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Managerial Decision

Making
Lecture 1
1

Lecture Outline
1. Introduction to the course
2. Assessment
3. Topic 1 - Problem solving:
Introduction and identification

Introduction to the course


We daily face problems and make decisions
Managerial Decision Making provides:
A detailed review of the problem solving process
An assessment of biases that may impact on the
associated decision making process

Successful course completion will assist you


to become a better decision maker in
business and elsewhere.

Introduction to the course


The course has an implicit focus on
managers and organisations
Study topics 1-3 provide a logical and
rational process to analyse and solve
problems
Study topics 4-12 focus on decision
analysis
4

Introduction to the course


Teaching resources:
Your course learning is facilitated three
ways:
1. Face-to-face lectures/ tutorials and/or
seminars
2. Two set textbooks
5

Introduction to the course


Set texts:
Wood, R., Cogin, J. & Beckmann, J. (2009). Managerial
Problem Solving: Frameworks, Tools, Techniques.
North Ryde: McGraw Hill, Australia.

Bazerman, M. H. & Moore, D. A. (2013). Judgment in


Managerial Decision Making (8th ed). Hoboken, NJ:
John Wiley & Sons.
You require access to both set textbooks in this course
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Introduction to the course


Course assessment
1. Topic quiz 12 topics (10%)
2. Groups presentation and review (20%
3. Problem solving written assignment (30%)
4. Decision making written assignment (40%)

There is no final exam


Lets all go to the course site now to review assessment
requirements and course objectives (see course description
document)

Introduction to the course


Assessment explanation in class
1. Topic quiz Lecture 1 (end of today)
2. Groups assignment Lecture 2
3. Problem solving assignment Lecture 2
4. Decision making assignment Lecture 5
Full details of each assignment is available
now on the course site

Introduction to the course


Study topics:
The course consists of 12 study topics.
These may be completed on a weekly
basis.
Study topics follow the sequence of
chapters in the two set texts.
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Study Topics/ Textbook


Chapter
3
4

Problem solving: Introduction and


identification
Problem solving: Solution generation and
evaluation
Problem solving: Solution implementation
Decision making: Introduction

Decision making: Overconfidence

Decision making: Biases and heuristics

Decision making: Bounded awareness

Decision making: Framing and preference


reversal
Decision making: Motivations and emotions

1
2

10 Decision making: Escalating commitment


11 Decision making: Fairness and equity

Wood et al. ch 1 & 2


Wood et al. ch 3 & 4
Wood et al. ch 5, 6 & 7
Bazerman & Moore Ch
1
Bazerman & Moore Ch
2
Bazerman & Moore Ch
3
Bazerman & Moore Ch
4
Bazerman & Moore Ch
5
Bazerman & Moore Ch
6
Bazerman & Moore Ch
7
10
Bazerman & Moore Ch

Introduction to the course


Recommend readings:
Most study topics have a set of recommended readings
These readings are included to enhance your understanding, identify
sources of evidence for theories, and provide practical examples.
Reviewing these reading will assist you to complete quality
assignments.
Some readings are technically challenging (e.g., employ quantitative
methods in an empirical study). Dont worry too much here the main
aim is to learn the key points from the study outcomes.
Other learning materials (e.g., videos, activities and so on will be
provided in class).

11

Introduction to the course


Class resources and procedure:
In class student will engage with a lecture and a range
of activities.
Lecture notes are provided on the course site.
These have been adapted from the prepared textbook
slides (also available on the site)
You may do in-class activities during or following
presentation of the lecture material.
12

Introduction to the course


Take a few minutes to look over the
course site.

What are your questions?


