powerpoint presentation by charlie cook the university of west alabama c h a p t e r 4 part ii:...

© 2008 Prentice Hall, Inc. All rights reserved.© 2008 Prentice Hall, Inc. All rights reserved.

PowerPoint Presentation by Charlie CookThe University of West Alabama

PowerPoint Presentation by Charlie CookThe University of West Alabama

C H A P T E R

4C H A P T E R

4Part II: PlanningPart II: Planning

Fundamentals of ManagementFundamentals of ManagementSixth EditionSixth Edition

Robbins and DeCenzowith contributions from Henry Moon

Robbins and DeCenzowith contributions from Henry Moon

Foundations of Decision MakingFoundations of Decision Making

© 2008 Prentice Hall, Inc. All rights reserved. 4–2

L E A R N I N G O U T C O M E S

1.1. Describe the steps in the decision-making process.Describe the steps in the decision-making process.

2.2. Identify the assumptions of the rational decision-Identify the assumptions of the rational decision-making model.making model.

3.3. Explain the limits to rationality.Explain the limits to rationality.

4.4. Define certainty, risk, and uncertainty as they relate to Define certainty, risk, and uncertainty as they relate to decision making.decision making.

5.5. Describe the actions of the bounded-rational decision Describe the actions of the bounded-rational decision maker.maker.

6.6. Identify the two types of decision problems and the Identify the two types of decision problems and the two types of decisions that are used to solve them.two types of decisions that are used to solve them.

After reading this chapter, you will be able to:


L E A R N I N G O U T C O M E S (cont’d)

7.7. Define heuristics and explain how they affect the Define heuristics and explain how they affect the decision-making process.decision-making process.

8.8. Identify four decision-making styles.Identify four decision-making styles.

9.9. Describe the advantages and disadvantages of group Describe the advantages and disadvantages of group decisions.decisions.

10.10. Explain three techniques for improving group decision Explain three techniques for improving group decision making.making.

After reading this chapter, you will be able to:


Decision-MakingDecision-Making

• Decision-Making ProcessDecision-Making Process A set of eight steps that includes identifying a A set of eight steps that includes identifying a

problem, selecting a solution, and evaluating the problem, selecting a solution, and evaluating the effectiveness of the solutioneffectiveness of the solution

• ProblemProblem A discrepancy between an existing and a desired A discrepancy between an existing and a desired

state of affairsstate of affairs

• Decision CriteriaDecision Criteria Factors that are relevant in a decisionFactors that are relevant in a decision


What are the organization’s long-term objectives?

What strategies will best achieve those objectives?

What should the organization’s short-term objectives

What is the most efficient means of completing tasks?

What might the competition be considering?

What budgets are needed to complete department

How difficult should individual goals be?

EXHIBIT 4–1 Examples of Planning Decisions


EXHIBIT 4–2 The Decision-Making Process


EXHIBIT 4–3 Criteria and Weights in Car-Buying Decision(Scale of 1 to 10)


EXHIBIT 4–4 Assessment of Car Alternatives


EXHIBIT 4–5 Weighting of Vehicles (Assessment Criteria × Criteria Weight)


Decision-Making (cont’d)Decision-Making (cont’d)

• Decision ImplementationDecision Implementation Putting a decision into action; includes conveying the Putting a decision into action; includes conveying the

decision to the persons who will be affected by it and decision to the persons who will be affected by it and getting their commitment to it.getting their commitment to it.


Making Decisions: The Rational ModelMaking Decisions: The Rational Model

• CertaintyCertainty The implication that the outcome of every possible The implication that the outcome of every possible

alternative is known.alternative is known.

• UncertaintyUncertainty A condition under which there is not full knowledge A condition under which there is not full knowledge

of the problem and reasonable probabilities for of the problem and reasonable probabilities for alternative outcomes cannot be determined.alternative outcomes cannot be determined.

• RiskRisk The probability that a particular outcome will result The probability that a particular outcome will result

from a given decision.from a given decision.


EXHIBIT 4–6 Assumptions of Rationality


What Is Creative Potential?What Is Creative Potential?

• ExpertiseExpertise Understanding, abilities, knowledge, proficiencies, Understanding, abilities, knowledge, proficiencies,

necessary in the field of creative endeavor.necessary in the field of creative endeavor.

• Creative-Thinking SkillsCreative-Thinking Skills The personality characteristics associated with The personality characteristics associated with

creativity, the ability to use analogies, as well as the creativity, the ability to use analogies, as well as the talent to see the familiar in a different light.talent to see the familiar in a different light.

