Managerial Decision Making

Operation Management

Characteristics of Managerial Decisions

Managers face problems and opportunities constantly. Some situations that require a decision are relatively simple; others seem overwhelming.

Characteristics of Managerial Decisions

Lack of Structure

Lack of structure is the usual state of affairs in managerial decision making.

Characteristics of Managerial Decisions

Uncertainty and Risk

If you have all the information you need and can predict precisely the consequences of your actions, you are operating under a condition of certainty. For important, nonprogrammed managerial decisions, uncertainty is the rule.

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Risk, like uncertainty, is a fact of life in managerial decision making.

Uncertainty

The state that exists when decision makers have insufficient information.

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Risk

The state that exists when the probability of success is less than 100 percent and losses may occur.

Characteristics of Managerial Decisions

Conflict

Important decisions are even more difficult because of the conflict managers face. Conflict, which exists when a manager must consider opposing pressures from different sources, occurs at two levels.

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1. Individual decision makers experience psychological conflict when several options are attractive or when none of the options is attractive.
2. Conflicts arises between people.

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The Phases of Decision Making

The ideal decision-making process includes six phases:

The Phases of Decision Making

1. Identifying and Diagnosing the Problem

The first phase is to recognize that a problem exists and must be solved:

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1. Past performance.
2. The current performance.
3. Future expected performance.

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Recognizing that a problem or �opportunity exists is only the �beginning of this phase.

The Phases of Decision Making

2. Generating Alternative Solutions

The second phase links problem diagnosis to the development of alternative courses aimed at solving the problem.

Ready-made solutions: Ideas that have been seen or tried before.

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Custom-made solutions: New, creative solutions designed specifically for the problem.

The Phases of Decision Making

3. Evaluating Alternatives

The third phase involves determining the value or adequacy of the alternatives that were generated. Which solution will be the best?.

Sometimes decisions makers can build in safeguards against an uncertainty future by considering the potential consequences of several scenarios, they generate contingency plans.

Contingency Plans

Alternative courses of action that can be implemented based on how the future unfolds.

The Phases of Decision Making

4. Making the choice

Once you have considered the possible consequences of your options, it is time to make you decision.

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As you make your decision, important concepts include:

The Phases of Decision Making

5. Implementing the Decision

The process does not end once a choice is made. The chosen alternative must be implemented:

1. Determine how things will look when the decision is fully operational.
2. Chronologically order, the steps necessary to achieve a fully operational decision.
3. List the resources and activities required to implement each step.
4. Estimate the time needed for each step.
5. Assign responsibility for each step to specific individuals.

The Phases of Decision Making

6. Evaluating the Decision

The final phase in the process is evaluating the decision. It involves collecting information on how well the decision is working, quantifiable goals will help to evaluate the results.

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Decision evaluation is useful to know whether the conclusion is �positive or negative, in case of negative feedback:

1. Implementation will require more time, resources, effort or �thought.
2. The decision was a bad one.

Barriers to Effective Decision Making

Vigilance and full execution of the six-phase decision-making process are the exception rather than the rule.

Why people do not favor these rational processes automatically?

Barriers to Effective Decision Making

1. Psychological Biases.
2. Time Pressures.
3. Social Realities.

Barriers to Effective Decision Making

1. Psychological Biases

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Barriers to Effective Decision Making

B. Time Pressures

In today’s rapidly changing business environment, the premium is on

acting quickly and keeping pace.

The most conscientiously made business decisions can become irrelevant and even disastrous if managers take too long to make them.

Strategy:

1. Focus on real time information: current information obtained.
2. Involve people more effectively and efficiently in the process.

Barriers to Effective Decision Making

C. Social Realities

Many decisions are made by a group�rather than by an individual manager.

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Important managerial decisions are �marked by conflict among interested �parties.

Decision Making in Groups

If enough time is available, groups usually make higher-quality decisions than most individuals acting alone. However, groups often are inferior to the best individual.

