Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-1

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-2ObjectivesObjectives 1.A fundamental understanding of the term decision 2.An understanding of each element of the decision situation 3.An ability to use the decision-making process 4.An appreciation for the various situations in which decisions are made 6.Insights into groups as decision makers

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-3 FUNDAMENTALS OF DECISIONS

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-4 Definition of a Decision A Decision: is a choice made between two or more available alternatives Decision Making: is the process of choosing the best alternative for reaching objectives. Managers make decisions in all managerial functions (in planning, organizing, influencing, & controlling). Some decisions affect a large number of organization members, cost more, or have a long-term effect on the organization. But other decisions are not.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-5 Types of Decisions 1. Programmed Decisions: are routine and repetitive, and the organization typically develops specific ways to handle them. 2. Non-programmed Decisions: are one-shot decisions that are usually less structured than programmed decisions Programmed decisions typically require less time and effort as compared to nonprogrammed decisions

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-6 Types of Decisions

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-7 Types of Decisions Some decisions are neither programmed nor nonprogrammed, but actually falling somewhere between the two. (Check the Decision Programming Continuum in the next slide)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-8 Types of Decisions

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-9 The Responsibility for Making Organizational Decision Organizational decisions are so varied, that’s why Who will make a decision in an org is based on two factors: 1. Scope of the decision: is the proportion of the total management system that the decision will affect (the greater this proportion, the broader the scope of the decision is) 2. Level of management: are simply lower-level management, middle-level management, and upper-level management (the broader the scope of a decision, the higher the level of the manager responsible for making that decision)

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-10 The Responsibility for Making Organizational Decision

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-11 The Responsibility for Making Organizational Decision Decision makers can ask the advice of other managers or subordinates, or use groups to make certain decisions. Consensus: is an agreement on a decision by all the individuals involved in making that decision It occurs after lengthy deliberation and discussion by members of the decision group, Who are they? Sometimes the group is unable to arrive at a consensus/decision, because: Lack of technical skills, or Poor interpersonal relations (What should a manager do in this case?) What are some of the advantages and disadvantages of Consensus?

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-12 Elements of the Decision Situation Elements of the Decision Situation: The Decision Makers (more details in the next slide) Goals to Be Served Relevant Alternatives (what is a relevant alternative?) Ordering of Alternatives (how?) Choice of Alternatives

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-13 Elements of the Decision Situation The Decision Makers The individuals or groups that actually make the choice among alternatives The four orientation of weak (bad) decision makers: 1. Receptive orientation 2. Exploitative orientation 3. Hoarding orientation 4. Marketing-oriented (what does each mean?) The ideal decision maker are free of these four qualities, plus: Realize the organization and the decision maker potential Try to use all their talents such as reason and sound judgment

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-14 The Rational Decision-Making Process The Rational Decision-Making Process: The steps the decision maker takes to arrive at this choice If managers use an organized and systematic decision making process, most probably they will make a sound (good) decision This model is based on three assumptions (for optimal decisions): 1. Human are economic beings with the objective of maximizing satisfaction or return 2. All alternatives and their possible consequences are known 3. Decision makers have some priority system to guide them in ranking each alternative In real life, one or more of these assumptions is often not met!  less optimal decisions

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-15 The Rational Decision-Making Process 1. Identify an existing problem 2. List possible alternatives for solving the problem 3. Select the most beneficial of these alternatives 4. Implement the selected alternatives 5. Gather feedback to find out whether the implement alternative is solving the identified problem.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-16 The Rational Decision-Making Process

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-17 The Rational Decision-Making Process 1. Identifying an Existing Problem Decision making is a problem-solving process that eliminates barriers to organizational goal attainment Problems are brought to the attention of managers by: 1. Orders issued by managers’ supervisors 2. Situations relayed to managers by their subordinates 3. The normal activity of the managers themselves

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-18 The Rational Decision-Making Process 2. Listing Alternative Solutions Limitations on the number of problem-solving alternatives available: 1. Authority factors 2. Biological or human factors 3. Physical factors 4. Technological factors 5. Economic factors

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-19 The Rational Decision-Making Process

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-20 The Rational Decision-Making Process 3. Selecting the Most Beneficial Alternative - After Evaluation Alternatives evaluation steps: 1)List the potential effects of each alternative 2)Assign a probability factor to each of the potential effects 3)Compare each alternative’s expected effects and the respective probabilities of those effects 4. Implementing the Chosen Alternative 5. Gathering Problem-Related Feedback Feedback determines implemented alternative’s effect on problem If problem is not solved, seek out and implement another alternative

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-21 Decision-Making and Intuition Decision–Making Conditions: Risks and Uncertainty It is impossible to know/predict what is the future consequences of an implemented alternative will be, because organizations and their environments are constantly changing. Risk: situations in which statistical probabilities can be attributed to alternative potential outcome. Uncertainty: situations where the probability that a particular outcome will occur is not known in advance. Managers dislike uncertainty and it discourages them from taking actions, more than risk does

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-22 Group Decision Making Advantages and Disadvantages of Using Groups to Make Decisions: Advantages: More and better decision alternatives (Why?) Members will support the implementation of the decision more They will perceive the decision as their own, so they will strive to implement it successfully (What are other advantages?) Disadvantages: Longer time More cost Can be of lower quality if they are affected by Groupthink: compromising the quality of a decision to maintain friendly relationships within a group

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-23 Group Decision Making Processes for Making Group Decisions: Brainstorming Nominal Group Technique Delphi Technique

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-24 Processes for Making Group Decisions Brainstorming: A group decision-making process in which negative feedback on any suggested alternative by any group member is forbidden until all members have presented alternatives that they perceive as valuable

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-25 Processes for Making Group Decisions

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-26 Processes for Making Group Decisions Nominal Group Technique: It is designed to ensure that each group member has equal participation in making the group decision Step 1—Each group member writes down individual ideas Step 2—Each member presents individual ideas orally, and are written on a board Step 3—After members present ideas, entire group discusses ideas simultaneously, unstructured and spontaneous Step 4—When discussion completed, a secret ballot is taken. The idea with most votes is adopted and implemented

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-27 Processes for Making Group Decisions Delphi Technique: Involves circulating questionnaires on a specific problem among group members, sharing the questionnaire results with them, and then continuing to recirculate and refine individual responses until a consensus regarding the problem is reached. Group members don’t need to meet face to face

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-28 Processes for Making Group Decisions Delphi Technique: Step 1—A problem is identified Step 2—Group members are asked to offer solutions to the problem anonymously (secretly) by answering a questionnaire Step 3—Responses of all group members are compiled and sent out Step 4—Members are asked to generate a new individual solution Step 5 – Steps 3 and 4 are repeated until a consensus is reached

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8-29 Evaluating Group Decision-Making Processes BrainstormingNominal Group TechniqueDelphi Technique Advantages Encourage expression and contribution from all members Provide many valuable alternatives No fear of recrimination Useful for too geographically separated group members,or busy to meet face to face Disadvantages Wasting time No way to know why they voted that way Unable to ask questions of one another