for making the decision; there is no predetermined structure on which to rely.

Chairman and CEO Akamai Technologies Uncertainty and Risk We operate in an environment— the Internet—where there’s an enormous amount of uncertainty. You can’t be sure what’s going to happen tomorrow, never mind next year. The danger is that the uncertainty can lead to paralysis. You spend so much time trying to nail down all the possibilities and risks, you never get around to taking action. And if that happens—if you become indecisive—you’re dead. George Conrades Chairman and CEO Akamai Technologies

Conflict Conflict exists when the manager must consider opposing pressures from different sources; occurs at two levels Psychological conflict occurs when several options are attractive, or when non of the options is attractive Interpersonal conflict

Stages of Decision Making Ideal decision making process will have six stages 1. Identify and diagnose the problem 2. Generate alternative solutions 3. Evaluate alternatives 4. Make the choice 5. Implement the decision 6. Evaluate the decision

The Best Decision To make the best decision managers must use vigilance Vigilance is a process in which a decision maker carefully executes all stages of the decision making process Research shows that when managers use a rational decision making process they tend to make better decisions

Barriers to Effective Decision Making Psychological Biases Time Pressures Social Realities Why don’t people automatically invoke such rational processes? It is easy to neglect or improperly execute these processes. The problem may be improperly defined, or goals misidentified. Not enough solutions may be generated, or they may be evaluated incompletely. A satisficing rather than maximizing choice may be made. Implementation may be poorly planned or executed, or monitoring may be inadequate or nonexistent. And decisions are influenced by subjective psychological biases, time pressures, and social realities.

Psychological Biases The Illusion of Control—a belief that you can influence events when an objective analysis would reveal that you can’t. Framing—responding to the way the problem is stated rather than the problem itself. Discounting the Future—using selection criteria based on short-term gain and ignoring long-term costs or benefits.

Decision Making in Groups The basic philosophy for group decision making is that ‘two heads are better than one’ Group performance is a function of two variables How effectively the group capitalizes on potential advantages How effectively the group minimizes potential problems Sometimes a manager finds it necessary to convene a group of people for the purpose of making an important decision. Some advise that in today’s complex business environment, significant problems should always be tackled by groups. Managers therefore must understand how groups operate and how to use them to improve decision making. You will learn much more about how groups work later in the book.

Decision Making in Groups Potential Advantages Larger pool of information More perspectives and approaches Intellectual stimulation People understand the decision People are committed to the decision Potential Disadvantages One Person dominates Satisficing Groupthink Goal displacement

Managing Group Decision Making There are three factors for effectively managing group decision making Appropriate leadership style Constructive use of disagreement and conflict The enhancement of creativity Leadership style - The leader of a decision-making body must attempt to minimize process-related problems. The leader should avoid dominating the discussion or allowing another individual to dominate. This means encouraging less vocal group members to air their opinions and suggestions and asking for dissenting viewpoints. At the same time, the leader should not allow the group to pressure people into conforming. The leader should be alert to the dangers of groupthink and satisficing. Also, she should be attuned to indications that group members are losing sight of the primary objective: to come up with the best possible solution to the problem. Constructive use of disagreement and conflict: Total and consistent agreement among group members can be destructive. It can lead to groupthink, uncreative solutions, and a waste of the knowledge and diverse viewpoints that individuals bring to the group. Therefore, a certain amount of constructive conflict should exist. Enhancement of creativity: Creativity is more than just an option; it is essential to survival. Allowing people to be creative may be one of the manager’s most important and challenging responsibilities. You are being creative if you (1) bring a new thing into being (creation); (2) join two previously unrelated things (synthesis); or (3) improve something or give it a new application (modification). How do you “get” creative? Recognize the almost infinite “little” opportunities to be creative. How do you “get” creativity out of other people? Give creative efforts the credit they are due, and don’t punish creative failures. Avoid extreme time pressure if possible.

Brainstorming Brainstorming is a commonly used technique used to encourage creativity It is 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