management_007 manager as decision maker
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C h a
p t e r
11
C h a
p t e r
77The Manager as a
Decision Maker
The Manager as a
Decision Maker
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Learning ObjectivesLearning Objectives
After studying the chapter, you should be able to:
Differentiate between programmed andnonprogrammed 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.
Explain how cognitive biases can affect decision
making and lead managers to make poor
decisions.
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Learning ObjectivesLearning Objectives
Explain the role that organizational learning
and creativity play in helping managers toimprove their decisions.
Identify the advantages and disadvantagesof group decision making, and describe
techniques that can improve it.
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The Nature of Managerial Decision
Making
The Nature of Managerial Decision
MakingDecision Making
The process by which managers respond toopportunities 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 threats—occurs when managers
are impacted by adverse events to the organization.
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Decision MakingDecision Making
Programmed Decision
Routine, virtually automatic decisionmaking that follows established rules or
guidelines. Managers have made the same decision many
times before
There are rules or guidelines to follow based on
experience with past decisions
Little ambiguity involved
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Decision MakingDecision Making
Non-Programmed Decisions
Nonroutine decision making that occurs inresponse to unusual, unpredictable
opportunities and threats. The are no rules to follow since the
decision is new. Decisions are made based on information, and a
manager’s intuition, and judgment.
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Decision MakingDecision Making
Intuition – feelings, beliefs, and hunches that
come readily to mind, require little effort andinformation gathering and result in on-the-spot
decisions
Reasoned judgment – decisions that take
time and effort to make and result from careful
information gathering, generation ofalternatives, and evaluation of alternatives
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The Classical ModelThe Classical Model
Classical Model of Decision Making
A prescriptive model of decision making thatassumes the decision maker can identify and
evaluate all possible alternatives and their
consequences and rationally choose the mostappropriate course of action.
Optimum decision The most appropriate decision in light of what managers
believe to be the most desirable future consequences for
their organization.
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The Classical Model of Decision MakingThe Classical Model of Decision Making
Figure 7.1
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The Administrative ModelThe Administrative Model
Administrative Model of Decision Making
Bounded rationality There is a large number of alternatives and
available information can be so extensive that
managers cannot consider it all.
Decisions are limited by people’s cognitiveabilities.
Incomplete information most managers do not see all alternatives and
decide based on incomplete information.
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The Administrative ModelThe Administrative Model
Administrative Model of Decision Making
An approach to decision making thatexplains why decision making is inherently
uncertain and risky and why managersusually make satisfactory rather than
optimum decisions.
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Why Information Is IncompleteWhy Information Is Incomplete
Figure 7.2
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Causes of Incomplete InformationCauses of Incomplete Information
Risk
The degree of probability that the possibleoutcomes of a particular course of action willoccur.
Managers know enough about a given outcome to be ableto assign probabilities for the likelihood of its failure orsuccess
Uncertainty Probabilities cannot be given for outcomes and the
future is unknown.
Many decision outcomes are not known such as thesuccess of a new product introduction.
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Causes of Incomplete InformationCauses of Incomplete Information
Time constraints and information costs –
managers have neither the time normoney to search for all possible
alternatives and evaluate potentialconsequences
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Causes of Incomplete InformationCauses of Incomplete Information
Young Womanor Old Woman
Ambiguous
Information Information whose
meaning is not clear
allowing it to be
interpreted in multiple
or conflicting ways.
Figure 7.3
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Causes of Incomplete InformationCauses of Incomplete Information
Satisficing
Searching for and choosing an acceptable, orsatisfactory response to problems andopportunities, rather than trying to make the best
decision. Managers explore a limited number of options and choose
an acceptable decision rather than the optimum decision.
Managers assume that the limited options they examinerepresent all options.
This is the typical response of managers when dealingwith incomplete information.
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Six Steps in Decision MakingSix Steps in Decision Making
Figure 7.4
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Decision Making StepsDecision Making Steps
Step 1. Recognize Need for a Decision
Sparked by an event such as environmentchanges.Managers must first realize that a decision must be made.
Step 2. Generate Alternatives Managers must develop feasible alternative
courses of action. If good alternatives are missed, the resulting decision is
poor.
It is hard to develop creative alternatives, so managers
need to look for new ideas.
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Decision Making StepsDecision Making Steps
Step 3 Evaluate Alternatives
What are the advantages anddisadvantages of each alternative?
Managers should specify criteria, thenevaluate.
When ranking, all information needs to beconsidered.
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Decision Making StepsDecision Making Steps
Step 4 Evaluate alternatives
Criteria
Legality Is the alternative legal both in this country andabroad for exports?
Ethicalness Is the alternative ethical and will not bringharm stakeholders unnecessarily?
Economic Feasibility Can organization’s performance goals sustainthis alternative?
Practicality Does the management have the capabilitiesand resources required to implement thealternative?
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GeneralCriteria for
EvaluatingPossible
Courses of Action
Figure 7.5
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Decision Making StepsDecision Making Steps
Step 5. Implement Chosen Alternative
Managers must now carry out the alternative. Often a decision is made and not implemented.
Step 6. Learn From Feedback Managers should consider what went right and
wrong with the decision and learn for the future.
