Managerial Decision Making

Decision making

process through which managers identify and resolve problems and capitalize on opportunities

Problem

a situation in which some aspect of organizational performance is less than desirable

Opportunity

situation that has the potential to provide additional beneficial outcomes

Steps in decision making process

1. identify opportunities and diagnosing problems 2. identifying objectives 3. generating alternatives 4. evaluating alternatives 5. reaching decisions 6. choosing implementation strategies 7. monitoring and evaluating

Identifying Opportunities and diagnosing problems

decision makers must know where action is required. The first step in decision making process is the clear identification of opportunities or the diagnosis of problems that require a decision.

Identifying objectives

Objectives reflect the results the organization wants to attain. Objective is the desired result to be attained when making decisions.

Generating Alternatives

once an opportunity has been identified or a problem diagnosed, managers develop various ways to solve the problem and achieve objectives. Alternatives: a strategy that might be implemented in decision making situation.

Evaluating Alternatives

this step involves determining the adequacy and value of the alternatives. which solution is best? Ability to assess the advantages and disadvantages of each alternative

Reaching Decisions

Making a final choice

Choosing Implementation strategies

keys to effective implementation: 1. sensitivity to those who will be affected by the decision 2. proper planning and consideration of the resources necessary to carry out the decision.

Monitoring and evaluating feedback

decision making process is complete when the impact of decisions have been evaluated. managers must obtain the impact of the decision as objectively as possible.

Models of decision making

1. rational economic decision model 2. behavioral decision model

Rational-economic model

1. Prescriptive model- suggests how decisions SHOULD be made. 2. Basic Premise: decision making will be rational, systematic, and logical. 3. Assumes the decision maker: -has "perfect" information; -operates to accomplish objectives that are known and agreed on and has extensive list of alternatives to choose from; -work for organizations best interest; – no ethical dilemmas arise in the decision making process.

Behavioral Model

1. Descriptive Model- suggests how decisions are actually made. (descriptive framework for understanding that a persons cognitive ability to process information is limited) 2. Basic premise: human limitations make rational decision making difficult to achieve. 3. Accompanying Assumptions: -Bounded rationality affects decision making process. -Experience-based intuition will affect the decision making process. -Decision makers will accept a satisfying decision. -Escalation of commitment may occur.

Behavioral Decision Model: Bounded Rationality

this notion recognizes that people cannot know everything; they are limited by such organizational constraints as time, information, resources, and their own mental capacities.

Behavioral Decision Model: Intuition

An unconscious analysis based on past experience

Behavioral Decision Model: Satisficing

The search for and acceptance of something that is satisfactory rather than perfect or optimal.

Behavioral Decision Model: Escalation of Commitment

the tendency to increase commitment to a previously selected course of action beyond the level that would be expected if the manager followed and effective decision making process.

Participative Model: Vroom and Yetton Model

1.Helps managers determine when group decision making is appropriate. 2. postulates that there are 5 decision making styles: the decision methods become more participative as one moves from highly autocratic style to the group style, where managers allows the group to decide.

Participative Model: Vroom and Jago Model

The nature of the decision itself determines the appropriate degree of participation- diagnostic questions help managers select the appropriate level.

A participative decision style is desirable when:

1. subordinates have useful information and share the organizations goals. 2. subordinates commitment to the decision is essential. 3. timeliness is not crucial. 4. conflict is unlikely.

Advantages of Group decision making

1. experience and expertise of several individuals 2. more information, data, and facts 3. problems viewed from different perspectives 4. higher member satisfaction 5. greater acceptance and commitment to decisions

Disadvantages of group decision making

1. greater time requirement 2. minority domination 3. compromise 4. concern for individual rather than group goals 5. social pressure to conform 6. groupthink

Groupthink

An agreement at any cost mentally that results in ineffective group decision making

Characteristics of Groupthink

1. illusions of invulnerability 2. collective rationalization 3. belief in the morality of group decisions 4. self-censorship 5. illusion of unanimity in decision making 6. pressure on members who express arguments

Types of Defective Groupthink decisions

1. incomplete survey of alternatives 2. incomplete survey of goals 3. failure to examine risks of preferred decisions 4. poor information search 5. failure to reappraise alternatives 6. failure to develop contingency plans

Techniques for quality in group decision making

1. Brainstorming 2. Nominal group techniques 3. Delphi Technique 4. Devils advocate approach 5. dialectical inquiry

Brainstorming

technique used to enhance creativity that encourages group members to generate as many novel ideals as possible on a given topic without evaluating them.

Rules of Brainstorming

1. Freewheeling is encouraged 2. ideas are not criticized as they are being generated 3. quality is encouraged 4. the wilder the ideas the better 5. piggyback on previously stated ideas 6. ideas are evaluated after alternatives are generated.

Nominal Group Technique

structured process designed to stimulate creative group decision making where agreement is lacking or where the members have incomplete knowledge concerning the nature of the problem.

Delphi Technique

Approach that uses experts to make predictions and forecasts about future events without meeting face to face.

Devils advocate approach

approach in which an individual or subgroup is appointed to critique a proposed course of action and identify problems to consider before the decision is final.

Dialectical Inquiry

Method that approaches a decision from two opposite points and structures a debate between conflicting views.