Chapter 6: Decision Making

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Chapter 6Decision Making
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Learning Objectives
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• Explain why decision making is an important
  component of good management.
• Explain the difference between programmed and
  nonprogrammed decisions and the decision
  characteristics of risk, uncertainty, and
  ambiguity.
• Describe the classical, administrative, and
  political models of decision making and their
  applications.
• Identify the six steps used in managerial
  decision making.
• Explain four personal decision styles used by
  managers.
• Discuss the advantages and disadvantages of
  participative decision making.
• Identify techniques for improving decision making
  in todays turbulent environment.
• Describe the importance of information technology
  (IT) for organizations and the attributes of
  quality information.

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Decisions and Decision Making
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Decision Making the process of Identifying
problems And opportunities and Then resolving
them.
Decision - choice made from available
alternatives
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Categories of Decisions
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• Programmed Decisions
• Rules developed from frequent occurrences
• Response to recurring organizational problems
• Nonprogrammed Decisions
• Unique, poorly defined and unstructured
• Important consequences

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Certainty, Risk, Uncertainty, Ambiguity
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• Certainty
• all the information is fully available
• Risk
• decision has clear goals
• information is available
• future outcomes are subject to chance
• Uncertainty
• managers know which goals they wish to achieve
• information is incomplete
• may need to develop creative alternatives
• Ambiguity
• goals to be achieved or the problem to be solved
  is unclear
• alternatives are difficult to define
• information about outcomes is unavailable

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Conditions that Affect the Possibility of
Decision Failure
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Exhibit 6.1
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Three Decision-Making Models
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• Classical Model

• Administrative Model

• Political Model

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Classical Model
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• Assumptions
• Operates to accomplish goals that are known and
  agreed upon
• Strives for condition of certainty gathers
  complete information
• Criteria for alternatives are known
• Decision maker is rational and uses logic

Normative - describes how a manager should and
provides guidelines for reaching an ideal decision
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Administrative Model
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• How managers make difficult decisions
• Bounded rationality people have limits or
  boundaries on how rational they can be
• Satisficing means that decision makers choose
  the first solution alternative that satisfies
  minimal decision criteria

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Administrative Model (contd.)
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• Decision goals often are vague, conflicting and
  lack consensus among managers
• Rational procedures are not always used
• Managers searches for alternatives are limited
• Managers settle for a satisficing rather than a
  maximizing solution

Descriptive is how managers actually make
decisions--not how they should. Intuition is
when managers lean on past experiences.
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Political Model
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• Closely resembles the real environment in which
  most managers and decision makers operate
• Useful in making non-programmed decisions
• Decisions are complex and involve people and
  information
• Disagreement and conflict over problems and
  solutions are normal

Coalition - informal alliance among manages who
support a specific goal
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Characteristics of Classical, Political, and
Administrative Decision Making Models
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Exhibit 6.2
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Six Steps in the Managerial Decision Making
Process
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Exhibit 9.3
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Diagnosis and Analysis of Causes
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• Diagnosis - analyze underlying causal factors

Managers make a mistake if they jump into
generating alternatives without first exploring
the cause of the problem more deeply
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Underlying CausesKepner /Tregoe
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• What is the state of disequilibrium affecting us?
• When did it occur?
• Where did it occur?
• How did it occur?
• To whom did it occur?
• What is the urgency of the problem?
• What is the interconnectedness of events?
• What result came from which activity?

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Selection of Desired Alternatives
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• Evaluate Risk Propensity - willingness to
  undertake risk with the opportunity of gaining an
  increased payoff
• Implement Alternative - using managerial,
  administrative, and persuasive abilities to
  translate alternative into action
• Evaluation and Feedback how well was the
  decision implemented? Was it effective in
  achieving the goal?

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Personal Decision Framework
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• Not all managers make decisions the same.
• Directive style
• Analytical style
• Conceptual style
• Behavioral style

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Personal Decision Framework
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• Situation
• Programmed/non-programmed
• Classical, administrative,
  political
• Decision steps

Decision Choice Best Solution to Problem

• Personal Decision Style
• Directive
• Analytical
• Conceptual
• Behavioral

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Directive Style
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• People who prefer simple, clear-cut solutions to
  problems
• Make decisions quickly
• May consider only one or two alternatives
• Efficient and rational
• Prefer rules or procedures

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Analytical Style
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• Complex solutions based on as much data as they
  can gather
• Carefully consider alternatives
• Base decision on objective, rational data
• Search for best possible decision based on
  information available

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Conceptual Style
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• More socially oriented
• Consider others about the problem and possible
  solutions
• Consider many broad alternatives and information
• Rely on information from people and systems
• Solve problems creatively

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Behavioral Style
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• Deep concern for others
• Talk to people one-on-one
• Understand individual feelings about the problem
  and possible effects
• Concerned with the personal development of others
• Decisions to help others achieve their goals

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Participation in Decision Making
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• Vroom-Jago Model - Helps gauge the appropriate
  amount of participation for subordinates in
  process
• Leader Participation Styles
• Five levels of subordinate participation in
  decision making

Highly Autocratic to Highly
Democratic
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Participation in Decision Making
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• Vroom-Jagon Diagnostic Questions
• Decision Significance
• Importance of Commitment
• Leader Expertise
• Likelihood of Commitment
• Group Support of Goals
• Group Expertise
• Team Competence

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Multiple Decision Styles

• The Vroom-Jago model is criticized
• The model is useful and has supporting research
• Overall, todays managers are increasing
  participation in decision-making
• Broad participation contributes to organizational
  learning

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New Decision Approaches for Turbulent Times
New Decision Approaches for Turbulent Times
Practice the Five Whys
Brainstorming
Know When to Bail
Engage in Rigorous Debate
Learn, Dont Punish
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Information Technology Has Changed Everything
Information Technology

• Boundaries Dissolve, Collaboration Reigns
• People Do Better Work
• Things are More Efficient
• Employers are Engaged

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Information Overload

• Information is required for good decision making
• But a major problem in technology advances is to
  much information
• Information Fatigue Syndrome
• Organizations must work to define information
  quality
• Focus on key strategies and critical questions

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Data versus Information
Data raw facts Information Meaningful, useful
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The Evolving World of IT

• Power has shifted to individuals
• Blogs
• Social Networking
• MySpace
• Facebook
• Friendster
• TagWorld

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Types of Information Systems

• Operations Information Systems
• Supports day-to-day operations
• Transaction-processing systems record and process
  transactions
• Process control systems record and monitor
  changes
• Office automation include software like word
  processing, spreadsheets, databases.
• Management Information Systems
• Information and support for decision making

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Management Information Systems
Exhibit 6.9
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Internet and E-Business
World Wide Web user friendly interface for
communicating on the internet
Internet global collection of computer
networks linked together
E-business any digital processes
E-Business electronic business exchanges or
transactions
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Key Components of E-Business
Intranet an internal communications systems
that uses the technology of the Internet.
Extranet an external communications system
shared by organizations hat uses
Internet technology
Electronic data interchange networks link
computers of buyers and sellers for ordering,
distribution, payables and receivables.
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E-Business Strategies
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E-Marketplaces

• More companies are positioning their website for
  the international market
• The biggest growth in e-commerce has been B2B

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Managing Knowledge

• Companies are using technology to manage
  knowledge through
• Corporate Intranets
• Business intelligence software
• Networks
• And companies are managing knowledge about
  customers through Customer Relationship
  Management (CRM) systems