Chapter 6

1. Chapter 6 Managerial Decision Making

2. Programmed Decisions • Routine situations • Decision rules can be developed and applied • Managers formulate decision rules so subordinates can make decisions

3. Nonprogrammed Decisions • Poorly defined situations • Decisions are complex • Routine decision rules do not apply • Trend is toward subordinates making more nonprogrammed decisions

4. Degrees of Outcome Predictability • Certainty • Risk • Uncertainty • Ambiguity

5. Certainty • Full knowledge of available alternatives • Full knowledge of what outcome will result from each alternative • Few certain decisions in the real world.

6. Risk • Knowledge of what the alternatives are • Know the probabilities of outcomes resulting from each alternative.

7. Uncertainty • Goals are known, but information about alternatives and future outcomes is incomplete (probabilities unknown)

8. Ambiguity • Objectives to be achieved are unclear • Little, if any, knowledge of alternatives

9. Classical Model 1. Goals are known and agreed upon. Problems are precisely defined 2. All alternatives and outcomes are calculated 3. Criteria evaluated and decision made maximizing return (expected value) 4. Uses rationality and logic.

10. Classical Model Assumes: • Knowledge of Persons and Environ. • Stability of Persons and Environment • Memory and Reasoning Capabilities • Absence of Emotion • Resources (Time & Money)

11. Administrative Model • Describes how managers actually make decisions including those that are: • Nonprogrammed • Uncertain • Ambiguous • Not Quantitative • Used due to “Bounded Rationality”

12. Bounded Rationality People have limits on the information they can process in making a decision, so their use of rationality is limited.

13. Satisficing • (Satisfactory + Sacrifice) • Choosing the first alternative satisfying minimum decision criteria (i.e., the optimal solution is often not needed) • Often cannot afford time and expense of complete information, even if possible.

14. Intuition • Based on years of practice and hands-on experience (i.e., not naive guessing) • Facilitates Satisficing

15. Decision Making Steps • Recognition of Decision Requirement • Diagnosis and Analysis of Causes • Development of Alternatives • Selection of Desired Alternative • Implementation of Chosen Alternative • Evaluation and Feedback.

16. Comments on Decision Making Steps • The Classical Model focuses on the Selection of Desired Alternative • Nonprogrammed problems require more attention to the earlier steps. • Evaluation and Feedback can lead to reverting back to any prior stage to make a correction.

17. Personal Decision Framework Directive Style: used by people who prefer simple, clear-cut solutions. They are efficient and rational. Analytical Style: used by managers who like to consider complex solutions based on as much data as they can gather. They are objective and rational and like optimal solutions. Conceptual Style: used by people who like to consider a broad amount of information, and are more creative and socially oriented. They consult with others for information and ideas. Behavioral Style: often the style adopted by managers having a deep concern for others. They consult with others to determine the feelings of the others. • Situation: • Programmed/non-programmed • Classical, administrative, political • Decision steps • Personal Decision Style: • Directive • Analytical • Conceptual • Behavioral • Decision Choice: • Solution to Problem

18. Advantages of Group Decision Making • More background knowledge • More alternatives generated • More understanding of the decision • More support for decision • Helps fulfill social needs

19. Disadvantages of Group Decision Making • Time consuming, inefficient • Ineffective Compromise decisions • Groupthink, social pressure, conflict • Lack of clear responsibility

20. Conditions for Groupthink • Team leader’s opinion is known • Team is highly cohesive • Team is isolated from outside influences • Team has recent decision failures

21. Escalation of Commitment British government funded the Concorde supersonic jet long after its lack of commercial viability was apparent. Today, some scholars refer to escalation of commitment, in general, as the “Concorde Fallacy.” © Corel Corp. With permission

22. Causes of Escalation of Commitment • Ego Defense • Sunk Costs • Gambler’s Fallacy © Corel Corp. With permission

23. An Interactive Group Members meet face-to-face and have a specific agenda and decision objectives. (the “typical” meeting)

24. Improving Interactive Groups • To Combat “Groupthink”: • Devil's Advocate • Multiple Advocacy • Dialectic Inquiry

25. Improving Interactive Groups • Brainstorming

26. Improving Interactive Groups • Brainstorming • More ideas • “Synergy”

27. Alternatives to Interactive Groups • Nominal Groups • Ideas in writing before discussion to help equalize participation • Delphi Groups • No face-to-face interaction - even more equal participation

28. Improving Decision-Making Effectiveness • Learn from past decisions, but don’t waste time regretting past • Distinguish between idea getting and evaluating (Don’t be too critical when generating ideas.) • Seek advice, when practical • As a group leader, don’t dominate the discussion • When possible, “sleep on” decisions, but don’t wait too long.