Without feedback, managers do not learn fromexperience and will repeat the same mistake over.
C iti Bi d D i iC iti Bi d D i i
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Cognitive Biases and Decision
Making
Cognitive Biases and Decision
MakingHeuristics
Rules of thumb to deal with complexsituations.
Decision makers use heuristics to deal withbounded rationality. If the heuristic is wrong, however, then poor
decisions result from its use. Systematic errors can result from use of an
incorrect heuristic and will appear over and over
since the rule used to make decision is flawed.
S f CS f C iti Bi t th
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Sources of Cognitive Bias at the
Individual and Group Levels
Sources of Cognitive Bias at the
Individual and Group Levels
Figure 7.6
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Types of Cognitive BiasesTypes of Cognitive Biases
Prior Hypothesis Bias
Allowing strong prior beliefs about arelationship between variables to influencedecisions based on these beliefs evenwhen evidence shows they are wrong.
Representativeness
The decision maker incorrectly generalizesa decision from a small sample or a singleincident.
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Types of Cognitive BiasesTypes of Cognitive Biases
Illusion of Control
The tendency to overestimates one’s ownability to control activities and events.
Escalating Commitment Committing considerable resources to
project and then committing more even ifevidence shows the project is failing.
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Group Decision MakingGroup Decision Making
Superior to individual making
Choices less likely to fall victim to bias
Able to draw on combined skills of
group members
Improve ability to generate feasible
alternatives
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Group Decision MakingGroup Decision Making
Groupthink
Biased decision making resulting fromgroup members striving for agreement.
Usually occurs when group members rallyaround 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.
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Improved Group Decision MakingImproved Group Decision Making
Devil’s Advocacy
A group member who defends unpopular oropposing 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.
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Improved Group Decision MakingImproved Group Decision Making
Dialectical Inquiry
Two different groups are assigned to the problemand each group evaluates the other group’s choice
of alternatives.
Top managers then hear each group present theiralternatives and each group can critique the other.
Promote Diversity Increasing the diversity in a group may result in
consideration of a wider set of alternatives.
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Devil’s Advocacy and Dialectical InquiryDevil’s Advocacy and Dialectical Inquiry
Figure 7.7
Organizational Learning andOrganizational Learning and
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Organizational Learning and
Creativity
Organizational Learning and
CreativityOrganizational Learning
Managers seek to improve a employee’sdesire and ability to understand andmanage the organization and its task
environment so as to raise effectiveness.
The Learning Organization
Managers try to maximize the people’sability to behave creatively to maximizeorganizational learning.
Senge’s Principles for Creating aSenge’s Principles for Creating a
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Senge s Principles for Creating a
Learning?
Senge s Principles for Creating a
Learning?
Figure 7.8
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Creating a Learning OrganizationCreating a Learning Organization
Personal Mastery
Managers empower employees and allow them tocreate and explore.
Mental Models
Challenge employees to find new, better methods
to perform a task.
Team Learning Is more important than individual learning since
most decisions are made in groups.
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Creating a Learning OrganizationCreating a Learning Organization
Build a Shared Vision
People share a common mental model ofthe firm to evaluate opportunities.
Systems Thinking Knowing and understanding how actions in
one area of the firm will impact other areasof the firm.
Organizational Learning andOrganizational Learning and
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Organizational Learning and
Creativity
Organizational Learning and
CreativityCreativity
The ability of the decision maker todiscover novel ideas leading to a feasible
course of action. A creative management
staff and employees are
the key to the learningorganization.
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Promoting Individual CreativityPromoting Individual Creativity
Organizations can build an environment
supportive of creativity. Managers must provide employees with the
ability to take risks. If people take risks, they will occasionally fail.
To build creativity, periodic failures must berewarded.
This idea is hard to accept for some managers.
G C
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Building Group CreativityBuilding Group Creativity
Brainstorming
Managers meet face-to-face to generate anddebate many alternatives.
Group members are not allowed to evaluate alternatives
until all alternatives are listed. When all are listed, then the pros and cons of each are
discussed and a short list created.
Production blocking Members cannot absorb all information being presented
during the session and can forget even their own
alternatives.
B ildi G C ti it
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Building Group CreativityBuilding Group Creativity
Nominal Group Technique
Provides a more structured way to generatealternatives in writing.
Avoids the production blocking problem.
Similar to brainstorming except that each member is giventime to first write down all alternatives he or she would
suggest.
Alternatives are then read aloud without discussion untilall have been listed.
Then discussion occurs and alternatives are ranked.
B ildi G C i iB ildi G C ti it
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Building Group CreativityBuilding Group Creativity
Delphi Technique
Provides a written format without having allmanagers meet face-to-face.
Delphi allows distant managers to participate.
Problem is distributed in written form to managers whothen generate written alternatives.
Responses are received and summarized by topmanagers.
These results are sent back to participants for feedback,and ranking.
The process continues until consensus is reached.
M i E l F ll hi f h RiM i E l F ll hi f th Ri
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Movie Example: Fellowship of the RingMovie Example: Fellowship of the Ring
How does the council of Elrond use
the decision-making process todecide the fate of the Ring?
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