Decision Making

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Chapter 6: Decision Making

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Learning Objectives • • • • • • • • 06/19/09

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 today’s turbulent environment. Describe the importance of information technology (IT) for organizations and the attributes of quality information. 2

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Decisions and Decision Making

Decision choice made from available alternatives

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Decision Making – the process of Identifying problems And opportunities and Then resolving them.

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Categories of Decisions • Programmed Decisions – Rules developed from frequent occurrences – Response to recurring organizational problems

• Nonprogrammed Decisions – Unique, poorly defined and unstructured – Important consequences 06/19/09

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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 5

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Conditions that Affect the Possibility of Decision Failure Organizational Problem Low

Possibility of Failure

Certainty

Risk

Uncertainty

Programmed Decisions

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High Ambiguity

Nonprogrammed Decisions Problem Solution

Exhibit 6.1

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Three Decision-Making Models

 Classical Model  Administrative Model  Political Model

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Classical Model 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 06/19/09

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Administrative Model 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 06/19/09

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Administrative Model (contd.)  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. 06/19/09

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Political Model  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 06/19/09 support a specific goal

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Characteristics of Classical, Political, and Administrative Decision Making Models

Exhibit 6.2

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Six Steps in the Managerial Decision Making Process Picture 12

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Exhibit 9.3

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Diagnosis and Analysis of Causes

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 06/19/09

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Underlying Causes Kepner /Tregoe  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 • 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? 06/19/09

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

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Personal Decision Framework

Situation:

Personal Decision Style:

Decision Choice:

· Programmed/non-programmed · Classical, administrative, political · Decision steps

· Directive · Analytical · Conceptual · Behavioral

Best Solution to Problem

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Directive Style ⇒ People who prefer simple, clearcut solutions to problems ⇒ Make decisions quickly ⇒ May consider only one or two alternatives ⇒ Efficient and rational ⇒ Prefer rules or procedures 06/19/09

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Analytical Style ⇒ 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 06/19/09

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Conceptual Style ⇒ 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 06/19/09

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Behavioral Style ⇒ 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 06/19/09 22

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 06/19/09

to

Highly Democratic 23

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Participation in Decision Making Vroom-Jagon Diagnostic Questions  Decision Significance  Importance of Commitment  Leader Expertise  Likelihood of Commitment  Group Support of Goals  Group Expertise  Team Competence 06/19/09

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Multiple Decision Styles • The Vroom-Jago model is criticized • The model is useful and has supporting research • Overall, today’s managers are increasing participation in decision-making • Broad participation contributes to organizational learning 06/19/09

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New Decision Approaches for Turbulent Times

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New Decision Approaches for Turbulent Times

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Information Technology Has Changed Everything • Boundaries Dissolve, Collaboration Reigns Information Technology

• 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 06/19/09

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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 • • • • 06/19/09

MySpace Facebook Friendster TagWorld 30

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 06/19/09

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Management Information Systems

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Exhibit 6.9

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Internet and E-Business

Internet global collection of computer networks linked together

World Wide Web user friendly interface for communicating on the internet

E-Business electronic business exchanges or transactions 06/19/09

E-business any digital processes

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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. 06/19/09

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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 06/19/09

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