13

Introduction to the course


Topic learning objectives:
Each study topic has set learning objectives
You should use these learning objectives to guide
your learning with respect to relevance and
importance of set learning content
Topic learning objectives are listed in the study
guides (developed primarily for online learners) and
in the weekly lecture notes
14

Introduction to the course


Class expectations:
You are expected to have reviewed material covered each week
before class and completed any set activities (e.g., read the
textbook chapter).
At times, issues will be discussed in class where people have
diverging opinions, often based an different ethical standpoints.
Regardless of your own opinion (and whether you agree or
disagree with others), all class members and the class lecturer or
tutor (and their opinions) should be treated respectfully.
Respect encourages open discussion and debate to enhance
learning.

15

Study topic 1
Problem solving:
Introduction and
identification

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Topic outline
Learning objectives
Set readings
Topic 1:
1. Problem components, phases, types, limitations, tools
2. Problem Identification
I.
II.
III.
IV.

SWAT
PEST
5Ws and root cause analysis
Value chain analysis

3. Next week

Assessment 1 Quiz explanation


17

Problem solving: Introduction and


identification

Learning objectives:
Wood et al Chapter 1

1. Define problems with respect to the three core components.


2. Describe the four phase model of the problem solving process.
3. Distinguish problems types with respect to static versus dynamic, structured versus
ill-structured and simple versus complex.
4. Explain three reasons why problem solving may be an imperfect process.
Wood et al Chapter 2

5. Compare and contrast SWOT and PEST analysis with regard to the strengths and
limitations of these tools for problem identification.
6. Describe the process of 5Ws to identify and define problems.
7. Explain briefly with an example the value chain framework for implementing
organisational strategy.

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Problem solving: Introduction and


identification
Topic readings
Wood et al. Chapters 1 and 2.
Recommended/ further readings
Dawes, R. M. (1979). The robust beauty of improper linear models in
decision making. American Psychologist, 34(7), 571-582.
Lindblom, C. E. (1959). The Science of "Muddling Through". Public
Administration Review, 19(2), 79-88.
Simon, H. A. (1979). Rational Decision Making in Business
Organizations. The American Economic Review, 69(4), 493-513.
These three classic readings provide an introduction to some of the key
approaches and thinking that support modern understanding of
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decision making practices.

1. Problem components,
phases, types, limitations, and
tools

Basic Components of Problems:


Current state
Goal or desired state
Set of operations or problem-solving
steps
Problem occurs if current state differs
from goal state and means of
achieving the goal are not readily
available
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Basic Components of Problems


Problem-solving Phases:
1.Problem identification
2.Solution generation
3.Solution evaluation
4.Implementation
a)Planning steps: what needs to be done to implement solutions to
achieve the goal
b)Action steps: implement selected solution

In complex and dynamic problems cycling back through the


problem-solving and implementation planning may be required
Well now go through each phase
1-21

Problem-solving Phases
Problem Identification
Purpose: Establish an understanding of the
problem and a definition of the problem
Involves clarification of current state of affairs
(scope? dimension?)
Involves diagnosis of potential causes of the
problem
Involves consideration of how broadly the problem
should be defined this influences the solution
Involves consideration of whether the problem is
defined in terms of a solution
1-22

Problem-solving Phases
Solution Generation
Purpose: Identify a range of possible
solutions
It is useful to generate more than one
potential solution
To allow for comparative assessment
To predict quality of final solution chosen
To combine different potential solutions
1-23

Problem-solving Phases
Solution Evaluation
Purpose: Evaluate how well the different
potential solutions move you away from the
current state and toward the desired state
Best achieved by an explicit desired state, and an
evaluation of the potential solutions against this
target
Evaluations require two predictions:
1. What effects or outcomes each solution may generate
2. How well the outcomes for each solution will satisfy your goals
Combination of these two judgments gives you an expected value of each
option
1-24

Problem-solving Phases
Implementation Planning and Execution

Purpose: Plan for and execute the steps required to


implement the chosen solution
N.B. Solution and evaluation phase are not necessarily
discrete or sequential it is good practice to take
account of the implementation phase during solution
evaluation, e.g. consider cost or ease of
implementation
Also, implementation planning and execution may reveal
the need to revisit solution generation and evaluation
1-25

