Copyright Atomic Dog Publishing, 2003 Managerial Decision Making Chapter 7.

Copyright Atomic Dog Publishing, 2003

Managerial Decision Making

Chapter 7


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Management Decision Making Management decision making is a complex mix of

knowledge, experience, creative thinking, and risk taking. It is often a rapid-fire, fragmented process

More and more companies are pushing critical decision making down to the level of the organization most affected by the decision

A decision can be defined as a conscious choice among alternatives followed by action to implement the decision

Decision-making process is a series of steps that is followed, either consciously or unconsciously, to make a choice and undertake action


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Management Decision Making (cont.)

Managers must learn how to deal with a decision-making environment that emphasizes communicating, working with others, and working with incomplete information

Decisions are often based on impressions, estimates, and personal experience

Management researchers have developed a set of useful concepts to understand the phenomenon

Individual decision making differs from group decision making


Types of Managerial Decisions


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Types of Managerial Decisions

Programmed and Non-Programmed Decisions

Proactive and Reactive Decisions

Intuitive and Systematic Decisions


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Programmed and Non-Programmed Decisions Programmed Decisions

One that would be made if a particular situation occurs and a routine procedure or policy has been established to handle it

Repetitive and routine A large number in daily operations Although they should be made with care and

concern about effectiveness, they should be made efficiently without needlessly tying up organizational resources


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Programmed and Non-Programmed Decisions (cont.)

Non-Programmed Decisions No pre-existing structure or decision-

making procedure in place Have significant implications for the future

of the organization and must be made only after careful analysis


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Proactive and Reactive Decisions

Proactive Decision Made in anticipation of an external change

or other conditions Can prevent many common problems

Reactive Decision Made in response to changes that have

already occurred


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Intuitive and Systematic Decisions Intuitive Decision Making

Use of estimates, guesses, or hunches to decide among alternative courses of action

“Voice of experience” that speaks to managers when faced with a decision situation

Don’t rely on intuition alone; supplement intuition with systematic information gathering and analysis

Systematic Decision Making Organized, exacting, data-driven process Requires a clear set of objectives, a relevant

information base, and a sharing of ideas among key managers and other employees


The Decision-Making Process


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The Decision-Making Process

Clarify the problem or opportunity

Develop alternative courses of action

Evaluate and select a course of action

Implement the decision

Monitor its effectiveness


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Step 1: Clarify the Problem or Opportunity

Problems are defined as the realization that a discrepancy exists between a desired state and current reality

Several common biases or mistakes managers make when identifying and clarifying a problem: Perceptual inaccuracies Defining problems in terms of solutions Identifying symptoms as problems

Consider an issue from a variety of perspectives

Consult various perspectives before making decisions


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Step 2: Develop Alternative Courses of Action

Examine the organization’s internal and external environments for information and ideas that may lead to creative solutions to a problem

A popular approach to this is known as benchmarking (identify and study firms who are leaders in a given area of business)

Managers should encourage creativity and innovation among employees

Encourage a diversity of approaches to problem solving can lead to better solutions and courses of action


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Step 3: Evaluate Alternatives and Select a Course of Action Select the alternatives that will produce the most

favorable outcomes and the least unfavorable outcomes

Two cautions should be kept in mind Keep this step distinct from the previous step—especially in a

group context Be wary of solutions that are evaluated as being “perfect”

Rather than being an optimizer, the decision maker is said to be a “satisficer” —a person who accepts a reasonable alternative course of action that isn’t necessarily the optimum course of action


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Step 4: Implement the Selected Alternative Course of Action A decision is an abstraction if it isn’t implemented

Actions must be implemented effectively if it is to achieve an objective

Implementing decisions involves delegating responsibilities to people

Here are six steps to effective delegation: Define the task clearly Give guidelines to begin to follow Give authority to accomplish the task Monitor the tasks, but don’t hover Give feedback along the way Reward and recognize effort as well as results


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Step 5: Control and Assess the Consequences of the Action

Periodic assessment of the results of the chosen course of action

If actual results aren’t meeting planned results, changes must be made

Two types of feedback that managers use to gather the necessary information: Formative Summative


Influences on Individual Decision Making


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Influences on Individual Decision Making

Importance of the decision

Time pressures

Manager’s values

Manager’s propensity for risk


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The Importance of the Decision

Numerous yardsticks for measuring the importance of a decision exist, including the amount of resources involved, the number of people influenced by the decision, and the time required to make the decision

Managers must allot more time and attention to significant problems


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Time Pressures

Managers must make the most of their decisions in others’ time frames

When time pressures are significant, managers may be unable to gather enough information

Time management is a priority

Managers who effectively manage their time feel less stress and tend to make better decisions than their stress-filled counterparts


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The Manager’s Values An individual’s values become guidelines when s/he

confronts a choice

Values are one of the most important influences on human behavior

Values are the likes, dislikes, shoulds, oughts, judgments, and prejudices that determine how the world is viewed

Value-based decision making is methodical and ensures that organizational values enter into all major decisions

Although people don’t think consciously about their values and rarely arrange them in any kind of order, managers should be very aware of their values

Serious conflicts can occur among values


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The Manager’s Propensity for Risk

People vary greatly in their propensity to take risks

The issue for managers is not whether to take risks, but how to take reasonable risks


Group Decision Making


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Group Decision Making

A great deal of decision making is achieved through committees, teams, task forces, “virtual teams,” etc.