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How well the group performs depends on how effectively it capitalizes on the potential advantages and minimizes the potential problems of using a group.

Potential Advantages of Using a Group

Using groups to make a decision offers at least five potential advantages:

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1. More information is available when several people are making the decision.
2. A greater number of perspectives on the issues, or different approaches to solving the problem, are available.
3. Group discussion provides an opportunity for intellectual stimulation.
4. People who participate in a group discussion are more likely to understand why the decision was made.
5. Group discussion typically leads to a higher level of commitment to the decision.

Potential Problems of Using a Group

Most of the potential problems concern the process through which group members interact with one another:

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1. One group member dominates the discussion.
2. Satisficing is more likely with groups.�Most people don’t like meetings and will do what they can to end them.
3. Pressure to avoid disagreement can lead to a phenomenon called groupthink.
4. Goal displacement often occurs in groups.

Managing Group Decision Making

Effectively managing group decision making has three requirements:

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1. An appropriate leadership style.
2. The constructive use of disagreement and conflict.
3. The enhancement of creativity.

Managing Group Decision Making

1. Leadership Style

The leader of a decision-making group must attempt to minimize process-related problems:

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1. Avoid domination.
2. Encourage input.
3. Avoid groupthink and satisficing.
4. Remember goals.

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On resume:

a) Don’t lose sight of the problem and your goals. b) Make a decision

Managing Group Decision Making

2. Constructive Conflict

Total and consistent agreement among group members can be destructive. Therefore, a certain amount of constructive conflict should exist.

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Cognitive conflict

Issue-based differences in perspective or judgments.

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Devil’s advocate

A person who has the job of criticizing ideas to ensure that their downsides are fully explored.

Affective conflict

Emotional disagreement directed toward other people.

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Dialectic

A structured debate comparing two conflicting courses of action.

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Managing Group Decision Making

3. Encouraging Creativity.

Ready-made solutions to a problem can be inadequate or unavailable. In such cases, custom-made solutions are necessary, so the group must be creative in generating ideas.

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Brainstorming

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Is a technique used to generate as many ideas as possible to solve a problem, criticism is prohibited until all ideas have been proposed.

Organizational Decision Making

Individuals and groups make decisions constantly throughout every organization.

A manager must consider:

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1. The constraints decision makers face.
2. Organizational decision process.
3. Decision making during a crisis.

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Organizational Decision Making

1. Constraints on Decision Makers.

Organizations or, more accurately, the people who make important decisions face various constraints:

• Financial.
• Legal.
• Market.
• Human.
• Organizational.

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Decision makers must consider ethics and the preferences of many constituent groups the realities of life in organizations.

Organizational Decision Making

2. Organizational Decision Process.

Bounded Rationality

A less than perfect form of rationality in which decision makers cannot be perfectly rational because decisions are complex, and complete information is unavailable or cannot be fully processed.

1. They have imperfect, incomplete information about alternatives and consequences.
2. The problem they face are so complex.
3. Human beings simply cannot process all the information to which they are exposed.
4. There is not enough time to process all relevant information fully.
5. People including managers within the same firm, have conflicting goals.

Organizational Decision Making

2. Organizational Decision Process.

Incremental model

Model in which major solutions arise trough a series of smaller decisions. Decision makers make small decisions, take little steps, move cautiously, and move in piecemeal fashion toward a bigger solution.

Coalitional model

Model in which groups with differing preferences use power and negotiation to influence decisions.

Garbage can model

Model depicting a chaotic process and seemingly random decisions.

Organizational Decision Making

3. Decision Making in Crisis.

In crises, managers must make decision under a greater deal of pressure. An effective plan for crisis management should include the following elements:

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1. Strategic actions.
2. Technical and structural actions.
3. Evaluation and diagnostic actions.
4. Communication actions.
5. Psychological and cultural actions.

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