Types of Problems
Static vs. Dynamic
Understanding the nature of the problem helps in
deciding the problem-solving process and in ensuring
you are solving the correct problem
Static problems = one-off problems that go away when
effectively solved. Solution analysis and steps with static
problems move you from the current state to the desired
state
E.g. buying a car or completing an assignment
Dynamic problems = those that recur over and over.
These need to be solved as a series of static problems,
or a process for solving them on an ongoing basis needs
to be created
1-26 E.g. inventory management and cash flow

Types of Problems
Structured vs. Ill-structured
The degree of structuring refers to how well the three
components of the problem are understood
Highly structured problems = those where the current
and desired states, as well as the steps for moving
between them, are clearly defined and understood
Ill-structured problems = those with a lack of
understanding at one or a combination of the three
components
Lack of understanding may be due to the nature of the
problem, or to the problem solver not having the
knowledge to solve the problem

1-27

Types of Problems
Simple vs. Complex
Complexity refers to the amount of information that has
to be processed in order to solve the problem
Common sources of complexity:
Dynamics: how the components of a problem change over
time independently of the problem solvers actions
Delays: lags in the effects of actions make it difficult to plan
solutions
Non-linear relationships between potential causes and effects
Feedback loops: situations where an outcome from your
actions (an effect) becomes a cause that influences the
current situation, which results in the need for further action
to solve problem

1-28

Feedback Loop

29

Thinking and Memory Processes


Limitations and Biases
Judgment heuristics = rules of thumb to simplify
the definition of problems and the search for and
evaluation of solutions
Availability heuristic = use of information, definitions
and solutions that are readily available (commonly, our
own experience) rather than search for more options
Representative heuristic = tendency to assume that
the causes or solutions to problems have a similar form
to the appearance of the problem
Confirmatory bias = tendency to seek and accept
information that confirms what we already believe and
1-30be resistant to information that challenges our beliefs

Thinking and Memory Processes


Types of Thinking
Divergent thinking includes mental operations leading
to alternative definitions of the problem, alternative
diagnoses, new hypotheses, new options, new
criteria, etc
Convergent thinking includes mental operations that
reduce or minimise the amount of information to be
consciously processed, e.g. by narrowing the
definition of the problem and the elimination of
options and criteria
Strategic thinking refers to mental operations by
which the problem solver moves into the conceptual
space of a problem. Addresses three issues:
1. What are the expectations of external stakeholders?
1-31
2. Consider the future in which the solution will be implemented

32

Thinking and Memory Processes


Values, Emotions and Conflict in Problem Solving
Emotional reactions are a reflection of values and
therefore are integral to the specification of goals
and desired states
Values = beliefs about what is right and wrong, and
important and unimportant, e.g. what we believe is
important is reflected in our goal/desired state

Emotions can also influence the speed of


information processing and attentiveness during
problem solving
Emotions can also lead to conflicts that interfere
with effective problem solving
1-33

Class activity 1 & 2


Group or individual task
Well do now (or this may be done
later on in the tutorial)

After this activity, well look at tools


used for problem solving
34

Problem solving tools


A range of tools are available to assist problem solving
We look at some of the basic tools in this course used in business
and management
Various tools may be useful in one or more of the problem solving
phases
We apply these tools in the next few topic 2 and 3

Sophisticated and complex tools (e.g., decision support systems) are


available also choice of tool depends upon the problem to be solved
(including characteristics and context).
35

Problem solving tools


Tools benefits and efficacy:
Information can be chunked to record, limit or

synthesise
Relationships may be specified
Integrate convergent and divergent thinking
Facilitates systematic problem assessment
Focusses problem solvers on position and context

rather than people and personalities


36

37

38

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2. Problem identification
Phase one of the problem solving process
Issues may be defined as a range of discrete problems
Problem definition is the most important and often the most difficult
phase in problem solving
The definition must be communicated clearly and agreed upon by the
problem solvers
Solutions are often not feasible, accepted or implemented due to an
ill-defined problem
We will not review some tools used to define problems. Before this,
read the Lickity Split Ice-Creeam, case from Wood et al. (2009, p. 26).
40

