00. Decision Making_(Week 6)[SO]

DECISION MAKING (WEEK 6)

20-Jul-14 BE2601 Instructors:

Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15 1

Seminar Outline for Today

BE 2601: Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15 2

20-Jul-14

Course Format Title Remarks

Interactive Lecture & Discussion

Decision Making 70 - 80 mins.

Case Study The Wallingford Bowling Center

B&S: pp. 112 – 113 50 - 60 mins.

Game Group Activity [Supplementary – If Time Permits]

Decision Making Handout 50 - 60 mins.

Quiz (Class Discussion)

Critical Thinking Questions

Recap… last lesson..

1. SWOT Analysis – Levels of Strategies

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2. Corporate Level Strategy (a) Concentration

(b) Vertical Integration (c) Concentric Diversification

(d) Conglomerate Diversification

3. Business Level Strategy

(a) Low Cost Strategy

4. Functional Strategy

5. Boston Consulting Group (BCG) Matrix

(b) Differentiation Strategy

6. Porter’s Five Factors as a major threats

7. Strategy Implementation 8. Strategic Control

BE 2601: Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15

Link between last and this week’s lesson

Decision Making, Creativity & Innovation

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Planning for Business Operations (Part II) (Week 5)

(Week 6)


Presenter

Presentation Notes

Instructors are to use this slide to relate the connection between week 5 and week 6’s contents to be covered.

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Key Concepts

• What is decision making?

• Why managers avoid making decision?

• Factors affecting decision making

• Decision making process

• Barriers to making good decision

• Group decision making

• How to encourage creativity in decision making?

• Decision making during crisis


Decision making is the process by which managers

respond to:

Opportunities and threats by

Analyzing options and

Making decision about specific goals or course of action to take

E.g. How PUMA transformed its flagging business from loss-making to profitability

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What is Decision Making?

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Refer to pg. 86, Chap 3 (Bateman & Snell, 2013) Refer to pg. 217, Chap 7 (Jones & George, 2011)

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The Classical Model of Decision Making


Refer to pg. 220, Chap 7 (Jones & George, 2011)

Instead,

managers procrastinate

decision making or get busy with less demanding

activities

Unable to anticipate resources needed in terms of:

Time

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Why Managers Avoid Making Decision?

Energy

Commitment

Afraid of failure


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Factors Affecting Decision Making

Incomplete Information


Refer to pg. 87-89, Chap 3 (Bateman & Snell, 2013)

Lack of Structure

Programmed Decision

Decision Making Structure

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Routine, virtually automated process

Encountered and made before based on: - simple rules, policies or numerical computations that establishes the decision rules

Non-programmed Decision

Non-routine, new/novel, complex decision

No proven answers or decision rules

Depends on criteria or guiding principles to

facilitate decision making


Refer to pg. 87, Chap 3 (Bateman & Snell, 2013)

Lack of Structure

How are non-programmed

decisions made?

Intuition

Generating

Feelings

Careful gathering of information

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Beliefs

Hunches for on-the-spot decision

Evaluating alternatives

Reasoned Judgment


Quiz

Managers typically face structured problems they have seen before, which makes the decision process easier because there is already a procedure to follow True False

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Presenter

Presentation Notes

Answer : False Lack of structure is the usual state of affairs in managerial decision making. Although some decisions are routine and clear-cut, for most there is no automatic procedure to follow. Problems are novel and unstructured, leaving the decision maker uncertain about how to proceed.

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Comparison of Types of Decisions



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Insufficient resources to search all alternative

solutions and evaluate them for potential

consequences

Ambiguous information

Time constraint and information cost

Reason for Incomplete Information

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Same piece of information being

interpreted differently and decisions made based on individual

interpretation

Not clear, it can be interpreted in

multiple and conflicting ways

Uncertainty and risk


Prepared by Dr. Kumaran Rajaram

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Young Woman or Old Woman


Presenter

Presentation Notes

Instructors to use this visual picture to illustrate the concept of “incomplete information” as per the earlier slide. This slide will lighten and make students to relate to the key concept that is being explained.

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Certainty

The state that exists when decision makers have accurate

and comprehensive information

Uncertainty

The state that exists when decision makers have insufficient information

to know the consequences of different action

Probabilities of alternative outcomes cannot be determined

and future outcomes are unknown E.g. When will US & Europe recover from the economic

slowdown and Euro-zone debt crisis?

