7Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003....

77Chapter

PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved.

The Manager asThe Manager asDecision MakerDecision Maker

© Copyright McGraw-Hill. All rights reserved. 7–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

• After studying the chapter, you should be able to:After studying the chapter, you should be able to:Differentiate between programmed and Differentiate between programmed and

nonprogrammed decisions, and explain why nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, nonprogrammed decision making is a complex, uncertain process.uncertain process.

Describe the six steps that managers should Describe the six steps that managers should take to make the best decisions.take to make the best decisions.

Explain how cognitive biases can affect Explain how cognitive biases can affect decision making and lead managers to make decision making and lead managers to make poor decisions.poor decisions.

Identify the advantages and disadvantages of Identify the advantages and disadvantages of group decision making, and describe group decision making, and describe techniques that can improve it.techniques that can improve it.


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

Explain the role that organizational learning Explain the role that organizational learning and creativity play in helping managers to and creativity play in helping managers to improve their decisions.improve their decisions.


Chapter OutlineChapter OutlineChapter OutlineChapter Outline

• The Nature of Managerial Decision MakingThe Nature of Managerial Decision MakingProgrammed and Nonprogrammed Decision Programmed and Nonprogrammed Decision

MakingMakingThe Classical ModelThe Classical ModelThe Administrative ModelThe Administrative Model

• Steps in the Decision-Making ProcessSteps in the Decision-Making ProcessRecognize the Need for a DecisionRecognize the Need for a DecisionGenerate AlternativesGenerate AlternativesEvaluate AlternativesEvaluate AlternativesChoose Among AlternativesChoose Among AlternativesImplement the Chosen AlternativeImplement the Chosen Alternative


Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)

• Steps in the Decision-Making Process (cont’d)Steps in the Decision-Making Process (cont’d)Learning from FeedbackLearning from Feedback

• Cognitive Biases and Decision MakingCognitive Biases and Decision MakingPrior Hypothesis BiasPrior Hypothesis BiasRepresentative BiasRepresentative BiasIllusion of ControlIllusion of ControlEscalating CommitmentEscalating Commitment

• Group Decision MakingGroup Decision MakingPerils of GroupthinkPerils of GroupthinkDevil’s Advocacy and Dialectical InquiryDevil’s Advocacy and Dialectical Inquiry


Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)Chapter Outline (cont’d)

• Group Decision Making (cont’d)Group Decision Making (cont’d)Diversity Among Decision MakersDiversity Among Decision Makers

• Organizational Learning and CreativityOrganizational Learning and CreativityCreating a Learning OrganizationCreating a Learning OrganizationPromoting Individual CreativityPromoting Individual CreativityPromoting Group CreativityPromoting Group CreativityPromoting Creativity at the Global LevelPromoting Creativity at the Global Level


The Nature of Managerial Decision The Nature of Managerial Decision MakingMaking

The Nature of Managerial Decision The Nature of Managerial Decision MakingMaking

• Decision MakingDecision MakingThe process by which managers respond to The process by which managers respond to

opportunities and threats by analyzing opportunities and threats by analyzing options, and making decisions about goals options, and making decisions about goals and courses of action.and courses of action.

• Decisions in response to opportunitiesDecisions in response to opportunities—occurs when —occurs when managers respond to ways to improve organizational managers respond to ways to improve organizational performance.performance.

• Decisions in response to threatsDecisions in response to threats——occurs when occurs when managers are impacted by adverse events to the managers are impacted by adverse events to the organization.organization.


Programmed and Nonprogrammed Programmed and Nonprogrammed DecisionsDecisions


• Programmed DecisionProgrammed DecisionRoutine, virtually automatic decision making Routine, virtually automatic decision making

that follows established rules or guidelines.that follows established rules or guidelines.• Managers have made the same decision many times Managers have made the same decision many times

before.before.

• There are rules or guidelines to follow based on There are rules or guidelines to follow based on experience with past decisions.experience with past decisions.

