Module 3 Managerial Decision Making

1
Module 3Managerial Decision Making
2
Objectives

• To identify and explain the different types of
  problems and decisions facing decision makers
• To identify and explain the basic steps in the
  effective problem solving model
• To recognise common decision making barriers and
  how to improve problem solving, making the most
  of opportunities
• To assess the advantages and disadvantages of
  group decision making and
• To describe the major techniques for enhancing
  group creativity.

3
Topics

• Basic steps in the effective problem solving
  model
• Different types of decisions facing decision
  makers
• Common decision making barriers and problem
  solving and decision making improving
• Access the advantages and disadvantages of group
  decision making
• Readings
• Study guide Module 3
• Textbook Chapter 5

4
Decision Making

• The process by which managers identify problems
  and try to resolve them

5
Effective Decision Making Process

• Steps to effective decision making
• Identify the problem
• Scan for change, categorise as
  problem/non-problem, diagnose nature and cause.
• Generate alternative solutions
• Uncritically brainstorm to develop alternatives,
  combine improve ideas.
• Evaluate and choose an alternative
• Feasibility, quality, cost, reversibility,
  ethics, acceptability.
• Implement and monitor the chosen solution
• Plan and implement, evaluate effect on others,
  monitor.

6
STEPS INDECISION MAKING
Identification of the problem

Generate alternative solutions
Evaluate alternatives
Evaluation of decision effectiveness
Choose an alternative
Implement and monitor the chosen alternative
7
Nature of Managerial Decision Making

• Types of problems faced
• Crisis problems
• Serious require immediate action
• Non-crisis problems
• Require resolution but not both immediate and
• important
• Opportunity problems
• Opportunity for organisational gain IF
  appropriate action taken (Chinas largest PC
  maker, Lenovo, decides to buy IBM PC unit to
  seeks to tap into overseas market)

8
Nature of Managerial Decision Making

• Type of decision-making
• Programmed decisions (first line and middle
  mangers decisions)
• Routine, repetitive, well-structured situations
  by use of pre-determined decision rules. Ex
  handling customer complaints
• Non-programmed decision-making (top-level
  managers decisions)
• Unique and non-recurring situation
• No cut-and- dried solution
• Require custom-made response
• The frequency of non-programmed decisions grows
  by organisational level
• These decisions need decision skill and
  creativity.

9
Nature of Managerial Decision Making

• Decision making conditions
• Certainty (programmed decision making)
• Risk (non-programmed decision making)
• Those conditions in which the decision maker is
  able to estimate the likelihood of certain
  outcomes (depends on decision makers experience
  and secondary information)
• Risk-based decision making
• ?
• For example, you are running a ski resort and
  intending to add a lift to your current facility.
  Could this decision generate additional revenue
  for you?
• Decision for developing new shipping route, port
  infrastructureetc.

10
Nature of Managerial Decision Making

• Uncertainty ((non-programmed decision making)
• A situation in which a decision maker has
  neither certainty nor reasonable probability
  estimates available (limited information to the
  decision maker) ex how will your major
  competitor response to your marketing strategy?

11
Managers as Decision Makers Problem Solving
Approaches

• Rational model
• Model suggesting managers engage in completely
  rational decision processes, ultimately making
  optimal decisions, and possess and understand all
  information relevant to their decisions at the
  time they make them.
• Non-rational models (Bounded Rationality)
• Models suggesting information gathering and
  processing limitations make it difficult for
  managers to make optimal decisions.
• Intuition

12
Bounded Rationality

• the ability of managers to be perfectly rational
  in making decisions is limited by facts such as
• Inadequate information
• Time and cost constraints
• cognitive capacity
• Ex satisficing model
• Managers seek alternatives only until they find
  one which looks satisfactory, rather than seeking
  an optimal decision.

13
An optimal decision is possible
All relevant information is available
Rational decision making
All relevant information is understandable
All alternatives are known
All possible outcomes known
14
Time constraints

Limited ability to understand all factors
Satisficing decision making
Inadequate base of information
Limited memory of decision-makers
Poor perception of factors to be considered in
decision process
15

• Intuition in decision making
• Do you use intuition to make decision?
• What is intuition?
• instinct? Guess? Speculation?
• Researchers have found intuition plays an
  important role in decision making process.
  However, it is believed that personal intuition
  is normally formed in terms of knowledge and
  experience rather than instinct or speculation.