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Certainty and Uncertainty


Risk

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“Taking risk”

versus

“Managing risk”

The state that exists when the probability of success is less than 100 percent and losses may occur E.g. In pharmaceutical industry, new drugs often have a 10% probability of successfully passing advanced clinical trials and a 90% probability of failing

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Refer to pg. 87-88, Chap 3 (Bateman & Snell, 2013) Refer to pg. 221-223, Chap 7 (Jones & George, 2011)


Opposing pressures from different sources, occurring on the level of:

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Psychological conflict within the decision-maker or

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Conflict

Conflict between individuals or groups




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Conflict

• 1st level conflict ‒ Individual decision maker experiences psychological

conflict when several options are attractive or when none of the options is attractive

• E.g. layoff decision, hiring choices etc.

• 2nd level conflict ‒ Conflict arises between people

• E.g. revenue versus profit, volume versus quality


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Step 2 Generate alternative

solutions

Step 3 Evaluate alternative

solutions

Step 4 Make the choice

Step 5 Implement the

decision

Step 6 Evaluate the

decision

Step 1 Identify and diagnose the

problem

Six-steps in Decision Making



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Step 1: Identify and Diagnose the Problem

• Recognize the need for a decision

• Sparked by changes in the organizational environment that result in opportunities and threats

• E.g. Sun Microsystem made a bold decision to launch Carrera (new workstation) ahead of its competitor (Apollo) in spite of uncertain microprocessor supply from Motorola and its own software readiness

• Realized gap between the current state and the desired state



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• Discrepancies detected by comparing current performance against:

‒ past performance

‒ current performance of other organizations, or

‒ future expected performance as determined by plans

• An opportunity to create positive future

• Diagnostic approach to identify causes for the gap



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• The following questions are useful to ask in this stage:

Is there a difference between what is actually happening and what should be happening?

How can you describe the deviation as specifically as possible?

What is/are the cause(s) of the deviation? What specific goals should be met? Which of these goals are absolutely critical to the success

of the decision?



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Step 2: Generate Alternative Solutions

• Ready-made solutions ‒ Ideas that have been

seen or tried before

• Custom-made solutions ‒ New, creative solutions

designed specifically for the problem

• Generate alternative solutions based on the diagnostic findings

• Rely on past experience to generate solutions • Set aside mental-models of the world • Two-type of solutions:



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Step 3: Evaluate Alternatives

• Evaluate the advantages and disadvantages of each alternative

• Evaluation based on these 4 criteria



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Step 3: Evaluate Alternatives

Legality •Do not violate any domestic or international laws or government regulations

Ethicalness •Do not unnecessarily harm any stakeholder group •Be clear about potential effects of their decisions

Economic Feasibility •Are the alternatives economically feasible? •Perform cost-benefit analysis of the various alternatives to determine the best net financial payoff

Practicality •Decide whether they have the capabilities and resources required to implement the alternative •Ensure the alternative does not threaten the attainment of other organizational goals


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Step 4: Make the Choice

• Rank the various alternatives and make a decision

• Make sure all information is available

• In most instances, information is incomplete

• Avoid “paralysis by analysis” which lead to indecisiveness caused by too much analysis



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Step 4: Make the Choice

Satisficing Maximizing Optimizing

• Acceptable option, not necessarily the best

• Search for alternatives stop

• Why?

• laziness

• lack of time

Ideal approach if:

• consequences not huge

• decision making is fast paced

Best possible outcome

Greatest benefit at lowest cost and largest return

Time consuming because: thoroughly search

for complete alternatives

assess each alternative carefully

Achieve best possible balance among several goals

E.g. getting the best combination in terms of price, quality, durability


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Step 5: Implement the Decision

• Assign middle manager to make follow-up decisions

• Provide sufficient resources

• Empower them to be accountable for their performance

‒ Link rewards on how well the decision is implemented

• Ensure what was decided was actually done



Steps for decision implementation:

1. Determine how things will look like when fully operational

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Step 5: Implement the Decision

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 BE 2601: Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15


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Step 6: Evaluate the Decision

• Collect quantifiable information:

‒ e.g. % increase in sales, accidents etc.

• Decision which is working can continue and be applied elsewhere

• Learn from feedback

• Negative feedback means:

‒ Implementation require more resources/thought or

‒ Decision was a bad one



Quiz

In almost every business situation, the quality of the decision is far more important than the speed at which the decision is made? True False

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Presenter

Presentation Notes

Answer : False In today's rapidly changing business environment, the premium is on acting quickly and keeping pace. The most conscientiously made business decisions can become irrelevant and even disastrous if managers take too long to make them.

