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ManagerialDecision
Making
Chapter 03
Copyri ght 2011 by the McGraw-H il l Companies, Inc. Al l r ights reserved.McGraw-Hill/Irwin
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Learning Objectives
LO1Describe the kinds of decisions you will face
as a manager
LO2Summarize the steps in making rationaldecisions
LO3Recognize the pitfalls you should avoid
when making decisionsLO4Evaluate the pros and cons of using a group
to make decisions
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Learning Objectives (cont.)
LO5Identify procedures to use in leading a
decision-making group
LO6Explain how to encourage creative decisionsLO7Discuss the process by which decisions are
made in organizations
LO8Describe how to make decisions in a crisis
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Characteristics of Managerial Decisions
3-4Figure 3.1
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Lack of Structure
Programmed decisions
Decisions encountered
and made before, having
objectively correct
answers, and solvable by
using simple rules,
policies, or numerical
computations.
Non programmed
decisions
New, novel, complex
decisions having no
proven answers.
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Uncertainty and Risk
Certainty
The state that exists when decision makers have
accurate and comprehensive information.
Uncertainty
The state that exists when decision makers have
insufficient information.
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Uncertainty and Risk
Risk
The state that exists
when the probability
of success is lessthan 100 percent and
losses may occur.
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Two Levels of Conflict
Individual decision makers experience
psychologicalconflict when several options
are attractive, or when none of the options isattractive
Conflict arises between people
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The Stages of Decision Making
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Generatingalternativesolutions
Evaluatingalternativesolutions
Making thechoice
Implementingthe decision
Evaluating the
decision
Identifying and
diagnosing the
problem
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Identifying and Diagnosing the Problem
Typically, a manager realizes some
discrepancy between the currentstate (the
way things are) and a desiredstate (the way
things ought to be).
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Identifying and Diagnosing the Problem
Such discrepancies may be detected by
comparing current performance against (1)
past performance, (2) the current
performance of other organizations or units,
or (3) future expected performance as
determined by plans and forecasts.
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Generating Alternative Solutions
Ready-made
solutions
Ideas that have been
seen or tried before
Custom-made
solutions
New, creative
solutions designed
specifically for the
problem
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Evaluating Alternatives
Evaluating alternatives
Involves determining the value or adequacy of the
alternatives that were generated
Which solution will be the best?
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Evaluating Alternatives
Contingency plans
Alternative courses
of action that can be
implemented basedon how the future
unfolds.
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Making the Choice
Maximizing
A decision realizing
the best possible
outcome
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Question
___________ is achieving the best possiblebalance among several goals
A. Maximizing
B. Satisficing
C. Optimizing
D. Minimizing
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Making the Choice
Satisficing
Choosing an option that is acceptable, although
not necessarily the best or perfect
Optimizing
Achieving the best possible balance among several
goals
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Implementing the Decision
1. Determine how things will look when the decision is
fully operational.
2. Chronologically order the steps necessary to
achieve a fully operational decision.
3. List the resources and activities required to
implement each step.
4. Estimate the time needed for each step.5. Assign responsibility for each step to specific
individuals.
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Implementing the Decision
What problems could this action cause?
What can we do to prevent the problems?
What unintended benefits or opportunities could
arise?
How can we make sure they happen?
How can we be ready to act when the opportunities
come?
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Evaluating the Decision
Feedback that suggests the decision is
working implies that the decision should be
continuedand applied elsewhere in the
organization.
Negativefeedback means that either (1)
implementation will require more time,
resources, effort, or thought or (2) the
decision was a bad one
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Question
___________ is the process in which a decision
maker carefully executes all stages of decision
making.
A. Innovation
B. Quality
C. SatisficingD. Vigilance
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The Best Decision
Vigilance
A process in which a decision maker carefully
executes all stages of decision making
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Barriers to Decision Making
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Psychological biases
Time pressure
Social realities
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Psychological Biases
Illusion of control
Peoples belief that they can influence events,
even when they have no control over what will
happen
Framing effects
A decision bias influenced by the way in which a
problem or decision alternative is phrased or
presented.
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Psychological Biases
Discounting the
future
A bias weighting
short-term costs andbenefits more heavily
than longer-term
costs and benefits.
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Pros and Cons of Using a
Group to Make Decisions
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Table 3.2
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Potential Problems of Using a Group
Groupthink
A phenomenon that
occurs in decision
making when groupmembers avoid
disagreement as they
strive for consensus
Goal displacement
A condition that
occurs when a
decision-makinggroup loses sight of
its original goal and a
new, less important
goal emerges.
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Managing Group Decision Making
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Constructive Conflict
Cognitive conflict
Issue-based
differences in
perspectives orjudgments.
Affective conflict
Emotional
disagreement
directed towardother people.
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Constructive Conflict
Devils advocate
A person who has
the job of criticizing
ideas to ensure thattheir downsides are
fully explored.
Dialectic
A structured debate
comparing two
conflicting courses ofaction.
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Encouraging Creativity
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Creation
Synthesis
Modification
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Brainstorming
Brainstorming
A process in which group members generate as
many ideas about a problem as they can; criticism
is withheld until all ideas have been proposed.
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Models of Organizational Decision
Processes
Bounded rationality
A less-than-perfect form
of rationality in which
decision makers cannot
be perfectly rational
because decisions are
complex and complete
information is
unavailable or cannot befully processed
Incremental model
Model of organizational
decision making in which
major solutions arise
through a series of
smaller decisions
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Models of Organizational Decision
Processes
Coalitional model
Model of organizational
decision making in which
groups with differing
preferences use power
and negotiation to
influence decisions.
Garbage can model
Model of organizational
decision making
depicting a chaotic
process and seemingly
random decisions.
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Two Disasters
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Decision Making in a Crisis
What kinds of crises could your company
face?
Can your company detecta crisis in its earlystages?
How will it managea crisis if one occurs?
How can it benefitfrom a crisis after it haspassed?
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Elements of a Crisis Plan
1. Strategic actions
2. Technical and structural actions
3. Evaluation and diagnostic actions4. Communication actions
5. Psychological and cultural actions
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Destination CEO: Allstate
What do you think
would be the most
challenging part of
being CEO ofAllstate?
Do you agree with
Liddys decision not
to write or renew
homeownerspolicies in hurricane-
prone areas? Why or
why not?
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http://www.allstate.com/