Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 1 Making Decisions MANAGEMENT Meeting and Exceeding Customer Expectations EIGHTH EDITION Prepared by Deborah Baker Texas Christian University

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 2 learning objectives 1. Recognize that decision making is performed at all management levels 2. Distinguish between formal and informal approaches to decision making 3. List the steps in the decision-making process 4. Describe the environmental factors that influence decision making

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 3 learning objectives (continued) 5. Describe the personal attributes of a manager that influence decision making 6. Discuss the value of group decision making, and identify three techniques of group decision making 7. Explain three quantitative techniques for decision making, and describe the situations in which each is appropriate 8. Describe strategies a manager can use to create a more effective decision-making environment

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 4 Decision Making. Identifying problems and opportunities. Developing alternative solutions. Choosing an alternative. Implementing it

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 5 Decision Making in Management Functions 1 1 Planning Organizing Leading Staffing Controlling

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 6 Approaches to Decision Making 2 2 Programmed Decisions Involve problems that have occurred often enough that the circumstances and solutions are predictable Nonprogrammed Decisions Made in response to problems and opportunities that have unique circumstances, unpredictable results, and important consequences

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 7 A Programmed Decision Outline 2 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 8 The Decision Making Process 3 3 Define the Problem or Opportunity Identify Limiting Factors Develop Potential Alternatives Analyze the Alternatives Select the Best Alternative Implement the Decision Establish a Control System Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 9 Defining the Problem or Opportunity 3 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 10 Identifying Limiting Factors 3 3 Personnel Money Time Facilities Equipment

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 11 Developing Potential Alternatives 3 3 Alternatives should…. Eliminate the problem. Correct the problem. Neutralize the problem. Maximize the opportunity

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 12 Analyzing the Alternatives 3 3 Does the alternative fit within the limiting factors? What are the consequences of using this alternative?

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 13 Analyzing the Alternatives 3 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 14 Selecting the Best Alternative 3 3. Offers the fewest serious disadvantages and the most advantages. Does not create other problems. May require a combination of alternatives

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 15 Implementing the Decision Persuade the hostile guns and the foot-draggers 2.Determine who needs to be informed and how best to do it 3.Check for loose ends 4.Do a good job of selling the decision 5.Have courage and patience 6.Arrange for feedback Translate Decisions into Action

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 16 Control and Evaluation Systems 3 3. Feedback on how well the decision is being implemented. Identify positive and negative results. Adjustments to get the desired results. Identify outcomes that create new problems or opportunities. Step-by-step roadmap

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 17 Degree of Certainty 4 4. Manager has what is known as perfect knowledge. The decision has been made before. There are known alternatives. Consequences are understood. Ambiguity and fear of failure do not exist

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 18 Risk 4 4. A more complex environment. The manager knows what the problem is and what the alternatives are. Cannot be sure of the consequences of each alternative. Ambiguity and risk are associated with each alternative

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 19 Uncertainty 4 4. Most difficult condition for a manager. Exact outcomes cannot be determined. May not be able to identify all alternatives. High ambiguity and possibility for failure

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 20 Ambiguity and Failure 4 4 Certainty Risk Uncertainty Possibility of FailureLow High Degree of AmbiguityLow High

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 21 Imperfect Resources 4 4 Personnel Information Equipment Supplies Time

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 22 Influences in the Internal Environment 4 4 Organizational Systems Subordinates Superiors

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 23 Levels of Subordinate Involvement 4 4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 24 The Vroom and Yetton Decision Tree 4 4 Source: Adapted and reprinted from Leadership and Decision-Making by Victor H. Vroom and Philip W. Yetton, by permission of the University of Pittsburgh Press. © 1973 by University of Pittsburgh Press.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 25 Factors Influencing Decision Making 5 5 Personal Attributes of Managers Timing of Decisions Ability to Set Priorities Decision-Making Approach Tunnel Vision Previous Commitments Degree of Creativity

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 26 Personal Decision-Making Approaches 5 5 Predisposed Decision Model Intuitive Decision Model Rational / Logical Decision Model

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter Personal Decision-Making Approaches Rational / Logical Decision Model. focuses on facts and logic. minimizes intuitive judgments. relies on decision tools Intuitive Decision Model. relies on feelings and hunches. could be disastrous Predisposed Decision Model. decides on solution before gathering information. favors specific alternatives

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 28 Tunnel Vision 5 5 Having a narrow viewpoint

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 29 Group Decision Making 6 6 Delphi Technique Nominal Group Technique Brainstorming

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 30 Brainstorming Elements 6 6. Gather 6 to 12 people in a comfortable setting. Give participants the problem with directions that no idea is ridiculous. Facilitator encourages the free flow of ideas. Designated scribe records the ideas on a board. Ideas are then sorted and examined in more detail by the manager or another group

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 31 Nominal Group Technique 6 6 Problem definition Development of ideas Round-robin presentation Clarification of ideas Initial voting Evaluation of revised list Final voting Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 32 Delphi Technique Problem is stated to a group of experts through a questionnaire 2. Each participant completes the questionnaire 3. A summary of opinions is developed. The summary is distributed to the experts, along with a second questionnaire 4. The experts complete the second questionnaire 5. The process continues until the experts reach consensus

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 33 Group Decision Making 6 6 AdvantagesAdvantages  Broader perspective  Diversity broadens the view  More satisfactory decision  Opportunity for discussion  Less uncertainty DisadvantagesDisadvantages  Compromise  Groupthink  Difficulty in performing certain tasks  Difficulty in taking the initiative  No one person has the responsibility for final decision

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 34 Quantitative Decision-Making Techniques 7 7 Simulations Payback Analysis Decision Trees

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 35 Decision Trees 7 7 Decision Trees Decision Trees. Graph alternative decision paths. Observe the outcomes of the decisions. See how the decisions relate to future events

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 36 Decision Trees 7 7 Source: Reprinted by permission of the Harvard Business Review. An exhibit from “Decision Trees for Decision Making” by John F. Magee (July/August 1964). Copyright © 1964 by the Harvard Business School Publishing Corporation; all rights reserved.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 37 Payback Analysis 7 7 Payback Analysis Payback Analysis A technique that ranks alternatives according to how long each takes to pay back its initial cost

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 38 Payback Analysis 7 7

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 39 Simulations 7 7. See the results more quickly. Anticipate competitive responses. Make decisions under a variety of changes. Avoid the interruptions of normal business operations. Avoid time loss and expense. Avoid annoying the customers and taking facilities out of service A model of a real activity or process

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved Chapter 8 40 Creating an Environment for Effective Decision Making Provide time for decisions to be made 2. Have self-confidence 3. Encourage others to make decisions 4. Learn from past decisions 5. Recognize the difference in decision-making situations 6. Recognize the importance of quality information 7. Make the tough decisions 8. Know when to hold off 9. Be ready to try things 10. Be ready to ask for help