• Intrinsic Task MotivationIntrinsic Task Motivation The desire to work on something because it’s The desire to work on something because it’s

interesting, involving, exciting, satisfying, or interesting, involving, exciting, satisfying, or personally challenging.personally challenging.


EXHIBIT 4–7 Three Elements of Creativity

Source: T. M. Amabile. “Motivating Creativity in Organizations,” California Management Review (Fall 1997), p. 43. Copyright © 1997, by The Regents of the University of California. Reprinted by permission of the Regents.


Steps in Becoming More CreativeSteps in Becoming More Creative

1. Think of yourself as creative.

2. Pay attention to your intuition.

3. Move away from your comfort zone.

4. Engage in activities that put you outside your comfort zone.

5. Seek a change of scenery.

6. Find several right answers.

7. Play your own devil’s advocate.

8. Believe in finding a workable solution.

9. Brainstorm with others.

10.Turn creative ideas into action.


Making Decisions: The Rational ModelMaking Decisions: The Rational Model

• RationalRational Describes choices that are consistent and value-Describes choices that are consistent and value-

maximizing within specified constraints.maximizing within specified constraints.

• Bounded Rationality (Herbert Simon)Bounded Rationality (Herbert Simon) Behavior that is rational within the parameters of a Behavior that is rational within the parameters of a

simplified model that captures the essential features simplified model that captures the essential features of a problem.of a problem.

• SatisficeSatisfice Making a “good enough” decision: choosing the first-Making a “good enough” decision: choosing the first-

identified alternative that satisfactorily and sufficiently identified alternative that satisfactorily and sufficiently solves the problem.solves the problem.


Common Decision-Making ErrorsCommon Decision-Making Errors

• Heuristics: Using Judgmental ShortcutsHeuristics: Using Judgmental Shortcuts Availability heuristicAvailability heuristic

The tendency to base judgments on information that is The tendency to base judgments on information that is readily available.readily available.

Representative heuristicRepresentative heuristic The tendency to base judgments of probability on things The tendency to base judgments of probability on things

(objects or events) that are familiar(objects or events) that are familiar

Escalation of commitmentEscalation of commitment An increased commitment to a previous decision despite An increased commitment to a previous decision despite

negative information about the decision’s present outcomes.negative information about the decision’s present outcomes.


How Do Problems and Decisions Differ?How Do Problems and Decisions Differ?

• Well-Structured ProblemsWell-Structured Problems

Straightforward, familiar, easily defined problemsStraightforward, familiar, easily defined problems

• Ill-Structured ProblemsIll-Structured Problems

New problems in which information is ambiguous or incompleteNew problems in which information is ambiguous or incomplete

• Programmed DecisionProgrammed Decision

A repetitive decision that can be handled by a routine approachA repetitive decision that can be handled by a routine approach

• Nonprogrammed DecisionsNonprogrammed Decisions

Decisions that must be custom-made to solve unique and Decisions that must be custom-made to solve unique and nonrecurring problemsnonrecurring problems


Programmed Decision-Making AidsProgrammed Decision-Making Aids

• PolicyPolicy A general guide that establishes parameters for A general guide that establishes parameters for

making decisions about recurring problems.making decisions about recurring problems.

• ProcedureProcedure A series of interrelated sequential steps that can be A series of interrelated sequential steps that can be

used to respond to a well-structured problem (policy used to respond to a well-structured problem (policy implementation).implementation).

• RuleRule An explicit statement that tells managers what they An explicit statement that tells managers what they

ought or ought not to do (limits on procedural ought or ought not to do (limits on procedural actions).actions).


EXHIBIT 4–8 Types of Problems, Types of Decisions, and Level in the Organization


Technology And Decision MakingTechnology And Decision Making

• Expert SystemsExpert Systems Software that acts like an expert in analyzing and Software that acts like an expert in analyzing and

solving ill-structured problemssolving ill-structured problems Use specialized knowledge about a particular problem area Use specialized knowledge about a particular problem area

rather than general knowledge rather than general knowledge Use qualitative reasoning rather than numerical calculationsUse qualitative reasoning rather than numerical calculations Perform at a level of competence higher than that of Perform at a level of competence higher than that of

nonexpert humans.nonexpert humans.

