Lecture # 10 & 11 Chapter 5 – Managerial Decision Making

Steps in Decision-making Process Decision-making: the process by which managers identify organizational problems and try resolving them. 1.Identify the problem 2.Generate alternative solutions 3.Evaluate and choose among alternative solutions 4.Implement and monitor the chosen solution

Types of Problems  Crisis problem: a serious problem requiring immediate action.  Non-crisis problem: an issue requiring resolution but without taking immediate action.  Opportunity problem: a situation offering strong potential for significant organizational gain if appropriate actions are taken.

Decision-making Situations  Programmed decisions: decisions made in routine, well-structured situations by use of pre-determined decision rules.  Non-programmed decisions: decisions for which pre-determined decision rules are impractical. Uncertainty and risk is involved in this.

Managers as Decision Makers  Rational model: in this model managers make rational decisions, they possess and understand all information relevant to their decisions at that time.  Non-rational model: model suggesting information gathering and processing limitations making it difficult for managers to make optimal decisions.

3 Models of Decision-making under Non-rational framework  Satisficing model: model stating managers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision.  Incremental model: model stating managers make the smallest response possible to reduce the problem to at least a tolerable level.  Rubbish-bin model: model stating managers behave in virtually a random way in making non-programmed decisions.

Decision-making Models  Descriptive decision-making model: this model shows how managers actually make decisions.  Normative decision-making model: this model prescribes how managers should make decisions.

Steps in an Effective Decision- making process 1.Identify the problem i.Scanning stage ii.Categorization stage iii.Diagnosis stage 2. Generate alternative solutions i.Restrict criticism ii.Brainstorming iii.Combine and improve on ideas

3. Evaluate and choose among alternatives i.Evaluate feasibility ii.Quality iii.Acceptability iv.Costs v.Reversibility vi.Ethics 4. Implement the chosen solution and then monitor it

Overcoming Barriers to Effective Decision-making 1.Accepting the problem challenge i.Complacency: condition in which individuals do not see signs of danger or opportunity or they see and they ignore them. ii.Defensive avoidance: condition in which individuals deny the importance of a danger or an opportunity or deny any responsibility for taking action.

iii.Panic: conditions in which individuals become so upset that they frantically seek a way to solve the problem. iv.Deciding to decide: response in which decision makers accept the challenge of deciding what to do about a problem and follow an effective decision making process.

2.Searching for sufficient alternatives 3.Recognizing common decision-making biases 4.Avoiding the decision-escalation phenomenon

Stages of Creativity 1.Preparation: gathering initial information, defining the task requiring creativity, generating alternatives, carefully analyzing data. 2.Incubation: involves subconscious mental activity and divergent thinking to explore unusual alternatives. 3.Illumination: new insight is achieved. 4.Verification: testing of ideas