• Example: Disciplinary action to be taken concerning a Example: Disciplinary action to be taken concerning a tardy employee.tardy employee.




• Non-Programmed DecisionsNon-Programmed DecisionsNonroutine decision making that occurs in Nonroutine decision making that occurs in

response to unusual, unpredictable response to unusual, unpredictable opportunities and threats.opportunities and threats.

The are no rules to follow since the decision The are no rules to follow since the decision is new.is new.

• Decisions are made based on information, and a Decisions are made based on information, and a manager’s intuition, and judgment. manager’s intuition, and judgment.

• Example: Deciding to invest in additional production Example: Deciding to invest in additional production equipment to meet forecasted demand.equipment to meet forecasted demand.


The Classical ModelThe Classical ModelThe Classical ModelThe Classical Model

• Classical Model of Decision MakingClassical Model of Decision MakingA prescriptive model of decision making that A prescriptive model of decision making that

assumes the decision maker can identify and assumes the decision maker can identify and evaluate all possible alternatives and their evaluate all possible alternatives and their consequences and rationally choose the most consequences and rationally choose the most appropriate course of action.appropriate course of action.

Optimum decisionOptimum decision• The most appropriate decision in light of what The most appropriate decision in light of what

managers believe to be the most desirable future managers believe to be the most desirable future consequences for their organization.consequences for their organization.


The Classical Model of Decision The Classical Model of Decision MakingMaking

The Classical Model of Decision The Classical Model of Decision MakingMaking

Figure 7.1


The Administrative ModelThe Administrative ModelThe Administrative ModelThe Administrative Model

• Administrative Model of Decision MakingAdministrative Model of Decision MakingAn approach to decision making that explains An approach to decision making that explains

why decision making is inherently uncertain why decision making is inherently uncertain and risky and why managers usually make and risky and why managers usually make satisfactory rather than optimum decisions.satisfactory rather than optimum decisions.


The Administrative Model (cont’d)The Administrative Model (cont’d)The Administrative Model (cont’d)The Administrative Model (cont’d)

• Administrative Model of Decision Making Administrative Model of Decision Making (cont’d)(cont’d)Bounded rationalityBounded rationality

• There is a large number of alternatives and available There is a large number of alternatives and available information can be so extensive that managers information can be so extensive that managers cannot consider it all.cannot consider it all.

• Decisions are limited by people’s cognitive abilities.Decisions are limited by people’s cognitive abilities.

Incomplete informationIncomplete information• most managers do not see all alternatives and decide most managers do not see all alternatives and decide

based on incomplete information.based on incomplete information.


Why Information Is IncompleteWhy Information Is IncompleteWhy Information Is IncompleteWhy Information Is Incomplete

Figure 7.2


Causes of Incomplete InformationCauses of Incomplete InformationCauses of Incomplete InformationCauses of Incomplete Information

• RiskRiskThe degree of probability that the possible The degree of probability that the possible

outcomes of a particular course of action will outcomes of a particular course of action will occur.occur.

• Managers know enough about a given outcome to be Managers know enough about a given outcome to be able to assign probabilities for the likelihood of its able to assign probabilities for the likelihood of its failure or successfailure or success

• UncertaintyUncertaintyProbabilities cannot be given for outcomes Probabilities cannot be given for outcomes

and the future is unknown.and the future is unknown.• Many decision outcomes are not known such as the Many decision outcomes are not known such as the

success of a new product introduction.success of a new product introduction.


Causes of Incomplete Information Causes of Incomplete Information (cont’d)(cont’d)


• Ambiguous Ambiguous InformationInformationInformation whose Information whose

meaning is not clear meaning is not clear allowing it to be allowing it to be interpreted in interpreted in multiple or multiple or conflicting ways.conflicting ways.

