© farhan mir 2007 ims management thoughts & practices mba & bba lecture 6 (decision making...
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© Farhan Mir© Farhan Mir
20200707 IMSIMS
Management Management Thoughts & PracticesThoughts & Practices
MBA & BBA MBA & BBA Lecture 6Lecture 6(Decision Making the Essence (Decision Making the Essence of Managerial Job)of Managerial Job)
By: Farhan MirBy: Farhan Mir
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20200707 IMSIMS
Learning OutcomesLearning Outcomes
Describe the steps in the decision-making process
Identify the assumptions of the rational decision-making model
Explain the limits to rationality
Define certainty, risk, and uncertainty as they relate to decision making
Describe the actions of the bounded-rational decision maker
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Learning Outcomes (…)Learning Outcomes (…)
Identify the two types of decision problems and the two types of decisions that are used to solve themDefine heuristics and explain how they affect the decision-making processIdentify four decision-making styles
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How are decisions madeHow are decisions madein organizations?in organizations?
Decision making.
The process of choosing a course of action for dealing The process of choosing a course of action for dealing
with a problem or opportunity.with a problem or opportunity.
Many Methods can be adopted by various managers
for making decisions, one of these is called the
“Systematic Decision Making” (Also known as the
“Rational Model of Decision Making”)
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How are decisions madeHow are decisions madein organizations?in organizations?
Steps in systematic decision making.
Recognize and define the problem or opportunity.Recognize and define the problem or opportunity.
Identify and analyze alternative courses of action, and estimate their effects Identify and analyze alternative courses of action, and estimate their effects
on the problem or opportunity.on the problem or opportunity.
Choose a preferred course of action.Choose a preferred course of action.
Implement the preferred course of action.Implement the preferred course of action.
Evaluate the results and follow up as necessary.Evaluate the results and follow up as necessary.
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Six Steps in Decision Six Steps in Decision MakingMaking
Figure 7.4
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Identify Problem
The Decision-Making Process
Select Alternative
ImplementAlternative
EvaluateResults
1
Develop Alternatives
AnalyzeAlternatives
DevelopDecisionCriteria
Allocate Weights to
Criteria
2 3
4 5
6
7
8
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Step 1: Identify a Step 1: Identify a ProblemProblem
The difference between The difference between what is and what it ought what is and what it ought to beto be
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Step 2: Decision CriteriaStep 2: Decision Criteria
Factors that are relevant in making the decision
PriceInterior comfortDurabilityRepair recordPerformanceHandling
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Determining the relative priority of each of the
criteria
Step 3: Allocating Weights
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Problem: To purchase Problem: To purchase a new cara new car
Criterion Weight
Price 10
Interior comfort 8
Durability 5
Repair record 5
Performance 3
Handling 1
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Step 4: AlternativesStep 4: Alternatives
Generate a list of possible Generate a list of possible vehicle manufacturersvehicle manufacturers
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Assessing the value of each alternative by making a value
judgment of the feature
Step 5: Analyzing Alternatives
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Concluding Steps in Concluding Steps in Making a DecisionMaking a Decision
Step 6: Select the “best”
Step 7: Implement decision
Step 8: Evaluate decision
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Assumptions Of Assumptions Of RationalityRationality
RationalDecisionMaking
Problem isclear and
unambiguous
Single, well-defined goal
is to be achievedAll alternatives
and consequences
are known
Preferencesare clear
Preferencesare constantand stable
No time or costconstraints exist
Final choicewill maximize
payoff
FOM 4.12
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How are decisions madeHow are decisions madein organizations?in organizations?
The systematic decision-making process may not be followed where substantial change occurs and many new technologies prevail.
Novel decision techniques may yield superior performance in certain situations.
Ethical consequences of decision making must be considered.
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What are the usefulWhat are the usefuldecision making models?decision making models?
Decision making realities.Managers face complex choice processes.Managers face complex choice processes.
Decision making information may not be available.Decision making information may not be available.
Bounded rationality and cognitive limitations affect Bounded rationality and cognitive limitations affect the way people define problems, identify the way people define problems, identify alternatives, and choose preferred solutions.alternatives, and choose preferred solutions.
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What Makes Decision What Makes Decision Making so Difficult? Making so Difficult? ComplexityUncertainty Organizational & Environment PressureIndividual Decision Making LimitationsExperience, Beliefs & Perceptions of the Decision Maker
Results!!!!Satisfying (sounds like….guess!!!!) Satisfying (sounds like….guess!!!!)
