copyright 2008 mcgraw-hill australia pty ltd ppts t/a management: a pacific rim focus 5e by bartol,...

Copyright 2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, SharmaSlides prepared by Rob Lawrence, Victoria University (Australia)

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CHAPTER 5

MANAGERIAL DECISION MAKING


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LECTURE OUTLINE

• The nature of managerial decision making• Managers as decision makers• Effective decision making - steps in the

process• Overcoming barriers to effective decision

making• Group decision making: managing diversity• Promoting innovation: creativity in decision

making


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DECISION MAKING

The process by which

managers identify problems

and try to resolve them


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NATURE OF MANAGERIAL DECISION MAKING

Types of problems faced:• Crisis problems

Serious: require immediate action

• Non-crisis problems Require resolution but not both immediate and important

• Opportunity problemsOpportunity for organisational gain IF appropriate action taken


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NATURE OF MANAGERIAL DECISION MAKINGDecision-making situations:• Programmed decisions

Routine, repetitive, well-structured situations by use of pre-determined decision rules.

• Non-programmed decision-makingPre-determined decision rules are impractical due to novel &/or ill-structured situations.

• The element of riskPossibility that a chosen decision could lead to losses rather than intended results.


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MANAGERS AS DECISION MAKERSModels of managerial decision making:• Rational model

Model suggesting managers engage in completely rational decision processes, ultimately making optimal decisions, and possess and understand all information relevant to their decisions at the time they make them.

• Non-rational modelsModels suggesting information gathering and processing limitations make it difficult for managers to make optimal decisions.


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NON-RATIONAL MODELS• Satisficing model

Managers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision.

• Incremental modelManagers make the smallest response possible to reduce the problem to at least a tolerable level.

• Rubbish bin modelManagers behave in virtually a random way in making non-programmed decisions.

• Intuitive modelRelying on instincts or “gut feel”.


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FACTORS LIMITING RATIONAL DECISIONS

• Inadequate information about issues and alternatives

• Time and cost factors• Limited perceptions (overlooking important

information)• Human memory holds relatively little

information• Limited mental calculating capacity


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THE FOUR STEP MODEL

• Take in Figure 5.1 from Page 157


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EFFECTIVE DECISION MAKINGSteps to effective decision making:• Identify the problem

Scan for change, categorise as problem/non-problem, diagnose nature and cause.

• Generate alternative solutionsUncritically brainstorm to develop alternatives, combine and improve ideas.

• Evaluate and choose an alternativeFeasibility, quality, cost, reversibility, ethics, acceptability.

• Implement and monitorPlan and implement, evaluate effect on others, monitor.


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OVERCOMING BARRIERS TO EFFECTIVE DECISION MAKING

• ComplacencyIndividuals either do not see signs of danger/opportunity, or avoid them.

• Defensive avoidanceIndividuals either deny the importance of a danger/opportunity or deny any responsibility for taking action.

• PanicIndividuals become so upset they frantically seek a way to solve the problem.

• Deciding to decideDecision makers accept the challenge and follow an effective decision-making process.


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DECIDING TO DECIDE:GUIDELINES

• Appraise credibility of information

• Ascertain importance of threat or opportunity

• Determine need for urgency


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DECISION-MAKING BIAS• Framing

Tendency to make different decisions depending on how a problem is presented.

• Prospect theoryDecision makers find the prospect of an actual loss more painful than giving up the possibility of a gain.

• RepresentativenessTendency to be overly influenced by stereotypes in making judgments about the likelihood of occurrences.


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DECISION-MAKING BIAS• Availability

Tendency to judge the likelihood of an occurrence on the basis of the extent to which other like instances can easily be recalled.

• Anchoring and adjustmentTendency to be influenced by an initial figure, even when the information is largely irrelevant.

• OverconfidenceTendency to be more certain of judgments regarding the likelihood of a future event than one’s actual predictive accuracy warrants.


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DECISION ESCALATION

Situation signalling possibility of escalating commitment and accelerating losses

May take two forms:• Non-rational escalation• Sunk costs


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DECISION ESCALATION

Non-rational escalation• Tendency to increase commitment to a previously

selected course of action beyond the level expected if the manager followed an effective decision-making process.

Sunk costs• Costs which, once incurred, are not recoverable

and should not enter into considerations of future courses of action.


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DECISION ESCALATION

‘Escalating commitment and accelerating losses’

Non-rational escalation: increased commitment of resources beyond rational limits

Sunk costs: not recoverable, and should not influence decision-making


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GROUP DECISION MAKING

Advantages:• More information and knowledge focused in

issues• Greater number and diversity of

alternatives• Improved acceptance and understanding of

final decisions• Develops group members’ skills and

knowledge for the future


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GROUP DECISION MAKING

Disadvantages:• More time-consuming• Disagreement can cause delays and

hard feelings• Open to individual dominance• ‘Groupthink’ may arise


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ENHANCING GROUP DECISION MAKING• Devil’s advocates (consider negative

aspects)• Dialectical inquiry (like a debate… For

and Against)• Real-options analysis (decisions

which create options for future beneficial decisions)

• Computer-assisted group decision making (Groupware)


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PROMOTING INNOVATION:CREATIVITY IN DECISION MAKING

‘Creativity is the cognitive process of developing an idea, concept, commodity or discovery viewed as novel by its creator or target audience.’


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CREATIVITY IN DECISION MAKING

Creativity requires both: • Convergent thinking

Attempting to move logically to a problem solution.

• Divergent thinking

Generating new ways of viewing a problem and seeking novel alternatives.


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CREATIVITY IN DECISION MAKING Three basic ingredients

necessary for creativity:• Domain-relevant skills

Expertise in a field relevant to the problem

• Creativity-relevant skillsSkills in generating novel ideas, approaches, modes of thinking about problems

• Task motivationInterest in the task for its own sake, a desire to resolve the problem


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STAGES OF CREATIVITY

• PREPARATIONGathering information, defining problem, generating alternatives

• INCUBATIONSubconscious mental activity, divergent thinking

• ILLUMINATIONInsights gained, breakthroughs made

• VERIFICATIONTest validity of insight, logical thinking


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ENHANCING GROUP CREATIVITY

• BrainstormingGroup members generate as many novel ideas as they can on a topic, without evaluation or criticism

• Nominal group technique (NGT)Enhances creativity and decision making by integrating individual work and group interaction within ground rules


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BrainstormingBrainstorming

Bettergroup

creativity

Bettergroup

creativityNominal grouptechnique

Nominal grouptechnique

TECHNIQUES TO ENHANCE GROUP CREATIVITY


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LECTURE SUMMARY• Nature of managerial decision making

Crisis and non-crisis problems, programmed and non-programmed decisions

• Managers as decision makersRational and non-rational models (satisficing, incremental, rubbish bin)

• Effective decision makingThe four step model - identify, generate alternatives, evaluate and choose, implement and monitor.


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LECTURE SUMMARY• Barriers to effective decision making

Deciding to decide

Complacency, defensive avoidance, panic,decision-making bias, decision escalation

• Group decision makingAdvantages and disadvantages, enhancing group diversity and performance

• Creativity in decision makingDivergent and non-divergent thinking, necessary skills, techniques for enhancing group creativity

copyright 2008 mcgraw-hill australia pty ltd ppts t/a management: a pacific rim focus 5e by bartol,...

Documents

group decision making

victoria university

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chosen decision

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