MANAGEMENT A PACIFIC RIM FOCUS

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MANAGEMENTA PACIFIC RIM FOCUS

• ELE2EMT
• Lecture 5
• 29 August, 2007
• MANAGERIAL DECISION MAKING

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Lecture outline

• The nature of managerial decision making
• Managers as decision makers
• Effective decision making
• Barriers to effective decision making
• Group decision making
• Creativity in decision making

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TYPES OF PROBLEMS

• Crisis problem - is a serious difficulty
  requiring immediate action.
• A non-crisis problem - is an issue requiring
  resolution but not with the importance and
  immediacy characteristics of a crisis.
• An opportunity problem - is a situation offering
  a strong potential for significant organisational
  gain if appropriate actions are taken.

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AN OPPORTUNITY TO EXCEL

• Opportunities involve ideas to be used, rather
  than difficulties needing resolution.
• Non-innovative managers tend to focus on problems
  instead of opportunities.

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THE NATURE OF MANAGERIAL DECISION MAKING

• Programmed decisions - application of experience,
  rules, policy
• Non-programmed decisions - new or complex,
  degrees of uncertainty
• The element of risk

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Non-Programmed Decisions
Decision Type
Programmed Decisions
Lower
Middle
Top
Management Level
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PROGRAMMED DECISIONS

• Programmed decisions are those made in routine,
  repetitive, well-structured situations through
  predetermined decision rules.
• Computers are an ideal tool for dealing with
  complex programmed decisions.
• Most decisions made by first-line managers and
  many by middle managers are programmed decisions.

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NON-PROGRAMMED DECISIONS

• Non-programmed decisions are those for which
  predetermined decision rules are impractical
  (novel situations and/or ill-structured).
• Uncertainty is a condition in which the decision
  maker must choose a course of action without
  complete knowledge of the consequences following
  implementation.
• Risk is the possibility a chosen action could
  lead to losses rather than the intended results.
• Uncertainty is seen as the reason why a situation
  is risky.
• A rapidly changing environment is a major cause
  of uncertainty.

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MANAGERS AS DECISION MAKERS

• The rational decision-making model
• Non-rational models
• Satisficing
• Incremental
• Rubbish bin

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Managers as decision makers Assumptions of the
Rational Model
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
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Managers as decision makers Satisficing
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
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Nonrational models

• Satisficing
• Seek alternatives till one is found which is
  satisfactory rather than optimal e.g. when cost
  of delaying is not justified.
• Incremental
• Managers make the smallest response which reduces
  the problem to a tolerable level. Longer term
  implications?
• Rubbish-bin
• Managers behave in a virtually random way in
  making non-programmed decisions. Often caused by
  absence of a strategic framework.

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Promoting effective decision making

• Steps to effective decision making
• Identifying the problem
• - Scan for change categorise as
  problem/non-problem diagnose nature and cause
• Generating alternative solutions
• - Uncritically brainstorm to develop
  alternatives combine and improve ideas
• Evaluating and choosing an alternative
• - Feasibility, quality, cost, reversibility,
  ethics, acceptability
• Implementing and monitoring the chosen solution
• - Plan and implement evaluate effect on others
  monitor

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Steps in decision-making
Identification of the problem
Generate alternative solutions
Evaluate alternatives
Evaluation of decision effectiveness
Choose an alternative
Implementation and monitoring of the chosen
alternative
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Some techniques/tools(used in practice by
lecturer)

• Brainstorming
• The 7 Quality Tools
• Cause and Effect (Fishbone) Diagram
• Check Sheet
• Pareto Diagram (80/20 rule)
• Histogram
• Scatter Diagram
• Run Chart
• Control Chart
• Quadrant Diagram
• Performance data
• Trend graph
• Cause/effect analysis
• Actions
• Kepner Tregoe Problem-solving and Decision
  Analysis

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Kepner Tregoe Problem-solving and Decision
Analysis

• In a problem-solving situation
• Analysis of problem symptoms
• Evaluation of what is and what is not happening
• Aim is to identify root cause of the problem
• In decision analysis
• Identify the alternatives
• Identify the must have characteristics of the
  solution
• Identify and rate the desirable aspects of the
  solution.
• Identify any adverse consequences of each
  solution and evaluate.
• Select the preferred solution

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Overcoming barriers to effective decision making

• 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.

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Decision-making biases

• Framing
• - Tendency to make different decisions,
  depending on how a problem is presented.
• Prospect theory
• - Decision makers find the prospect of an actual
  loss more painful than giving up the possibility
  of a gain.
• Representativeness
• - Tendency to be overly influenced by
  stereotypes in making judgments about the
  likelihood of occurrences.

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Decision-making biases

• Availability
• - Tendency to judge the likelihood of an
  occurrence on the basis of the extent to which
  other like instances can easily be recalled.
• Anchoring and adjustment
• - Tendency to be influenced by an initial
  figure, even when the information is largely
  irrelevant.
• Overconfidence
• - Tendency to be more certain of judgments
  regarding the likelihood of a future event than
  ones actual predictive accuracy warrants.

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Decision escalation

• Situations signalling a strong possibility
• of escalating commitment and
• accelerating losses
• May take two forms
• Non-rational escalation
• Sunk costs

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Decision escalation

Escalating commitment and accelerating losses
Non-rational escalation increased commitment of
resources beyond rational limits
Sunk costs not recoverable, and should not
influence decision-making
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Managing diversity Group decision-making
Advantages
Disadvantages
Time consuming
More information available
Delays ill feeling possible
More alternative solutions
Increases solution understanding acceptance
Domination by individuals
Risk of groupthink
Builds member knowledge skill base
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Techniques to improve group decisions
Member diversity
Better group decision making
Expert members
Devils advocates
Dialectic inquiry
Groupware use
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Promoting innovation the creativity factor

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

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Creativity in decision making

• Creativity requires both
• Convergent thinking
• Attempting to move logically to a problem
  solution.
• Divergent thinking
• Generating new ways of viewing a problem and
  seeking novel alternatives.

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Basic ingredients of 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

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Stages of creativity

• Preparation
• - Gathering information, defining problem,
  generating alternatives, analysing data
• Incubation
• - Subconscious mental activity and divergent
  thinking
• Illumination
• - Insights gained breakthroughs made
• Verification
• - Testing validity of insight logical thinking

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TECHNIQUES TO ENHANCE GROUP CREATIVITY
Brainstorming
Better group creativity
Nominal group technique
Delphi technique
Scenario analysis
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SUMMARY OF MANAGERIAL DECISION MAKING.

• The nature of managerial decision making
• Programmed, non-programmed, risk
• Managers as decision makers
• The rational and non-rational models
• Steps in decision-making
• Identifying problems, finding alternatives ,
  choosing a course of action, implementing
  monitoring an alternative

• Barriers to effective decision-making
• Complacency, defensive avoidance, panic
• Decision-making biases, decision-escalation
• Managing diversity Group decision-making
• Pros cons of group decision-making
• Group decision-making techniques diversity,
  expert members, devil's advocates, dialectic
  inquiry, GroupWare use
• Promoting innovation
• Brainstorming, nominal group techniques, Delphi
  method, scenario analysis

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Thanks for your attention