MAKING DECISIONS

How managers decide

Managerial Decision Making

Decision making Decisions in response to opportunities Decisions in response to threats

Types of Decision Making

Programmed Decisions: routine, almost automatic process. Non-programmed Decisions: unusual situations that have not been often addressed.

The Classical Model

Classical model of decision making: a prescriptive model that tells how the decision should be made.
Assumes

managers have access to all the information needed to reach a decision. Managers can then make the optimum decision by easily ranking their own preferences among alternatives.

The Administrative Model

Administrative Model of decision making:

Bounded rationality Incomplete information

Challenged the classical assumptions that managers have and process all the information.

Incomplete Information Factors

Incomplete information exists due to many issues:

Risk

Uncertainty Ambiguous information Time constraints and Information costs Satisficing

Decision Making Steps

Recognize need for a decision Frame the problem Generate & assess alternatives

Choose among alternatives Implement chosen alternative

Learn from feedback

Decision Making Steps

1. Recognize need for a decision 2. Generate alternatives 3. Evaluate alternatives 4. Choose among alternatives: 5. Implement choose alternative 6. Learn from feedback

Evaluating Alternatives
Is it legal Is it ethical? Is it economically feasible? Is it practical?

Cognitive Biases

Suggests decision makers use heuristics to deal with bounded rationality.

Systematic errors can result from use of an incorrect heuristic.

Types of Cognitive Biases

-Prior hypothesis bias -Representativeness -Illusion of control -Escalating commitment

Group Decision Making

Many decisions are made in a group setting. The disadvantages are

Group think: biased decision making resulting from group members striving for agreement.

Improved Group Decision Making

Devils Advocacy: one member of the group acts as the devils advocate and critiques the way the group identified alternatives. Dialectical inquiry: two different groups are assigned to the problem and each group evaluates the other groups alternatives. Promote diversity: by increasing the diversity in a group, a wider set of alternatives may be considered.

Organizational Learning & Creativity

Organizational Learning: Managers seek to improve members ability to understand the organization and environment so as to raise effectiveness. Creativity: is the ability of the decision maker to discover novel ideas leading to a feasible course of action.

Creating a Learning Organization

Top managers follow several steps to build in learning:
Personal

Mastery Mental Models Team Learning Build a Shared Vision Systems Thinking

Building Group Creativity

Brainstorming: managers meet face-to-face to generate and debate many alternatives. Production blocking is a potential problem with brainstorming.

Building Group Creativity

Nominal Group Technique: Provides a more structured way to generate alternatives in writing.

Building Group Creativity

Delphi Technique: provides for a written format without having all managers meet face-to-face.
Delphi

allows distant managers to participate.