Figure 7.3

Young Woman or Old Woman




• SatisficingSatisficingSearching for and choosing an acceptable, or Searching for and choosing an acceptable, or

satisfactory response to problems and satisfactory response to problems and opportunities, rather than trying to make the opportunities, rather than trying to make the best decision.best decision.

• Managers explore a limited number of options and Managers explore a limited number of options and choose an acceptable decision rather than the choose an acceptable decision rather than the optimum decision.optimum decision.

• Managers assume that the limited options they Managers assume that the limited options they examine represent all options.examine represent all options.

• This is the typical response of managers when This is the typical response of managers when dealing with incomplete information.dealing with incomplete information.


Six Steps in Decision MakingSix Steps in Decision MakingSix Steps in Decision MakingSix Steps in Decision Making

Figure 7.4


Decision Making StepsDecision Making StepsDecision Making StepsDecision Making Steps

Step 1. Recognize Need for a DecisionStep 1. Recognize Need for a DecisionSparked by an event such as environment Sparked by an event such as environment

changes.changes.• Managers must first realize that a decision must be Managers must first realize that a decision must be

made.made.

Step 2. Generate AlternativesStep 2. Generate AlternativesManagers must develop feasible alternative Managers must develop feasible alternative

courses of action.courses of action.• If good alternatives are missed, the resulting decision If good alternatives are missed, the resulting decision

is poor.is poor.

• It is hard to develop creative alternatives, so It is hard to develop creative alternatives, so managers need to look for new ideas.managers need to look for new ideas.



Step 4. Evaluate AlternativesStep 4. Evaluate AlternativesWhat are the advantages and disadvantages What are the advantages and disadvantages

of each alternative?of each alternative?Managers should specify criteria, then Managers should specify criteria, then

evaluate.evaluate.When ranking, all information needs to be When ranking, all information needs to be

considered.considered.


General General Criteria for Criteria for Evaluating Evaluating

Possible Possible Courses of Courses of

ActionAction

General General Criteria for Criteria for Evaluating Evaluating

Possible Possible Courses of Courses of

ActionAction

Figure 7.5


Evaluating AlternativesEvaluating AlternativesEvaluating AlternativesEvaluating Alternatives

Criteria

Legality Is the alternative legal both in this country and abroad for exports?

Ethicalness

Is the alternative ethical and will not bring harm stakeholders unnecessarily?

Economic Feasibility Can organization’s performance goals sustain this alternative?

Practicality

Does the management have the capabilities and resources required to implement the alternative?



Step 5. Implement Chosen AlternativeStep 5. Implement Chosen AlternativeManagers must now carry out the alternative.Managers must now carry out the alternative.Often a decision is made and not Often a decision is made and not

implemented.implemented.

Step 6. Learn From FeedbackStep 6. Learn From FeedbackManagers should consider what went right and Managers should consider what went right and

wrong with the decision and learn for the wrong with the decision and learn for the future.future.

Without feedback, managers do not learn from Without feedback, managers do not learn from experience and will repeat the same mistake experience and will repeat the same mistake over.over.


Cognitive Biases and Decision MakingCognitive Biases and Decision MakingCognitive Biases and Decision MakingCognitive Biases and Decision Making

• HeuristicsHeuristicsRules of thumb to deal with complex Rules of thumb to deal with complex

situations.situations.Decision makers use heuristics to deal with Decision makers use heuristics to deal with

bounded rationality.bounded rationality.• If the heuristic is wrong, however, then poor decisions If the heuristic is wrong, however, then poor decisions

result from its use.result from its use.

• Systematic errors can result from use of an incorrect Systematic errors can result from use of an incorrect heuristic and will appear over and over since the rule heuristic and will appear over and over since the rule used to make decision is flawed.used to make decision is flawed.


