C9 Managerial Decision Making

Cards (33)

  • Decision
    A choice made from available alternatives
  • Decision making

    The process of identifying problems and opportunities and then resolving them
  • Programmed decisions
    Involve situations that have occurred often enough to enable decision rules to be developed and applied in the future
  • Nonprogrammed decisions
    Are made in response to situations that are unique, are poorly defined and largely unstructured, and have important consequences for the organization
  • Certainty
    Situation in which all information the decision maker needs is fully available
  • Risk
    Decision has clear-cut goals and good information is available, but future outcomes associated with each alternative are subject to chance of loss or failure
  • Uncertainty
    Goals are known, but information about alternatives and future events is incomplete
  • Decision-Making Models
    • Classical model
    • Administrative model
    • Political model
  • Classical model
    • Decision-making model based on rational economic assumptions and manager beliefs about what ideal decision making should be
    • Normative: how a decision maker should make a decision
    • Does not describe how managers actually make decisions hence, often unattainable
    • But, the model helps decision makers be more rational and not rely entirely on personal preference in making decisions
  • Assumptions of Classical model
    • Operates to accomplish known goals; problems are defined
    • Strives for certainty and gathers information; alternatives and results are calculated
    • Criteria for evaluation of alternatives are known; selects alternative that maximizes economic return
    • Decision maker is rational and uses logic; decision maximizes attainment of organizational goals
  • Administrative model

    • Descriptive: how managers actually make decisions in complex situations
    • Bounded rationality: people have limits or boundaries on how rational they can be
    • Satisficing: decision makers choose the first solution that satisfies minimal decision criteria (good enough)
  • Assumptions of Administrative model
    • Goals are often vague; managers are unaware of problems
    • Rational procedures are not always used; simplistic view of problems
    • Managers' searches for alternatives are limited
    • Most managers settle for satisficing
  • Intuition- Administrative Model

    Quick apprehension of decision situation based on experience but without conscious thought
  • Quasirationality
    Combining intuitive and analytical thought
  • Political model
    • Nonprogrammed decisions when conditions are uncertain, information is limited, and there is manager conflict about goals to pursue or action to take
    • Resembles the real environment
    • Coalition: informal alliance among managers who support specific goal
    • Without a coalition, powerful groups can derail the decision-making process
  • Assumptions of Political model
    • Organizations are made up of groups with diverse interests, goals, and values
    • Information is ambiguous and incomplete
    • Managers do not have the time, resources, or mental capacity to identify all dimensions and process all information regarding a problem
    • Decisions are the result of bargaining and discussion among coalition members
  • Decision-Making Steps
    1. Recognition of decision requirement: identify problem or opportunity
    2. Diagnosis and analysis: analyze underlying causal factors
    3. Develop alternatives: develop possible alternative solutions that will respond to the needs of the situation and correct the underlying causes
    4. Selection of desired alternative: best alternative is one in which the solution best fits the firm's overall goals and values and achieves the desired results using the fewest resources
    5. Implementation of chosen alternative: the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out
    6. Evaluation and feedback: gather information to determine how well the decision was implemented and whether it achieved its goals
  • S1: Problem & Opportunity
    Organizational accomplishment is less than established goals
    Managers see potential accomplishments that exceed current goals
  • S2: 5 Whys
    A question-asking method used to explore the root cause underlying a particular problem
  • S4: Risk propensity/tendency
    Willingness to undertake risk with the opportunity of gaining an increased payoff
  • Personal Decision Frameworks
    • Directive style
    • Analytical style
    • Conceptual style
    • Behavioral style
  • Directive style

    • People who prefer simple, clear-cut solutions to problems – may consider only one or two alternatives
    • Efficient and rational and prefer to rely on existing rules and procedures
  • Analytical style

    • Managers prefer complex solutions based on a lot of data
    • Search for the best possible decisions based on info. available
  • Conceptual style

    • Managers like a broad amount of information – talk to others about the problem and its possible alternatives
    • Rely on info. from both people and systems and like to solve problems creatively
  • Behavioral style

    • Managers have a deep concern for others – consider the effect of decision on other people
    • Make decisions that help others develop and achieve their goals
  • Brainstorming
    Uses a face-to-face interactive group to spontaneously suggest as many ideas as possible for solving a problem
  • Electronic brainstorming
    Brings people together in an interactive group over a computer network
  • Evidence-based decision making

    A commitment to make more informed and intelligent decisions based on the best available facts and evidence
  • Point–counterpoint (Dialectical Inquiry)

    A technique which breaks a decision-making group into two subgroups and assigns them different, often competing, responsibilities
  • Groupthink
    Tendency of people in groups to suppress contrary opinions
  • Escalating commitment
    Continuing to invest time and money in a solution even when there is strong evidence that it is not appropriate
  • After-action review
    Disciplined procedure whereby managers invest time in reviewing the results of decisions on a regular basis and learn from them
  • Why make Bad Decision?

    Anchoring Bias:
    Occurs when we allow initial impressions, statistics, and estimates to act as anchors to our subsequent thoughts and judgements
    Sunk Cost Effect:
    When a manager continues to pour money into a failing project, hoping to turn things around
    Confirmation Bias:
    Occurs when a manager puts too much value on evidence that is consistent with a favored belief or viewpoint
    Being influenced by emotions
    Being overconfident