6 Chapter Decision Making McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives After reading this chapter, you should be able to: Know how to implement the six stages of management decision making. Apply the criteria of quality and acceptance to a decision. Recognize the characteristics of management decisions: programmability, uncertainty, risk, conflict, and decision scope. Reap the advantages and avoid the disadvantages of group decision making. Develop the skill of time management to allow adequate time to make decisions. Know when to delegate, and do so wisely. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction Making decisions under conditions of risk and uncertainty is one of the most important activities that managers engage in. Generally, there is a lack of information and a limited amount of time available to make the decision. Procrastinating and not making a decision sometimes has greater risk than making it. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Decision Making The process of identifying problems and opportunities and resolving them. Management decisions can be made by managers, teams, or individual employees, depending on:  The scope of the decision, and  The design and structure of the organization. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Characteristics of Management Decision Making Programmability Uncertainty Risk Conflict Decision Scope Crisis McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Programmability Uncertainty Characteristics of Management Decision Making (Cont) Non-programmed Decisions Certainty Uncertainty Programmed Decisions McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Risk – occurs when the outcome of management decision is uncertain  Risk has both positive and negative aspects  Decision environment for risk vary depending upon company culture and size Conflict – occurs when there are opposing goals, scares resources, or differences in priorities Crisis – a situation that involves small amounts of time to make a decision that can impact the survival of the organization Characteristics of Management Decision Making (Cont) McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Decision Scope – the effect and time horizon of a decision Strategic Decisions – long term perspective of 2-5 years and affect on the organization Tactical Decisions – short term perspective of 1 year or less and focus on subunits Operational Decisions – shortest time perspective, generally less than a year, often measured on a daily or weekly basis Characteristics of Management Decision Making (Cont) McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Stages of Decision Making Identifying and diagnosing the problem Generating alternative solutions Evaluating alternatives Selecting the best alternative Implementing the decision Evaluating the decision McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Typical problems that require decisions A high level of employee turnover. A reduction in firm profits. Unacceptable levels of “shrinkage” in a store. Lower than planned quality of finished goods. An unexpected increase in workplace injuries. The invention of a new technology that can increase the productivity of the workforce. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Evaluating Alternatives Decision criteria should be related to the performance goals of the organization and its subunits. Decision criteria can include:  Costs  Profits  Timeliness  Whether the decision will work  Fairness McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Evaluating Alternatives (continued) A practical way to apply decision criteria is to consider:  Decision quality – aspect of decision making based on such facts as costs, revenues, and product design specifications.  Decision acceptance – aspect of decision making based on people’s feelings. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Approaches to selecting the best alternative Optimizing – selecting the best alternative from among multiple criteria. Satisficing – selecting the first alternative solution that meets a minimum criterion. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Key factors for successful implementation Providing resources (staff, budgets, office space) that will be needed for the activities that are required for successful implementation. Exercising leadership to persuade others to move the implementation forward. Developing communication and information systems that enable management to know if the decision alternative is meeting its planned objectives. Recognition and rewards for individuals and teams that are successful with implementation. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Assumptions of the Rational Decision Making Process The problem is clear and unambiguous. There is a single, well-defined goal that all parties agree to. Full information is available about criteria. All the alternatives and their consequences are known. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Assumptions of the Rational Decision Making Process (continued) The decision preferences are clear. The decision preferences are constant and stable over time. There are no time and cost constraints affecting the decision. The decision solution will maximize the economic payoff. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Factors That Limit Rational Decision Making Organization Politics Emotions and Personal Preferences Illusion of Control McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Nonrational Decision Making Models Satisficing Model Bounded rationality – the ability of a manager to be perfectly rational is limited by factors such as cognitive capacity and time constraints Therefore, decision makers apply heuristics, or decision rules, that quickly eliminate alternatives By using the heuristic known as satisficing, a manager seeks out the first decision alternative that appears to be satisfactory Satisficing is an accurate model many management decisions.

Nonrational Decision Making Models (continued) Garbage Can Model This model suggests that managers have a set of preestablished solutions to problems located in “garbage cans.” The garbage can model is likely to be used when decision makers are undisciplined and have no clear immediate goals. The decision making process lacks structure This can lead to serious difficulties

Advantages and Disadvantages of Group Decision Making Advantages Increased acceptance Greater pool of knowledge Different perspectives Greater comprehension Training ground Disadvantages Social pressure Minority domination Logrolling Goal displacement “Groupthink” McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Groupthink Groupthink can occur in very cohesive teams where there is pressure to avoid conflict and reach agreement Likelihood of groupthink increases when Peer pressure to conform is great A highly directive leader presses for a particular interpretation of the problem and course of action The need to process a complex and unstructured issue under crisis conditions exists The group is isolated

Politics of Decision Making Dominant Coalition – members of the organization with access to important and scarce resources that pool their power base to control organizational strategy and decision making Organizational slack – resources in excess of what is required by the organization to survive. Decisions must be made as to the use of organizational slack – dividends, pay raises, corporate jets, ski resorts, etc. Side payments are used to ensure loyalty to the coalition and cooperation of organizational members not a part of the coalition

Managing Group Decision Making Leadership Style Devil’s Advocate Role Stimulating Creativity McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Leader Decision Making Styles Decide and persuade Discover facts and decide Consult and decide Consult with group and decide Group decision McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Decision Making Techniques to Stimulate Group Creativity BrainstormingStoryboarding Nominal Group Technique (NGT) Delphi Technique McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Skills for decision making process Time management skills  To make good decisions, managers need time to understand the problem and develop creative solutions. Delegation skills  Managers who know how to delegate are able to accomplish more than those who feel the need to be involved in every decision, no matter how trivial. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Time Management Practices Plan a list of things that need to be done today. Plan weekly, monthly, and annual schedules of activities. Schedule difficult and challenging activities when you are at your highest level of energy and alertness. Set deadlines. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Time Management Practices (continued) Answer phone messages and in batches during a lull in your work schedule. Have a place to work uninterrupted. Do something productive during non-productive activities. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Delegation Determine what you want done. Match the desired task with the most appropriate employee. Communicate clearly when assigning the task.  Ask questions to make sure the task is fully understood.  Set clear guidelines. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Effective Delegation (continued) Keep communication channels open. Allow employees to do the task the way they feel comfortable doing it. Trust employees’ capabilities. Check on the progress of the assignment. Hold the employee responsible for the work. Recognize what the employee has done, and show appropriate appreciation. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Applications of Management Perspectives— For the Manager Procrastination is a major barrier to effective decision making. Managers need to establish clear priorities by:  Determining which activities produce the greatest value.  Setting dates for completion of these activities. Setting priorities forces managers to make decisions and helps control procrastination. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Applications of Management Perspectives — For Managing Teams Overly relying on team meetings is a barrier to making effective team decisions. A team should be able to manage its workflow if:  Subgroups or individual team members are assigned tasks; and  They are given responsibility for decision making associated with these tasks. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Applications of Management Perspectives — For Individuals When you feel fearful, angry, anxious, or frustrated:  You are not likely to think clearly and focus on the problem.  It is not a good time to make a decision. It is better to postpone the decision until after you have coped with the source of the stress and are in a more comfortable emotional state. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.