16
Decision making style
high
Tolerance for ambiguity
low
Way of thinking
rational
Creative or intuitive
Source Robbins and DeCenzo (1998 in Robbins et
al. 2006)
17
Barriers to Effective Decision Making

• Behaviours when facing a problem (difficulty or
  opportunity)
• Complacency
• Individuals either do not see signs of
  danger/opportunity, or avoid them.
• Defensive avoidance
• Individuals either deny the importance of a
  danger/opportunity or deny any responsibility
  for taking action.
• Panic
• Individuals become so upset they frantically
  seek a way to solve the problem.
• Deciding to decide
• Decision makers accept the challenge and follow
  an effective decision-making process.

18
Major Barriers to Decision-Making

• Barriers not only affect a decision makers
  evaluation of alternatives but also influence the
  process of identifying problems and alternative
  solutions
• Perception
• Your ability to make effective and creative
  decisions can be stifled by preconceptions
  influenced by your perception of your world
• Overconfidence
• Tendency to be more certain of judgments
  regarding the likelihood of a future event than
  ones actual predictive accuracy warrants.

19
Group Decision Making
DISADVANTAGES
ADVANTAGES

Time-consuming
More information available
Delays ill feeling possible
More alternative solutions
Increases solution understanding acceptance
Domination by individuals
Builds member knowledge skill base
Risk of groupthink
20
Enhancing Group Decision Making Process

• Devils advocates individuals assigned the role
  of making sure negative aspects of any attractive
  decision alternative are considered
• Dialectical inquiry procedure in which a
  decision situation is approached from two
  opposite points of view
• Groupware Software designed support
  collaborative efforts among group members, ex
  scheduling and holding meetings, collaborating on
  projects and sharing documents

21
Techniques To Improve Group Decisions
Better group decision making
Devils advocates

Dialectic inquiry
Groupware use
22
Promoting InnovationCreativity in Decision
Making

• Creativity is the cognitive process of
  developing an idea, concept, commodity or
  discovery viewed as novel by its creator or
  target audience.

23
Creativity In Decision Making

• Three basic ingredients necessary for
  creativity
• Domain-relevant skills
• Expertise in a field relevant to the problem
• Creativity-relevant skills
• Skills in generating novel ideas, approaches,
  modes of thinking about problems
• Task motivation
• Interest in the task for its own sake, a desire
  to resolve the problem

24
Conceptual Blocks Barriers To Creativity

• Constancy Individual becomes wedded to one way
  of looking at a problem or to use one approach to
  define , describe, or solve it.
• Vertical thinking
• One thinking language
• Commitment Once individuals become committed to
  a particular point of view, definition or
  solution, it is likely that they will follow
  through on that commitment.
• Stereotyping based on past experience
• Ignoring commonalities

25
Conceptual Blocks Barriers To Creativity

• Compression looking too narrowly at a problem,
  screening out too much relevant data or making
  assumptions that inhibit problem solution are
  common examples.
• Distinguishing figure from ground
• Artificial constraints
• Complacency
• A lack of questioning
• Bias against thinking avoid doing mental work

26
Enhancing Group Creativity

• Brainstorming
• Group members generate as many novel ideas as
  they can on a topic, without evaluation
• Nominal group technique (NGT)
• Enhances creativity and decision making by
  integrating individual work and group interaction
  within ground rules
• Generating Ideas Each individual in the group
  silently generates ideas and writes them down.
• Recording Ideas Group members engage in a
  round-robin feedback session to concisely record
  each idea.
• Discussing Ideas Each recorded idea is then
  discussed to obtain clarification and evaluation.
  
• Voting on Ideas Individuals rank or vote
  privately on the priority of ideas, and the group
  decision is made based on these ratings.

27
Techniques To Enhance Group Creativity
Better group creativity

Brainstorming
Nominal group technique
28
Overview of managerial decision making
Source Robbins et al.(2006)
29
In class activities

• Share your experience in making decisions in any
  area such as your job, study or daily life.
  Illustrate a situation when you felt you made a
  good decision and identify the factors with which
  you made a good decision. Also illustrate any
  experience, if possible, in making a bad
  decision. And what happened to make them bad.
  Have you used the framework of decision making
  learned from this lecture?
• Discuss how to increase AMC student numbers,
  using the NGT method to make decisions.