part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Decision-Making Skills 1 Chapter 4

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 2 McGraw-Hill Learning Objectives Explain the difference between decision making and problem solving. Compare and contrast intuitive and rational approaches to decision making. Explain the decision maker’s environment and the conditions for making a decision. Explain timing and participation as they relate to the decision-making process. Identify methods for creative decision making. Discuss management information systems.

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 3 McGraw-Hill Making Decisions All managers are decision makers Not all decision makers are managers Pervades all basic management functions Manager’s decision process Most of the time

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 4 McGraw-Hill Decision Making Versus Problem Solving Term confusion Decision making Various alternatives Problem solving Appropriate responses Problem solving involves decision making Decisions solve or avoid problems

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 5 McGraw-Hill The Intuitive Approach to Decision Making Hunches and intuition Problems can occur George Odiorne’s emotional attachments –Leads to poor decisions –Odiorne offers two suggestions: Become aware of biases Seek independent opinions

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 6 McGraw-Hill Rational Approaches to Decision Making The Optimizing Approach The rational or scientific approach 6 steps Final decision

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 7 McGraw-Hill Limitations of the Optimizing Approach “Economic person” Based on 4 assumptions : People have clearly defined criteria People have knowledge People have the ability People have self-discipline Due to limitations, most decisions still involve some judgment

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 8 McGraw-Hill The Satisficing Approach Herbert Simon – Principle of bounded rationality Definite limits The decision model 4 assumptions Optimizing Satisficing Level of Aspiration

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 9 McGraw-Hill The Decision Maker’s Environment Higher-level = More flexibility Influences – Patterns of authority – Purpose of organization – Formal and informal structure – Superiors and subordinates Successful managers must develop an appreciation of different forces

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 10 McGraw-Hill Conditions for Making Decisions Depends on what happens later Certainty Situation of Certainty Risk Situation of risk Precise Probabilities Expected value analysis

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 11 McGraw-Hill Conditions for Making Decisions Uncertainty Situation of uncertainty No knowledge of probabilities One of several approaches can be taken Maximax approach Maximin approach Risk-averting approach

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 12 McGraw-Hill Timing the Decision Need must be recognized Quick decisions Poor decisions Never acting Other types Knowing when to make a decision is complicated

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 13 McGraw-Hill Participation in Decision Making Involving others Pertinent questions Group or Team Decision Making Better than single person Takes longer Superior for two reasons Less responsible More “polar”

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 14 McGraw-Hill Barriers to Effective Decision Making Four basic barriers – Complacency – Defensive avoidance – Panic – Deciding to decide Overall effectiveness Barriers must be dealt with

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 15 McGraw-Hill Making Creative Decisions The Creative Process Creativity Innovation Five-step process – Preparation – Concentration – Incubation – Illumination – Verification

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 16 McGraw-Hill Establishing a Creative Environment Single most important influencing factor Manger sets tone People-based management skills A manager must: – Instill trust – Develop communication – Seek talent – Reward – Allow flexibility

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 17 McGraw-Hill Tools to Foster Creativity Several Techniques Alex F. Osborn – Brainstorming –Four basic rules William J. J. Gordon – Gordon Technique –Key Word Brainwriting –No discussion

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 18 McGraw-Hill A Model for Creative Decision Making Emphasis on new ideas 6 stages – Recognition – Fact Finding – Problem Finding – Idea Finding – Solution Finding – Acceptance finding

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 19 McGraw-Hill Management Information Systems MISs Information provided Data Processing Transaction-processing systems