Sources of Cognitive Bias at the Sources of Cognitive Bias at the Individual and Group LevelsIndividual and Group Levels

Sources of Cognitive Bias at the Sources of Cognitive Bias at the Individual and Group LevelsIndividual and Group Levels

Figure 7.6Source:


Types of Cognitive BiasesTypes of Cognitive BiasesTypes of Cognitive BiasesTypes of Cognitive Biases

• Prior Hypothesis BiasPrior Hypothesis BiasAllowing strong prior beliefs about a Allowing strong prior beliefs about a

relationship between variables to influence relationship between variables to influence decisions based on these beliefs even when decisions based on these beliefs even when evidence shows they are wrong.evidence shows they are wrong.

• RepresentativenessRepresentativenessThe decision maker incorrectly generalizes a The decision maker incorrectly generalizes a

decision from a small sample or a single decision from a small sample or a single incident.incident.


Types of Cognitive BiasesTypes of Cognitive BiasesTypes of Cognitive BiasesTypes of Cognitive Biases

• Illusion of ControlIllusion of ControlThe tendency to overestimates one’s own The tendency to overestimates one’s own

ability to control activities and events.ability to control activities and events.

• Escalating CommitmentEscalating CommitmentCommitting considerable resources to project Committing considerable resources to project

and then committing more even if evidence and then committing more even if evidence shows the project is failing.shows the project is failing.


Group Decision MakingGroup Decision MakingGroup Decision MakingGroup Decision Making

• Most decisions are made in group settings.Most decisions are made in group settings.Groups tend to reduce cognitive biases and Groups tend to reduce cognitive biases and

can call on their greater combined skills and can call on their greater combined skills and abilities.abilities.

• GroupthinkGroupthinkBiased decision making resulting from group Biased decision making resulting from group

members striving for agreement.members striving for agreement.• Usually occurs when group members rally around a Usually occurs when group members rally around a

central manager’s idea , and become blindly commit central manager’s idea , and become blindly commit to the idea without considering alternatives.to the idea without considering alternatives.

• The group’s influence tends to convince each The group’s influence tends to convince each member that the idea must go forward.member that the idea must go forward.


Improved Group Decision MakingImproved Group Decision MakingImproved Group Decision MakingImproved Group Decision Making

• Devil’s AdvocacyDevil’s AdvocacyA group member who defends unpopular or A group member who defends unpopular or

opposing alternatives for the sake of opposing alternatives for the sake of argumentargument

One member of the group who acts as the One member of the group who acts as the devil’s advocate by critiquing the way the devil’s advocate by critiquing the way the group identified alternatives and pointing out group identified alternatives and pointing out problems with the alternative selection.problems with the alternative selection.


Improved Group Decision MakingImproved Group Decision MakingImproved Group Decision MakingImproved Group Decision Making

• Dialectical InquiryDialectical InquiryTwo different groups are assigned to the Two different groups are assigned to the

problem and each group evaluates the other problem and each group evaluates the other group’s choice of alternatives. group’s choice of alternatives.

Top managers then hear each group present Top managers then hear each group present their alternatives and each group can critique their alternatives and each group can critique the other.the other.

• Promote DiversityPromote DiversityIncreasing the diversity in a group may result Increasing the diversity in a group may result

in consideration of a wider set of alternatives.in consideration of a wider set of alternatives.


Devil’s Advocacy and Dialectical InquiryDevil’s Advocacy and Dialectical InquiryDevil’s Advocacy and Dialectical InquiryDevil’s Advocacy and Dialectical Inquiry

Figure 7.7Source:


Organizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and Creativity

• Organizational LearningOrganizational LearningManagers seek to improve a employee’s Managers seek to improve a employee’s

desire and ability to understand and manage desire and ability to understand and manage the organization and its task environment so the organization and its task environment so as to raise effectiveness.as to raise effectiveness.

• The Learning OrganizationThe Learning OrganizationManagers try to maximize the people’s Managers try to maximize the people’s

ability to behave creatively to maximize ability to behave creatively to maximize organizational learning.organizational learning.


Senge’s Principles for Creating a Learning?Senge’s Principles for Creating a Learning?Senge’s Principles for Creating a Learning?Senge’s Principles for Creating a Learning?