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Is there such thing as the Best Decision?

Nothing guarantees a

“best” decision

A process in which a decision maker

carefully executes all stages of decision

making

Manager must follow procedures properly to yield the best possible

decision

Vigilance

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The Best Decision



Influencing Organizational Environment

Tips in making/implementing decision:

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Get sufficient rest, avoid

distraction and manage stress

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Define consequences, collect relevant

data to be measured against

goals

Imagine the vision of the decision

Take responsibility for consequences of the decision (strength of

character)

Encourage challenge process to:

seek best knowledge but

eventually end the debate

act upon those decision


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Barriers to Decision Making

Psychological Biases

Time Pressure

Social Realities

• Prior-Hypothesis Bias • Representativeness Bias • Illusion of Control • Framing Effects • Escalating Commitment • Discounting the Future



Prior-Hypothesis Bias

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Strong prior belief about the relationship between two variables tend to make decisions based on those belief even when presented with evidence that their beliefs are wrong

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Representative Bias Inappropriate generalization based on: ‒a small sample or ‒a single vivid case or episode

Illusion of control ‒People’s belief that they can influence events, even when they have no control over what will happen; E.g. gambling, over-confidence, overate the value of their experience etc.

Framing effects ‒A decision bias influenced by the way in which a problem or decision alternative is phrased or presented Focus on data that fit the manager’s

expectations



Escalating the effect

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Tendency to commit additional resources to a project even if evidence shows that the project is failing due to feeling of personal responsibility for a project

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Discounting the future - A bias weighting short-term costs and benefits more heavily than longer-term costs and benefits E.g. Wall Street’s focus on quarterly earnings, reforestation cost that yield harvest in 60 years time



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Speed versus quality of decision making

Timing of decision making

Tactics for making good decision:

Time Pressure

Real-time information

Involve people or experts

Value differing opinions by taking realistic view of

conflict

If disagreements not resolved, top executive

make final decision BE 2601: Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15

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Social Realities

• Social Realities ‒ Interpersonal factors can affect decision-making

effectiveness

‒ Consider the preferences and reactions of many people (e.g. boss and stakeholders)

‒ Decision influenced by conflict among interested parties marked by:

‒ intensive social interactions

‒ bargaining

‒ politicking


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Group Decision Making - Potential Problems

• Groupthink

‒ Group members avoid disagreement as they strive for consensus

‒ Does not develop appropriate criteria to evaluate alternatives

‒ Rally around one central manager such as CEO

‒ Commitment is based on emotional rather than objective assessment of action

• Goal displacement

‒ Occurs when group members lose sight of the original goal and a new, less important goal emerges


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Group Decision Making - Advantages and Disadvantages

Advantages • Larger pool of information • Combined skills, competencies

and accumulated knowledge of members: ‒ intellectually stimulating ‒ more perspectives and

approaches • Avoid biases and errors • Higher probability of successful

decision implementation • Greater understanding and

stronger commitment from members

Disadvantages • Take much longer to make

decision • One person may dominates • Satisficing • Groupthink • Goal displacement due to

members’ different interests and preferences.


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Managing Group Decision Making

Source : B & S, pp. 102


Quiz

The three requirements for effective group decision making are an appropriate leadership style, the constructive use of disagreement and conflict, and the enhancement of creativity True False

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Presenter

Presentation Notes

Answer : True The leader of a decision-making body must attempt to minimize process-related problems. Furthermore, total and consistent agreement among group members can be destructive and lead to groupthink. Finally, the group may need to be creative in generating ideas, especially if custom-made solutions to problems are needed.�

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Devil’s Advocacy and Dialectical Inquiry

• Devil’s advocate ‒ Assign a person to criticize ideas to

ensure the downsides are fully explored

‒ Lessen inhibitions about disagreeing ‒ Conflict is less personal and

emotional

• Dialectic ‒ A structured debate comparing two

conflicting courses of action ‒ E.g. one team present the case of

acquisition while another team opposes the acquisition



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Cognitive Conflict and Affective Conflict

• Cognitive conflict ‒ Issue-based differences in

perspectives or judgments

‒ Voice legitimate differences of opinion and develop better ideas and problem solutions

• Affective conflict ‒ Emotional disagreement

directed towards other people

‒ Likely to be destructive because it can lead to anger, bitterness, goal-displacement and lower quality decision-making


Diversity Among Decision Makers

Promote diversity in decision-making groups

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Why?

