1. © Copyright 2004 McGraw-Hill. All rights reserved.5–1 Learning Objectives After studying the chapter, you should be able to:After studying the chapter, you should be able to:  Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process.  Describe the six steps that managers should take to make the best decisions.  Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it.

2. © Copyright 2004 McGraw-Hill. All rights reserved.5–2 Learning Objectives (cont’d)  Explain the role that organizational learning and creativity play in helping managers to improve their decisions.

3. © Copyright 2004 McGraw-Hill. All rights reserved.5–3 The Nature of Managerial Decision Making Decision MakingDecision Making  The process by which managers respond to opportunities and threats by analyzing options, and making decisions about goals and courses of action. Decisions in response to opportunities—occurs when managers respond to ways to improve organizational performance.Decisions in response to opportunities—occurs when managers respond to ways to improve organizational performance. Decisions in response to threats—occurs when managers are impacted by adverse events to the organization.Decisions in response to threats—occurs when managers are impacted by adverse events to the organization.

4. © Copyright 2004 McGraw-Hill. All rights reserved.5–4 Programmed Decisions Programmed DecisionProgrammed Decision  Routine, virtually automatic decision making that follows established rules or guidelines. Managers have made the same decision many times before.Managers have made the same decision many times before. There are rules or guidelines to follow based on experience with past decisions.There are rules or guidelines to follow based on experience with past decisions. Example: Disciplinary action to be taken concerning a tardy employee.Example: Disciplinary action to be taken concerning a tardy employee.

5. © Copyright 2004 McGraw-Hill. All rights reserved.5–5 Nonprogrammed Decisions Non-Programmed DecisionsNon-Programmed Decisions  Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.  The are no rules to follow since the decision is new. Decisions are made based on information, a manager’s intuition, and judgment.Decisions are made based on information, a manager’s intuition, and judgment. Example: Deciding to invest in additional production equipment to meet forecasted demand.Example: Deciding to invest in additional production equipment to meet forecasted demand.

6. © Copyright 2004 McGraw-Hill. All rights reserved.5–6 Why Information Is Incomplete Figure 5.2

7. © Copyright 2004 McGraw-Hill. All rights reserved.5–7 Six Steps in Decision Making Figure 5.4

8. © Copyright 2004 McGraw-Hill. All rights reserved.5–8 Group Decision Making Most decisions are made in group settings.Most decisions are made in group settings.  Groups tend to reduce cognitive biases and can call on their greater combined skills and abilities. GroupthinkGroupthink  Biased decision making resulting from group members striving for agreement. Usually occurs when group members rally around a central manager’s idea, and become blindly commit to the idea without considering alternatives.Usually occurs when group members rally around a central manager’s idea, and become blindly commit to the idea without considering alternatives. The group’s influence tends to convince each member that the idea must go forward.The group’s influence tends to convince each member that the idea must go forward.

9. © Copyright 2004 McGraw-Hill. All rights reserved.5–9 Improved Group Decision Making Devil’s AdvocacyDevil’s Advocacy  A group member who defends unpopular or opposing alternatives for the sake of argument  One member of the group who acts as the devil’s advocate by critiquing the way the group identified alternatives and pointing out problems with the alternative selection. Diversity Among Decision MakersDiversity Among Decision Makers  Broadens range of life experiences and opinions from which to draw and consider alternatives.  Group differences help in avoiding groupthink.

10. © Copyright 2004 McGraw-Hill. All rights reserved.5–10 Organizational Learning and Creativity Organizational LearningOrganizational Learning  Managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness. The Learning OrganizationThe Learning Organization  Managers try to maximize the people’s ability to behave creatively to maximize organizational learning.

11. © Copyright 2004 McGraw-Hill. All rights reserved.5–11 Organizational Learning and Creativity CreativityCreativity  The ability of the decision maker to discover novel ideas leading to a feasible course of action. A creative management staff and employees are the key to the learning organization.A creative management staff and employees are the key to the learning organization. InnovationInnovation  The implementation of creative ideas in an organization.

12. © Copyright 2004 McGraw-Hill. All rights reserved.5–12 Creating a Learning Organization 1.Personal Mastery  Managers empower employees and allow them to create and explore. 2.Mental Models  Challenge employees to find new, better methods to perform a task. 3.Team Learning  Is more important than individual learning since most decisions are made in groups.

13. © Copyright 2004 McGraw-Hill. All rights reserved.5–13 Creating a Learning Organization (cont’d) 4.Build a Shared Vision  People share a common mental model of the firm to evaluate opportunities. 5.Systems Thinking  Knowing and understanding how actions in one area of the firm will impact other areas of the firm.