SWOT Analysis
Definition
A tool to identify the Strengths, Weaknesses,
Opportunities and Threats associated with the
organisational context for a particular problem
Strengths and weaknesses are internal valuecreating (or -destroying) factors (e.g. skills and
resources) that can be measured using internal
assessments or external benchmarking
Opportunities and threats are external valuecreating (or -destroying) factors a company cannot
control, but which emerge from the environment
41

SWOT Analysis
When to Use
Problem identification (exploration of
organisational context)
Solution generation (identification of
alternative problem solutions)
Solution evaluation (appraisal and
prioritisation of solutions)
To define an organisations strategy
To develop plans for work or personal life
Individuals career planning
2-42

SWOT Analysis
Simple Rules
Be realistic
Be specific
Distinguish between where your organisation
is today, and where it could be in the future
Always analyse strengths and weaknesses in
the context of your competition
Keep it short and simple
Keep in mind: A SWOT is subjective
2-43

SWOT Analysis
Guiding Questions
Strengths
Every organisation has strengths

What are your advantages?


What do you do well?
What can you offer that your competition cannot?

Dont be modest, be realistic


2-44

SWOT Analysis
Guiding Questions
Weaknesses
Every organisation has weaknesses

What could be improved?


What is done poorly?
What should be avoided?
Do you have any current problems?

This should be considered from an internal and an


external basis
Do others perceive weaknesses that you dont see?
Do your competitors do any better?
2-45

SWOT Analysis
Guiding Questions
Opportunities
All organisations have some opportunities from
which they can gain.
What chances are available?
What are the interesting trends?
Useful opportunities can come from:
Changes in technology and markets on both a broad and a
narrow scale
Changes in government policy related to your field
Changes in social patterns

2-46

SWOT Analysis
Guiding Questions
Threats
No organisation is immune

2-47

What obstacles do you face?


What is your competition doing?
Are the required specifications for your job,
products or services changing?
Is changing technology threatening your
position?

SWOT Analysis Questions


What to Look For
Potential Resource
Strengths

Potential Resource Potential Resource


Weaknesses
Opportunities

Potential Resource
Threats

Powerful strategy

No clear strategic
direction

Serving additional
customer groups

Entry of potent new


competitors

Strong brand name,


image, reputation

Outdated practices,
facilities

Expanding to new
geographic areas

Loss of sales to
substitutes

Widely recognized market


leader

Weak balance sheet,


excessive debt

Expanding product line

Slowing market growth

Proprietary technology

Higher overall costs


than rivals

Transferring skills to new


products

Adverse shifts regulatory


rules, etc

Vertical integration

Costly new regulations

Strong financial condition

Cost advantages
Staff motivations, skills

Missing some key


skills, competencies

Shared values,
commitment of staff

Openings to take MS
from rivals

Vulnerability to business
cycle

Low morale, weak


commitment of staff

Alliances

Good customer service

Growing leverage of
customers or suppliers

Better product quality

Internal operating
problems.

Alliances

Falling behind in R&D

Openings to exploit new


technologies

Too narrow product


line

Openings to extend
brand name, image

Weak marketing skills

2-48

Expansion of products,
services

Shift in buyer needs for


product
Demographic change

SWOT Analysis
Limitations
Provides a description of the organisations
position
Raises awareness
Can encourage to explore widely
Can help to inform debates
Does not identify problems
Does not provide answers
2-49

SWOT
Example 1

50

SWOT Example 2

51

SWOT Example 3

52

SWOT
Exampl
e4

53

Activity
Wood et al. (2009, p. 31)
Activity 2.2 then 2.1 box complete in
small groups one for each of SWOT if time present to class