• Neural NetworksNeural Networks Software that is designed to imitate the structure of Software that is designed to imitate the structure of

brain cells and connections among thembrain cells and connections among them


Decision-Making StylesDecision-Making Styles

Directive Conceptual

Styles of Decision Making

Analytic Behavioral


EXHIBIT 4–9 Decision-Making Styles


Group Decision MakingGroup Decision Making

• AdvantagesAdvantages Makes more accurate Makes more accurate

decisionsdecisions Provides more complete Provides more complete

informationinformation Offers a greater diversity Offers a greater diversity

of experiences and of experiences and perspectivesperspectives

Generates more Generates more alternativesalternatives

Increases acceptance of a Increases acceptance of a solutionsolution

Increases the legitimacy of Increases the legitimacy of a decision.a decision.

• DisadvantagesDisadvantages Is more time-consuming Is more time-consuming

and less efficientand less efficient Can result in minority Can result in minority

domination that influences domination that influences decision processdecision process

Can produce increased Can produce increased pressures to conform to pressures to conform to the group’s mindset the group’s mindset (groupthink)(groupthink)

Can create ambiguous Can create ambiguous responsibility for the responsibility for the outcomes of decisionsoutcomes of decisions


When Are Groups Most Effective?When Are Groups Most Effective?

• High Need for CreativityHigh Need for Creativity Groups tend to be more creative than individuals.Groups tend to be more creative than individuals.

• Acceptance of the Final SolutionAcceptance of the Final Solution Groups help increase the acceptance of decisions.Groups help increase the acceptance of decisions.

• Effectiveness of Group Decision MakingEffectiveness of Group Decision Making Groups of five to seven members are optimal for Groups of five to seven members are optimal for

decision process speed and quality.decision process speed and quality.


Improving Group Decision MakingImproving Group Decision Making

BrainstormingElectronic Meeting

Making Group Decision Making

More Creative

Nominal Group Technique


National Culture and Decision-Making National Culture and Decision-Making PracticesPractices

• Decision-making practices differ from country to Decision-making practices differ from country to country by:country by: Participation: groups, teams, individualsParticipation: groups, teams, individuals Power distance: who will make the decisionPower distance: who will make the decision Level of risk: uncertainty avoidanceLevel of risk: uncertainty avoidance Efficiency of decision making: pace of decisionsEfficiency of decision making: pace of decisions Alternatives considered: many or fewAlternatives considered: many or few Consensus building: Consensus building: ringseiringsei Decision-making style: rational, autocratic or Decision-making style: rational, autocratic or

participativeparticipative


Quantitative ModuleQuantitative ModuleQUANTITATIVE DECISION-MAKING AIDSQUANTITATIVE DECISION-MAKING AIDS


EXHIBIT QM–1 Payoff Matrix for Visa


EXHIBIT QM–2 Regret Matrix for Visa


EXHIBIT QM–3 Decision Tree and Expected Values for Renting a Large orSmall Retail Space


EXHIBIT QM–4 Break-Even Analysis

BE = [TFC/(P – VC)]


EXHIBIT QM–5 Popular Financial Controls


EXHIBIT QM–6 Production Data for Virus Software

4R + 6S < 2,4002R + 2S < 900


EXHIBIT QM–7 Graphical Solution to Free’s Linear Programming Problem


Queuing TheoryQueuing Theory

• Queuing TheoryQueuing Theory Balancing the cost of having a waiting line against Balancing the cost of having a waiting line against

the cost of service to maintain that line.the cost of service to maintain that line.

where P = probability of n customers waiting in line, n = 3 customers, arrival rate = 2 per minute, and service rate = 4 minutes per customer


Economic Order Quantity ModelEconomic Order Quantity Model

• Fixed-Point Reordering SystemFixed-Point Reordering System A preestablished point for replenishing inventoryA preestablished point for replenishing inventory

• Economic Order Quantity (EOQ)Economic Order Quantity (EOQ) A technique for balancing purchase, ordering, A technique for balancing purchase, ordering,

carrying, and stock-out costs to derive the optimum carrying, and stock-out costs to derive the optimum quantity for a purchase order.quantity for a purchase order. DD = forecasted demand for the item = forecasted demand for the item OCOC = cost of placing each order = cost of placing each order VV = value or purchase price of the item = value or purchase price of the item CCCC = carrying cost (as percentage) of total inventory = carrying cost (as percentage) of total inventory


EXHIBIT QM–8 Determining the Optimum Economic Order Quantity


Economic Order Quantity ExampleEconomic Order Quantity Example

Forecast sales: 4,000 units a year

Unit cost: $50.00 each

Ordering cost: $35.00 per order

Carrying costs: 20% of unit’s value.

powerpoint presentation by charlie cook the university of west alabama c h a p t e r 4 part ii:...

Documents

decision slide

prentice hall

decisionmaking process

group decision making

decision scale

types of decision problems

n g o u t c o

p t e r