MANAGEMENT RICHARD L. DAFT

Managerial Decision Making Managerial Decision Making CHAPTER 8

Learning Outcomes Explain why decision making is an important component of good management. Discuss the difference between programmed and nonprogrammed decision and the decision characteristics of certainty and uncertainty. Describe the ideal, rational model of decision making and the political model of decision making. Explain the process by which managers actually make decisions in the real world. Identify the six steps used in managerial decision making. Describe four personal decision styles used by managers and explain the biases that frequently cause managers to make bad decisions. Identify and explain techniques for innovative group decision making. Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

How Do You Make Decisions? People make decisions everyday without realizing their diverse decision-making styles Managers are referred to as decision makers Organizations grow and prosper based on decisions made by managers Good decision making is a vital part of good management Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Types of Decisions and Problems A decision is a choice made from available alternatives Decision making is the process of identifying problems and opportunities and then resolving them Programmed Decisions – situations that occur often to enable rules Nonprogrammed – situations that are unique or poorly defined and unstructured Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Facing Certainty and Uncertainty Programmed and nonprogrammed decisions differ because of uncertainty Certainty: the information needed is available Risk: the future outcome is subject to chance regardless of the information available Uncertainty: information about future events are incomplete Ambiguity and Conflict: the goals and/or problem are unclear and difficult to define Managers attempt to obtain information about decision alternatives Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Conditions That Affect the Possibility of Decision Failure Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Decision-Making Models Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

The Ideal, Rational Model Strive to make economically sensible decisions Four assumptions of the model: The decision maker operates to accomplish goals that are known and agreed on. Decision maker strives for conditions of certainty. All alternatives are calculated. Criteria for evaluating alternatives are known. The decision maker is rational and uses logic to assign values. Attempt to maximize organizational goals. Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Administrative Model Descriptive approach that recognizes human and environmental limitations Focus on organizational factors that influence decisions Seek to find alternatives for complex problems instead of rational approach Decision goals are vague and lack consensus. Rational procedures are not always used. Search for alternatives is limited because of human, information and resource constraints. Managers will settle for satisficing rather than maximizing. Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Bounded Rationality and Satisficing Bounded Rationality – people have limits and boundaries on how rational they can be Organizations are complex systems Satisficing – decision makers choose the first solution alternative that satisfies minimal decision criteria Intuition – quick apprehension of a decision situation based on past experience but without conscious thought Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Political Model Useful for nonprogrammed decisions Useful for nonprogrammed decisions Resembles the real environment in which managers operate Four basic assumptions: Organizations are made up of diverse interests Information is ambiguous and incomplete Managers do not have the resources to identify all dimensions of the problem Managers engage in the push and pull of debate to decide goals and alternatives Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Decision-Making Steps Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Recognition of Decision Requirement When a problem or opportunity is presented, decisions must be made Problem – occurs when organizational accomplishment is less than established goals Opportunity – when managers see potential accomplishment that exceeds specified current goals Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Diagnosis and Analysis of Causes Managers must understand the situation—diagnosis Managers ask a series of questions: What is the state of disequilibrium affecting us? When did it occur? Where did it occur? How did it occur? To whom did it occur? What is the urgency of the problem? What is the interconnectedness of events? What result came from which activity? Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Develop of Alternatives Generate possible alternative solutions For programmed decisions, feasible alternatives are easy to identify Nonprogrammed decisions, however require developing new courses of action Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Selection of Desired Alternative Managers will choose the most promising of several alternative courses of action The selection should fit the goals and objectives The manager tries to select the choice with the least amount of risk and uncertainty Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Implementation of Chosen Alternative Use managerial, administrative and persuasive abilities to ensure that the alternative is carried out Success depends on the managers ability to translate alternative into action Implementation requires communication, motivation, and leadership Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Decision Alternatives with Different Levels of Risk Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Evaluation and Feedback How well was the alternative implemented? Was the alternative successful? Feedback is a continuous process Large problems may involve several alternatives in sequence Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Personal Decision Framework How individuals personally proceed through the decision making process Directive Style Analytical Style Conceptual Style Behavioral Style Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Why Do Managers Make Bad Decisions? Being influenced by initial impressions Justifying past decisions Seeing what you want to see Perpetuating the status quo Being influenced by problem framing Overconfidence Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.

Innovative Group Decision Making Start with Brainstorming Engage in Rigorous Debate Avoid Groupthink Know When to Bail Copyright ©2010 by South-Western, a division of Cengage Learning.  All rights reserved.