54

PEST Analysis
Definition
A tool to identify the Political, Economic, Social
and Technological factors of a particular problem
The emphasis is on the importance of the
environment when generating solutions to
problems
Organisations environment
Internal: staff, internal customers, office technology,
wages, etc.
Micro: external customers, agents, distributors,
suppliers, competitors
Macro: political, economic, socio-cultural, technological
forces

2-55

PEST Analysis
When to Use
To assist solving more complex problems for
large businesses
Revision of a strategy, marketing proposition,
etc.
Problem identification (the position, potential
and direction for a business)
Solution generation (triggers proactive thinking
about consequences of proposed problem
solutions)
2-56

PEST Analysis
Simple Rules
Be realistic
Be specific
Distinguish between where your organisation is
today, and where it could be in the future
Always analyse strengths and weaknesses in the
context of your competition
Keep it short and simple
Keep in mind: A PEST is subjective

2-57

PEST Analysis
Guiding Questions
Political - Influence upon the regulation of
businesses

2-58

How stable is the political environment?


Will government policy influence laws that regulate or
tax your business?
What is the governments position on marketing ethics?
What is the governments position on the economy?
Does the government have a view on culture and
religion?
Is the government involved?

PEST Analysis
Guiding Questions
Economic - Consider short- and long-term
state of trading economy

2-59

Interest rates?
Inflation?
Employment level per capita?
Long-term prospects for the economy Gross
Domestic Product (GDP) per capita?

PEST Analysis
Guiding Questions
Socio-cultural - Varies from country to country

What is the dominant religion?


What are attitudes to foreign products and services?
Does language impact upon the diffusion of products onto markets?
How much time do consumers have for leisure?
What are the roles of men and women within society?
How long is the population living? Are the older generations wealthy?
What are the differences between age groups?
Does the population have a strong/weak opinion on green issues?

2-60

PEST Analysis
Guiding Questions
Technology - Major driver of globalisation

Does technology allow for products and services to


be made more cheaply and to a better standard of
quality?
Do the technologies offer consumers and
businesses more innovative products and services?
How is distribution changed by new technologies?
Does technology offer companies a new way to
communicate with consumers?
2-61

PEST Analysis
Example

2-62

Activity
Wood et al. (2009, p. 39)
Activity 2.3 box complete in small
groups one for each of SWOT - if time
present to class

63

5Ws and Root Cause Analysis


Definition
The 5Ws provide a questioning structure
for clarifying some element of a problem
through repeated questioning (what,
when, who, where, and why?)
Root cause analysis is an extension of
the 5Ws (repeatedly asking why, in order
to get to the root cause of a problem)
2-64

5Ws and Root Cause Analysis


When to Use
Problem identification
To be used to clarify and redefine problems
To provide cues for determining the goals
To find out what additional data and analyses is needed

Solution generation
Can be used in combination with a fishbone diagram
To explore all potential or actual causes for a problem

Most useful when problems involve human factors or


interactions
2-65

5Ws and Root Cause Analysis


Simple Rules
All problems can be defined in terms of five simple
attributes:
1.the
2.the
3.the
4.the
5.the

What?
When?
Who?
Where?
Why?

. Not all attributes are relevant for all problems


. The What?-attribute is always relevant and should be addressed
first
. The Why?-attribute should be addressed last
. Avoid thinking about solutions before all the attributes are known
2-66

5Ws and Root Cause Analysis


Guiding Questions
What: What is the problem here?
What do we need to know? What would the ideal situation look
like? What criteria will we use to measure our success at
solving this problem?

Where: This refers to the physical or structural locations


of problems
Where does the problem usually arise? Where might we expect
problems to arise?

When: Timing issues include:


When does the problem occur? When do we have to be done?
When will the solution be used?
2-67

5Ws and Root Cause Analysis


Guiding Questions
Who: This refers to who is affected by a
problem or who is the source of a problem
Who is involved in the problem? Who will
determine whether or not we have succeeded?