• Improve quality of decisions from broader range of life experiences and options

• Less prone to groupthink because members differ from each other and subject to less pressure for uniformity

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How?

• Include managers of both genders from various ethnic, national and functional backgrounds




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Senge’s Principles for Creating a Learning Organization

• Quality of decision depends on innovative responses developed by a Learning Organization (LO)


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Encouraging Creativity

Creation (bring new things

into being)

Synthesis (join two previous unrelated things)

Modification (improve something or

give it a new application)


How to encourage creativity?

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Encouraging Creativity

Read widely, try new experiences

Take a course

Talk to people

Simulate and challenge people intellectually

Listen to employee’s ideas and allow enough time to explore different idea

Put together groups of people with different styles of thinking and behaving

Get in touch with customers and bounce ideas around

Create a culture of encouraging and rewarding creativity within the organization



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Group Decision Making Technique

Brainstorming • About 5 to 15 people meet

face-to-face to generate and debate a wide variety

of alternatives from which to form a decision

Nominal Group Technique

• Group members write down ideas and solutions, read their suggestions to the whole group and discus and rank the alternatives

Delphi Technique • Group members do not

meet face-to-face but respond in writing to

questions posed by the group leader

Group Decision Making

Technique


Brainstorming technique:

a) A group of people meet together to generate a wide variety of alternatives b) Facilitator describes the problem

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Group members perform the followings:

Share ideas and generate alternative courses of action

Brainstorming

Do not criticize any alternatives until all have been listed “Piggyback” or build upon other’s suggestions, be innovative and radical Debate the pros and cons of each idea and develop a short list of good alternatives



An effective Crisis Management (CM) should include the following elements:

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Create CM team and dedicate budget to it Perform audits on threats, liabilities and early warning signals Communication on dealing with media, local communities, police and government officials Top management commitment through psychological and cultural actions

Decision Making in a Crisis

Integrate CM into planning and policies

Provide training and psychological support services regarding human and emotional impact of crises



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What kinds of crises

could your company

face?

Can your company

detect a crisis in its early stages?

How can it benefit from a crisis after it

has passed?

How will it manage a crisis if one occurs?

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Decision Making in a Crisis



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Elements of a Crisis Plan

Strategic actions

Technical and

structural actions

Evaluation and

diagnostic actions

Communication actions

Psychological and cultural

actions

Elements of a Crisis Plan


Quiz

Decision makers should presume that with a carefully made decision, things will go smoothly during implementation True False

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Presenter

Presentation Notes

Answer : False Decision makers should presume that things will NOT go smoothly during implementation. It is useful to take a little extra time to identify potential problems and opportunities associated with implementation.

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Decision Making in a Crisis - Two Disasters


Recap… takeaways.. (1/2)

1. What is decision-making

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3. Why managers avoid making decision?

4. Factors affecting decision making

7. Reasons for incomplete information

11. Six steps in decision-making

14. Psychological Biases

17. Group Decision Making a) Potential Problems b) Advantages/Disadvantages c) How to manage it?

2. Classical model of Decision Making

5. Lack of Structure 6. Comparison of Types of Decision

8. Certainty

& Uncertainty

9. Risk

10. Conflict 12. Influencing organizational Environment

13. Barriers to Decision Making

15. Time Pressure 16. Social Realities

18. Devil’s Advocacy and Dialectical Inquiry

19. Cognitive Conflict and affective Conflict

Continuation….. BE 2601: Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15

Recap… takeaways.. (2/2)

20. Cognitive conflict and

affective conflict

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22. Senge’s Principles for creating a learning

organization

23. Encouraging Creativity

21. Diversity among decision makers

24. Group Decision Making Technique

25. Brainstorming

26. Decision Making in a

Crisis

27. Elements of a Crisis Plan


Case Study

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The Wallingford Bowling Center Source: Bateman & Snell, page 112 to 113 Question •Apply the decision-making process (discussed during the seminar) to this case. What is the major problem facing Wallingford? List five specific alternative solutions that could be implemented to solve that major problem •As general manager of this company, how could you utilize and manage the group decision-making process and technique to improve company profits? Which employees would you include in the group?


00. Decision Making_(Week 6)[SO]

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