Focusing on highly visible choices Focusing on highly visible choices
So managers make decisions in Bounded So managers make decisions in Bounded RationalityRationality
Key bounding constraints are time, uncertainty and other organizational and cultural influences
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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making? Intuition.
The ability to know or recognize quickly and readily the The ability to know or recognize quickly and readily the
possibilities of a given situation.possibilities of a given situation.
A key element of decision making under risk and A key element of decision making under risk and
uncertainty.uncertainty.
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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making? Judgmental heuristics.
Simplifying strategies or “rules of thumb” used to make Simplifying strategies or “rules of thumb” used to make decisions.decisions.
Makes it easier to to deal with uncertainty and limited Makes it easier to to deal with uncertainty and limited information.information.
Can lead to systematic errors that affect the quality and/or Can lead to systematic errors that affect the quality and/or ethics of decisions.ethics of decisions.
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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making?
Types of heuristics.Availability heuristic Availability heuristic — bases a decision — bases a decision on recent events relating to the on recent events relating to the situation at hand.situation at hand.
Representativeness heuristic — bases a Representativeness heuristic — bases a decision on similarities between the decision on similarities between the situation at hand and stereotypes of situation at hand and stereotypes of similar occurrencessimilar occurrences
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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making?Creativity factors.
Creativity in decision making involves the development of Creativity in decision making involves the development of
unique and novel responses to problems and opportunities.unique and novel responses to problems and opportunities.
Creativity is especially important in a dynamic Creativity is especially important in a dynamic
environment full of nonroutine problems.environment full of nonroutine problems.
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Types of Types of DecisionsDecisions
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Problems Problems Well-Structured vs. ill-Well-Structured vs. ill-StructuredStructured
StraightforwardFamiliarEasily-defined
New or unusualAmbiguous informationIncomplete information
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Structured and Structured and Unstructured ProblemsUnstructured Problems
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Decisions are classified as:Unstructured: Non-routine, decision maker provides judgment, evaluation, and insights into problem definition, no agreed-upon procedure for decision making
Structured: Repetitive, routine, handled using a definite procedure
Managers and Decision Making
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Programmed and Non-Programmed and Non-programmed Decisionsprogrammed Decisions
Programmed DecisionRoutine, virtually automatic decision Routine, virtually automatic decision making that follows established rules making that follows established rules or guidelines.or guidelines.
Managers have made the same decision many times before.There are rules or guidelines to follow based on experience with past decisions.Example: Disciplinary action to be taken concerning a tardy employee.
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Procedure
Rule
Policy
Programmed DecisionProgrammed Decision
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Programmed and Non-Programmed and Non-programmed Decisionsprogrammed Decisions
Non-Programmed DecisionsNon-routine decision making that occurs in Non-routine decision making that occurs in response to unusual, unpredictable response to unusual, unpredictable opportunities and threats.opportunities and threats.
The are no rules to follow since the decision is The are no rules to follow since the decision is new.new.
Decisions are made based on information, and a manager’s intuition, and judgment.
Example: Deciding to invest in additional production equipment to meet forecasted demand.
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Types of Decision and Management Levels
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ProgrammedDecisions
Non-programmedDecisions
Relationship of Relationship of Problems, Decisions, Problems, Decisions, and Leveland Level
Type ofProblem
Level
Ill-Structured
Well-Structured
Top
Lower
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How can the decision-makingHow can the decision-makingprocess be managed?process be managed?
Reasons for decision making failure.
Managers too often copy others’ choices and try to sell Managers too often copy others’ choices and try to sell them to subordinates.them to subordinates.
Managers tend to emphasize problems and solutions Managers tend to emphasize problems and solutions rather than successful implementation.rather than successful implementation.
Managers use participation too infrequently.Managers use participation too infrequently.
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Analytical
BehavioralDirective
Conceptual
Decision-Making StylesDecision-Making Styles
Rational Intuitive
Way of Thinking
Low
HighT
ole
ran
ce f
or
Am
big
uit
y
Source: S. P. Robbins, Supervision Today (Upper Saddle River, NJ: Prentice Hall, 1995), page 111.
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Decision-Making and Decision-Making and National CultureNational Culture
Differs from one country to another
Need to recognize what is acceptable
Managers can expect high payoff if they can accommodate the diversity