The Manager as Decision Maker INLS 585, Fall ‘08 Ericka Patillo

Managerial Decision Making A process In response to opportunities In response to threats Failure to make a decision is actually a decision Autocratic vs. participative

Decision Making Steps Recognize and define problem Generate alternatives Evaluate alternatives Choose preferred alternative Implement solution Evaluate solution feedback

Types of Decisions Programmed –high certainty and low risk –standard operating procedure –may be delegated to others NonProgrammed –uncertainty and high risk –no pre-existing rules

The Classical Model List alternatives and consequences Rank each alternative from low to high Select best alternative Assumes all information is available to manager Assumes manager can process information Assumes manager knows the best future course for the organization

The Administrative Model Challenged the classical assumptions Bounded rationality: There are a large number of alternatives and information is vast so that managers cannot consider it all. Decisions are limited by people’s cognitive abilities

Incomplete Information Risk & Uncertainty Ambiguous Information Costs Time Constraints

Herbert Simon Nobel Laureate in Economics Managers operate with Bounded Rationality Coined the term “satisficing” - managers make decisions that are good enough Nobel Laureate in Economics Managers operate with Bounded Rationality Coined the term “satisficing” - managers make decisions that are good enough

Incomplete Information Flying by the seat of one’s pants Creativity

Creativity blooms when the mental soil is deep, rich and well prepared. Deep relevant knowledge and experience precede creative expression. Leonard & Swap

Cognitive Biases Managers use heuristics to deal with bounded rationality Heuristics = rules of thumb Tendency to acquire and process information in an error-prone way Leads to poor decision making

Cognitive Biases Prior hypothesis Representativeness Illusion of control Escalating commitment

Decision Making Styles Victor Vroom’s decision tree Subordinate participation based on: –decision significance –decision timeliness

Decision Making Styles Decide - manager make decision alone Consult (individually) - manager presents program to each member, seeks their feedback, then decides Consult (group) - manager presents problem to the group, gets their suggestions, then decides

Decision Making Styles Facilitate - manager facilitates group discussion Delegate - manager allows the group to do the decision making process

Evidence-Based Management Better Facts + Better Implementation ___________________ Better Performance

EBM Principles Face the hard facts Be committed to fact-based decision making Treat your organization as an unfinished prototype Carefully evaluate recommendations Avoid basing decisions on the past

Putting It Together Managers make decisions constantly Decision making is a process Factors affecting decisions: –incomplete/ambiguous information –cognitive bias –time constraints Include subordinates, when appropriate Consider Evidence-Based Management

Decision Making Steps Recognize and define problem Generate alternatives Evaluate alternatives Choose preferred alternative Implement solution Evaluate solution feedback