Figure 7.8Source:


Organizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and Creativity

• CreativityCreativityThe ability of the decision maker to discover The ability of the decision maker to discover

novel ideas leading to a feasible course of novel ideas leading to a feasible course of action.action.

• A creative management staff and employees are the A creative management staff and employees are the key to the learning organization.key to the learning organization.


Creating a Learning OrganizationCreating a Learning OrganizationCreating a Learning OrganizationCreating a Learning Organization

• Personal MasteryPersonal MasteryManagers empower employees and allow Managers empower employees and allow

them to create and explore.them to create and explore.

• Mental ModelsMental ModelsChallenge employees to find new, better Challenge employees to find new, better

methods to perform a task.methods to perform a task.

• Team LearningTeam LearningIs more important than individual learning Is more important than individual learning

since most decisions are made in groups.since most decisions are made in groups.


Creating a Learning Organization Creating a Learning Organization (cont’d)(cont’d)

Creating a Learning Organization Creating a Learning Organization (cont’d)(cont’d)

• Build a Shared VisionBuild a Shared VisionPeople share a common mental model of the People share a common mental model of the

firm to evaluate opportunities.firm to evaluate opportunities.

• Systems ThinkingSystems ThinkingKnowing and understanding how actions in Knowing and understanding how actions in

one area of the firm will impact other areas one area of the firm will impact other areas of the firm.of the firm.


Promoting Individual CreativityPromoting Individual CreativityPromoting Individual CreativityPromoting Individual Creativity

• Organizations can build an environment Organizations can build an environment supportive of creativity.supportive of creativity.Managers must provide employees with the Managers must provide employees with the

ability to take risks.ability to take risks.• If people take risks, they will occasionally fail. If people take risks, they will occasionally fail.

To build creativity, periodic failures must be To build creativity, periodic failures must be rewarded.rewarded.

• This idea is hard to accept for some managers.This idea is hard to accept for some managers.


Building Group CreativityBuilding Group CreativityBuilding Group CreativityBuilding Group Creativity

• BrainstormingBrainstormingManagers meet face-to-face to generate and Managers meet face-to-face to generate and

debate many alternatives. debate many alternatives. • Group members are not allowed to evaluate Group members are not allowed to evaluate

alternatives until all alternatives are listed.alternatives until all alternatives are listed.

• When all are listed, then the pros and cons of each When all are listed, then the pros and cons of each are discussed and a short list created.are discussed and a short list created.

Production blockingProduction blocking• Members cannot absorb all information being Members cannot absorb all information being

presented during the session and can forget even presented during the session and can forget even their own alternatives.their own alternatives.



• Nominal Group TechniqueNominal Group TechniqueProvides a more structured way to generate Provides a more structured way to generate

alternatives in writing. alternatives in writing. • Avoids the production blocking problem.Avoids the production blocking problem.

• Similar to brainstorming except that each member is Similar to brainstorming except that each member is given time to first write down all alternatives he or she given time to first write down all alternatives he or she would suggest.would suggest.

• Alternatives are then read aloud without discussion Alternatives are then read aloud without discussion until all have been listed.until all have been listed.

• Then discussion occurs and alternatives are ranked.Then discussion occurs and alternatives are ranked.



• Delphi TechniqueDelphi TechniqueProvides a written format without having all Provides a written format without having all

managers meet face-to-face.managers meet face-to-face.Delphi allows distant managers to Delphi allows distant managers to

participate.participate.• Problem is distributed in written form to managers Problem is distributed in written form to managers

who then generate written alternatives.who then generate written alternatives.

• Responses are received and summarized by top Responses are received and summarized by top managers.managers.

• These results are sent back to participants for These results are sent back to participants for feedback, and ranking.feedback, and ranking.

• The process continues until consensus is reached.The process continues until consensus is reached.

7Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003....

Documents

Transcript of 7Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003....