Decisions made on non-programmed problems being made by one individual on a regular basis are unusual

Use of the collective approach to a decision-making process is increasing

Many managers spend as much as 80% of their working time in committee meetings


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Individual vs. Group Decision Making

Groups usually take more time to reach a decision

Consensus decisions with five or more participants are superior to individual decision making, majority vote, and leader decisions

Problems with group decision making: Pressure to conform Influence of a dominant personality Status incongruity Attempt of certain participants to influence others


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Individual vs. Group Decision Making (cont.)

Non-programmed decisions appear to be better suited to group decision making

As we move from “individual” to “consensus,” the quality of the decision improves

For a complex problem requiring pooled knowledge, the quality of the decision is likely to be higher as the group moves toward achieving consensus


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Creativity in Group Decision Making

If groups are better suited to non-programmed decisions than individuals, then it is important that an atmosphere fostering group creativity be created


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Techniques for Stimulating Creativity

Brainstorming

The Delphi Technique

The Nominal Group Technique


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Brainstorming

Brainstorming promotes the generation of ideas while at the same time avoiding the inhibitions many people feel in group settings

The basic rules are: No idea is too ridiculous Each idea presented belongs to the group, not to

the person stating it No idea can be criticized


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The Delphi Technique

The Delphi technique comprises the solicitation and comparison of anonymous judgments on the topic of interest through a set of sequential questionnaires that are interspersed with summarized information and feedback of opinions from earlier responses


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The Delphi Technique (cont.) The advantage is having several judges while

removing the biasing effects that might occur during face-to-face interaction Basic approach is to collect anonymous judgments

from group members by mail questionnaire A process administrator then summarizes the

responses as the group consensus, and feeds this summary back along with a second questionnaire for reassessment

Respondents independently evaluate their earlier responses

Underlying belief is that the consensus estimate will result in a better decision after several rounds of anonymous group judgment


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The Nominal Group Technique (NGT)

The NGT comprises processes that bring people together but do not allow them to communicate verbally. Thus, the collection of people is a group “nominally,” or “in name only”


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The Nominal Group Technique (NGT) (cont.) A structured group meeting proceeds as

follows: A group of individuals (7 to 10) sit around a table

but do not speak to one another Each person writes ideas on a pad of paper A recorder writes the ideas on a flip chart in full

view of the entire group This continues until all of the participants indicate

that they have no further ideas to share Each idea receives attention before a vote is taken Each participant, in private, selects priorities by

ranking or voting The group decision is the mathematically pooled

outcome of the individual votes


Information Technology and Decision Making


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Information Technology and Decision Making In decision-making situations, managers can’t

possibly use “all available information”

The challenge for managers is to collect, process, and warehouse the most relevant information to make effective decisions in the present and future

Tools for warehousing and retrieving information for use throughout their firms: Data warehousing Data mining Data marts Search engines Software agents


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Attributes of Useful Information

Accessible

Timely relevant

Accurate

Verifiable

Complete

Clear


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Information Sharing

Organizations that train people in the value of information and how to use it and share it gain competitive advantage over those who don’t


Decision Support Systems (DDS)


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Decision Support Systems (DDS)

DDS is an interactive information system that enables managers to gain instant access to information in a less structured format than a traditional management information system or database

Must obtain information about the firm, competitors, and the business environment

May include links to the World Wide Web, and have built-in artificial intelligence that adjusts to group behaviors and needs

DDS is inherently user friendly


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Decision Support Systems (cont.)

Supports managerial skills at all levels of decision making by providing instant response to managers’ information needs

An executive information system (EIS) is a user-friendly DDS designed specifically for executives

Consolidate the analysis provided by a DDS, interpret it considering the firm’s strategic goals, and present the results of executives in an easily understandable format


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Expert Systems and Artificial Intelligence

Artificial intelligence allows computers to solve problems involving imagination, abstract reasoning, and common sense

Expert systems refers to computer systems that can make decisions without human interaction, by imitating human thinking and offer advice or solutions to complex problems in much the same way as a human expert would


End of Chapter 7

Copyright Atomic Dog Publishing, 2003 Managerial Decision Making Chapter 7.

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