6-1

The
Manager as a
Decision Maker

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 6-2

Leaders must be decisive


One of the most frustrating moments at work is having to
work with an indecisive leader, one who keeps postponing
decisions in the hope that someone else will make that decision
or that the problem will simply disappear. We find such leaders
particularly in the civil service or in large organizations with
strong union backing. These officers are promoted by virtue of
their seniority and while they are comfortable taking
instructions, most are hopeless when they have to be the ones
issuing instructions. Not everybody can make a good leader as
leadership requires a different skill set and a high degree of
responsibility and accountability. It may be something that the
people at the helm of the organizations do not want to admit to,
maybe because they themselves benefited from the system and
have to maintain it to preserve their position and authority.

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 6-3

l“We know what happens to people who stay

in the middle of the road. They get run
over.”
... Aneurin Bevan

l"I don't know the key to success, but the key

to failure is trying to please everybody.“
…Bill Cosby

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 6-4

Managerial Decision Making

lDecision making: the process by which
managers respond to opportunities and
threats by analyzing options, and making
decisions about goals and courses of action.
lDecisions in response to opportunities:
managers respond to ways to improve
organizational performance.
lDecisions in response to threats: occurs when
managers are impacted by adverse events to
the organization.

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 6-5

Types of Decision Making

lProgrammed Decisions: routine, almost
automatic process.
n Managers have made decision many times before.
n There are rules or guidelines to follow.
n Example: Deciding to reorder office supplies.
lNon-programmed Decisions: unusual
situations that have not been often
addressed.
n No rules to follow since the decision is new.
n These decisions are made based on information,
and a manger’s intuition, and judgment.
n Example: Should the firm invest in a new
technology?
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 6-6

The Classical Model

lClassical model of decision making: a
prescriptive model that tells how the
decision should be made.
n Assumes managers have access to all the information
needed to reach a decision.
n Managers can then make the optimum decision by
easily ranking their own preferences among
alternatives.
lUnfortunately, mangers often do not have all
(or even most) required information.

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 6-7

The Classical Model

Figure 6.1

List alternatives Assumes all information

& consequences is available to manager

Assumes manager can

Rank each alternative process information
from low to high

Assumes manager knows

the best future course of
Select best
the organization
alternative

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 6-8

The Administrative Model

lAdministrative Model of decision
making: Challenged the classical
assumptions that managers have and
process all the information.
n As a result, decision making is risky.
●Bounded rationality: There is a large number
of alternatives and information is vast so
that managers cannot consider it all.
n Decisions are limited by people’s cognitive abilities.
●Incomplete information: most managers do
not see all alternatives and decide based on
incomplete information.
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 6-9

Why Information is Incomplete

Figure 6.2

Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints &

information costs
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 6-10

Incomplete Information Factors

lIncomplete information exists due to many
issues:
n Risk: managers know a given outcome can fail or
succeed and probabilities can be assigned.
n Uncertainty: probabilities cannot be given for
outcomes and the future is unknown.
u Many decision outcomes are not known such as a
new product introduction.
n Ambiguous information: information whose meaning
is not clear.
u Information can be interpreted in different ways.

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 6-11

Incomplete Information Factors

lTime constraints and Information costs:
Managers do not have the time or money to
search for all alternatives.
n This leads the manager to again decide based on
incomplete information.
lSatisficing: Managers explore a limited
number of options and choose an acceptable
decision rather than the optimum decision.
n This is the response of managers when dealing with
incomplete information.
n Managers assume that the limited options they
examine represent all options.

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 6-12

Decision Making Steps

Figure 6.4
Recognize need for
a decision

Frame the problem

Generate & assess

alternatives
Choose among
alternatives

Implement chosen
alternative

Learn from feedback

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 6-13

Decision Making Steps

1. Recognize need for a decision: Managers


must first realize that a decision must be

made.
u Sparked by an event such as environment changes.
2. Generate alternatives: managers must


develop feasible alternative courses of action.

u If good alternatives are missed, the resulting
decision is poor.
u It is hard to develop creative alternatives, so
managers need to look for new ideas.
3. Evaluate alternatives: what are the


advantages and disadvantages of each

alternative?
u Managers should specify criteria, then evaluate.
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 6-14

Decision Making Steps

4. Choose among alternatives: managers rank
alternatives and decide.
u When ranking, all information needs to be
considered.
5. Implement choose alternative: managers
must now carry out the alternative.
u Often a decision is made and not implemented.
6. Learn from feedback: managers should
consider what went right and wrong with
the decision and learn for the future.
u Withoutfeedback, managers never learn from
experience and make the same mistake over.
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 6-15

Evaluating Alternatives
Figure 6.5
Is the possible course of action:

Legal?
Ethical
Economical?

Practical?