Why: This is used for determining either


values/goals or, more commonly, the cause
of a problem
Why do we need to solve this problem? Why is
that happening? Why do people react in that way?

2-68

69

5Ws and Root Cause Analysis


Limitations
This tool relies on inferences, hence
assumptions / conclusions can be incorrect
use of data (hard evidence)

2-70

5Ws Analysis Example

2-71

Value Chain Analysis


Definition
Tool for analysing the activities in which
a firm can pursue a competitive
advantage strategy (e.g. low cost
versus differentiation)
Can help to make the implementation of
competitive strategies more systematic
2-72

Value Chain Analysis


Two Categories of Activities
Primary activities are those involved in the creation,
sale and transfer of products or service (including
after-sales)
Inbound logistics concerned with receiving, storing,
distributing inputs
Operations comprise the transformation of the inputs
into the final product form
Outbound logistics involve the collecting, storing, and
distributing the product to the buyers
Marketing and sales how buyers can be convinced to
purchase the product
Service involves how to maintain the value of the
2-73product after it is purchased

Value Chain Analysis


Two Categories of Activities
Support activities are not directly involved in production,
but should increase a firms effectiveness or efficiency
Procurementconcerned with the tasks of purchasing inputs
such as raw materials, equipment, and labour
Technology developmentthese activities are intended to
improve the product and the processes and can occur in many
parts of the firm
Human resource managementrecruiting, hiring, training,
development, performance, management and compensation
Firm infrastructurethe activities that are not specific to any
primary area; including general management, planning,
finance, and accounting
2-74

Value Chain Analysis


When to Use
Problem identification (identification of

obstacles to implementing a competitive


strategy)
In combination with a SWOT analysis of the

value chain, it can facilitate effective


outsourcing decisions
Evaluation of strategic alliance choices
2-75

Value Chain Analysis


Simple Rules
In a company with more than one product area, it is
appropriate to conduct the value chain analysis at the
product group level, and not at the corporate strategy
level
Be sure to include the subcontracted or outsourced
portions of work as activities
Do not just look at each activity independently; the value
chain is a system of activities that are interdependent
because they are related by their linkages
If you have strong relationships with one or more of your
customers, it may be worth presenting your conclusions
to them and getting their feedback
2-76

Value Chain Analysis


Three Simple Steps
Step 1: Activity analysis
Identify the activities you take to deliver your product or
service to the customer
Start with primary activities, continue with support activities

Step 2: Value analysis


Add to all activities listed customer value factors
Add to needs to be improved in order to further differentiate
you from competitors

Step 3: Planning and implementation


Evaluate ideas for increasing value to your customers with
regard to costs and benefits
Be aware of linkages between activities
2-77

Value Chain Analysis


Framework

2-78

Example 2

79

Value Chain Analysis


Limitations
Time consuming
Typically used for industrial
organisations that buy material and
transform these into physical products
Hence, adaptations are needed to
apply this tool to service-based
industries
2-80

Assessment 1 - Quiz
Online automated quiz available from the
course site
Due date: 31 May 2015 (11:55 p.m.)
Details of task:
Self-paced series of quizzes completed online
for topics 1 to 12 (60 questions in total)
Important: All questions for each of 12 topic
81
quizzes must be answered correctly Multiple

Assessment 1 - Quiz
Note that once all correct answers has been submitted for a
topic then further attempts will not override this completed
status.

Weighting/Value: Contributes 10% towards assessment all questions must be answered correctly (otherwise zero
marks)

Your progress on the quiz is available on the course site. If


you are in any doubt that you have completed this
assessment then check completion with the course lecturer.
82

For next week:


Become familiar with assessment and deadlines
Complete activities 2.4, 2.5 & 2.6 ( Wood et al., from p. 45) or
activity 2.7 (Wood et al., from p. 53)

Pre-read Wood Chapters 3 & 4


Complete Quiz topic 1
83

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