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The Nature of Managerial Decision Making

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Every time managers act to plan, organize, direct, or control organizational activities, they make a stream of decision. In opening a new restaurant, for example, managers have to decide where to locate it, what kinds of food to provide, which people to employ, and so on. Decision making is a basic part of every taks managers perform.

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Decision making

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is the processs by which managers respond to opportunites and threats by analyzing the options and making determinations, or decision, about specific organizational goals and course of action. Good decisions highten performance, bad decisions lower performance. make decisions for threats and opportunities that arise.

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Programmed decision making

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is a routine, virtually automatic process. These decisions have been made a lot of times. Ordering basic supplies. Use decision rules.

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Non programmed decision making

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is required for these non routine decisions. Non programmed decisions are made in response to usual or novel opportunities and threats. Unexpected and uncertain situations. increased with organizational learning.

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Intuition

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feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on the spot decisions. There are no established rules to guide decisions it is an emergency situation entailing high risk and uncertainty, and rapidly changing conditions.

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Reasoned judgemnets

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decisions that require time and efort and result from careful information gathering, generation of alternativees, and evaluation of alternatives.

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Classical decision-making model

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A prescriptive approach to decision making based on the assumption that the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action PRESCRIPTIVE

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Optimum decision

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the most appropriate decision in light of what managers believe to be the most desirable consequences for the organization.

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Administrative model (James March and Herbert Simon)

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an approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions. based on the two beliefs that managers are incapable of absorbing and evaluating the vast amount of information, it is available and managers do not have all the information available to make optimal decisions based on incomplete information, bounded rationality, and satisficing.

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Bounded rationality (March and Simon)

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cognitive limitations that constrain one's ability to interpret, process, and act on information. the number of alternatives a manager must identify is so great the amount of information so vast that it is difficult for the manager to even come close to evaluating it all before making a decision.

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Risk

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the degree of probability that the possible outcomes of a particular course of action will occur.

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Uncertainty

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Unpredictability. The probabilities of alternative outcomes cannot be determined and future outcomes are unknown.

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Ambiguous information

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information what can be interpreted in multiple and often conflicting ways.

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Satisficing

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Searching for and choosing an acceptable, or satisfactory, response to problems and opportunities, rather than trying to make the best decision.

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Steps in the Decision-Making Process

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...

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Recognize the need for a decision

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the first step in the decision making process is to recognize the need for a decision.

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Generate alternatives

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having recognized the need to make a decision, a manager must generate a set of feasible alternative course of action to take in response to the opportunity or threat.

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Assess Alternatives

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once managers have generated a set of alternatives, they must evaluate the advantages and disadvantages of each one. 1. Legality 2. Ethicalness 3.Economic Feasibility 4. Practicality

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Choose among alternatives

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once a set of alternative solutions has been carefully evaluated, the next task is to rank the various alternatives and make a decision. Managers must make sure that all information availible is brought to bear on the problem or issue at hand.

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Implement the Chosen Alternative

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Once a decision has been made and an alternative has been selected, it must be implemented, and many subsequent and related decisions must be made.

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Learn from Feedback.

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THe final step in the decision-making process is learning from feedback. Managers always try to learn from past successes or failures. 1. Compare what actually happened to what was expected to happen as a result of the decision. 2. Explore why any expectations for the decision were not met 3. Derive guidelines that will help in future decision making

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Cognitive Biases on Decision Making

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...

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Heuristics

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rules of thumb that simplify decision making.

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Systematic errors

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errors that people make over and over and that result in poor decision making.

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Prior hypothesis bias

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a cognitive bias resulting from the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong

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Representative bias

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a cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode.

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Illusion of control

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a source of cognitive bias resulting from the tendency to overestimate one's own ability to control activities and events.

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Escalating Commitment

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a source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing.

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Groupthink

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a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a discussion. USES EMOTION

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Devil's advocacy

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critical analysis of a preferred alternative, made in response to challenges raised by a group member who, playing the role of devil's advocate, defends unpopular or opposing alternatives for the sake of argument. easier than dialectical inquiry, less time and effort.

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Dialectical Inquiry

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critical analysis of two preferred alternatives in order to find an even better alternative for the organization to adopt.

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Organizational Leaning and Creativity

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..

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organizational learning

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the process through which managers seek to improve employees' desire and ability to understand and manage the organization and its task environment.

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learning organization

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an organization in which managers try to maximize the ability of individuals and groups to think and behave creatively and thus maximize the potential for organizational learning to take place.

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Creativity

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a decision maker's ability to discover original and novel ideas that lead to feasible alternative courses of action.

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Five principles for creating a learning organization

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1. Allow every person to develop a sense of personal mastery. 2. encourage employees to develop and use complex mental models 3. Promote group activity 4. Build a shared vision 5. Managers must encourage systems thinking.

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Three group decision making techniques:

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brainstorming, the nominal group technique, and Delphi technique.

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Brainstorming

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is a group problem-solving technique in which managers meet face-to-face to generate and debate a wide variety of alternatives from which to make a decision.

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Production blocking

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a loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming

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Nominal Group Technique

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a decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives. Best when the issue is controversial and each manager is expected to champion a different ourse of action.

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Delphi technique

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a decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader.

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Entrepreneurs and Creativity

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...

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Entrepreneurs

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are individuals who notice opportunities and decide how to mobilize the resources necessary to produce new and improved goods and services. Planning, organizing, leading, and controlling.

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Social entrepreneur

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an individual who pursues initiatives and opportunities and mobilizes resources to address social problems and needs in order to improve society and well-being through creative solutions.

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Intrapreneur

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a manager, scientist, or researcher who works inside an organization and notices opportunities to develop new or improved products and betters ways to make them. good for innovation and organizational learning.

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Entrepreneurship

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the mobilization of resources to take advantage of an opportunity to provide customers with new or improved goods and services.

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Product champions

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a manager who takes "ownership" of a project and provides the leadership and vision that take a product from the idea stage to the final customer.

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Skunkworks

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a group of intrapreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products.

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Bad decisions often occur because managers often fail to specify the

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criteria that are necessary to reach a decision

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Human decision making capability

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is limited by the ability of people to interpret, process, and act on information constraints.

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Why is information for decision making incomplete?

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time constraints, ambiguity, risk and uncertainty.

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Peter Senge and Edward de Bono popularized the management techniques for

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Creative thinking and stimulating problem solving.

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how do managers analyze their decision making style?

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determine the appropriate amount of time spent on each decision making step, list heuristics biases and criteria for decision making, analyze two recent decisions; one the turned out well and one that turned out poorly.

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According to Senge, because most learning occurs in subunits

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team learning is more important than individual learning.

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Systems learning

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recognize the effects of one level of learning on another.

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Steve

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created the MENTAL model. A shared vision.

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March and Simon proposed that

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decision making is more of an art than a science.

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