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 6-16

Evaluating Alternatives
lIs it legal? Managers must first be sure that
an alternative is legal both in this country
and abroad for exports.
lIs it ethical? The alternative must be ethical
and not hurt stakeholders unnecessarily.
lIs it economically feasible? Can our
organization’s performance goals sustain
this alternative?
lIs it practical? Does the management have
the capabilities and resources to do it?
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 6-17

Cognitive Biases
lSuggests decision makers use heuristics to
deal with bounded rationality.
n A heuristic is a rule of thumb to deal with complex
situations.
n If the heuristic is wrong, however, then poor
decisions result from its use.
lSystematic errors can result from use of an
incorrect heuristic.
n These errors will appear over and over since the
rule used to make decision is flawed.

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 6-18

Types of Cognitive Biases

Figure 6.6

Prior Hypothesis

Representativeness Cognitive
Biases
Illusion of Control

Escalating Commitment

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 6-19

Types of Cognitive Biases

 Prior hypothesis bias: manager allows strong prior
beliefs about a relationship between variables and
makes decisions based on these beliefs even when
evidence shows they are wrong.
 Representativeness: decision maker incorrectly
generalizes a decision from a small sample or one
incident.
 Illusion of control: manager over-estimates their
ability to control events.
 Escalating commitment: manager has already
committed considerable resource to project and then
commits more even after feedback indicates problems.

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 6-20

Group Decision Making

Many decisions are made in a group setting.
n Groups tend to reduce cognitive biases and can call on
combined skills, and abilities.
There are some disadvantages with groups:
Group think: biased decision making resulting

from group members striving for agreement.

n Usually occurs when group members rally around a
central manger’s idea (CEO), and become blindly
committed without considering alternatives.
n The group tends to convince each member that the
idea must go forward.

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 6-21

Improved Group Decision Making

lDevil’s Advocacy: one member of the group
acts as the devil’s advocate and critiques the
way the group identified alternatives.
n Points out problems with the alternative selection.
lDialectical inquiry: two different groups are
assigned to the problem and each group
evaluates the other group’s alternatives.
n Top managers then hear each group present their
alternatives and each group can critique the other.
lPromote diversity: by increasing the diversity
in a group, a wider set of alternatives may be
considered.
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 6-22

Devil’s Advocacy v. Dialectic Inquiry

Figure 6.7

Devil’s Advocacy Dialectic Inquiry

Presentation of
Alter. 1 Alter. 2
alternative

Critique of Debate the two

alternative alternatives

Reassess Reassess
alternative alternatives
accept, modify, reject accept 1 or 2, combine

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 6-23

Organizational Learning & Creativity

lOrganizational Learning: Managers seek to
improve member’s ability to understand the
organization and environment so as to raise
effectiveness.
n The learning organization: managers try to improve
the people’s ability to behave creatively to
maximize organizational learning .
lCreativity: is the ability of the decision maker
to discover novel ideas leading to a feasible
course of action.
n A creative management staff and employees are the
key to the learning organization.
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 6-24

Senge’s Learning Organization Principles

Figure 6.8

Build complex,
Develop Personal
challenging
Mastery
mental models
Encourage
Systems
Thinking
Build Shared Promote Team
Vision Learning

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 6-25

Creating a Learning Organization

 Senge suggests top managers follow several
steps to build in learning:
n Personal Mastery: managers empower employees
and allow them to create and explore.
n Mental Models: challenge employees to find new,
better methods to perform a task.
n Team Learning: is more important than individual
learning since most decisions are made in groups.
n Build a Shared Vision: a people share a common
mental model of the firm to evaluate opportunities.
n Systems Thinking: know that actions in one area of
the firm impacts all others.

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 6-26

Individual Creativity
lOrganizations can build an environment
supportive of creativity.
n Many of these issues are the same as for the learning
organization.
n Managers must provide employees with the ability to
take risks.
n If people take risks, they will occasionally fail.
lThus, to build creativity, periodic failures
must be rewarded.
n This idea is hard to accept for some managers.

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 6-27

Building Group Creativity

lBrainstorming: managers meet face-to-face
to generate and debate many alternatives.
u Group members are not allowed to evaluate
alternatives until all alternatives are listed.
u Be creative and radical in stating alternatives.

u When all are listed, then the pros and cons of each
are discussed and a short list created.
lProduction blocking is a potential problem
with brainstorming.
u Members cannot absorb all information being
presented during the session and can forget
their own alternatives.
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 6-28

Building Group Creativity

lNominal Group Technique: Provides a more
structured way to generate alternatives in
writing.
u Avoids the production blocking problem.
u Similar to brainstorming except that each member
is given time to first write down all alternatives
he or she would suggest.
u Alternatives are then read aloud without
discussion until all have been listed.
u Then discussion occurs and alternatives are
ranked.
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 6-29

Building Group Creativity

lDelphi Technique: provides for a written
format without having all managers meet
face-to-face.
u Problem
is distributed in written form to managers
who then generate written alternatives.
u Responses are received and summarized by top
managers.
u These results are sent back to participants for
feedback, and ranking.
u The process continues until consensus is reached.

n Delphi allows distant managers to participate.

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