Chapter 5 Decision Making Learning Creativity and Entrepreneurship

Chapter 5 Decision Making, Learning, Creativity and Entrepreneurship Mc. Graw-Hill/Irwin Copyright © 2009 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Learning Objectives 1. Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process 2. Describe the six steps that managers should take to make the best decisions 5 -2

The Nature of Managerial Decision Making • Decision Making – The process by which managers respond to opportunities and threats by analyzing options, and making determinations about specific organizational goals and courses of action 5 -3

Decision Making • Programmed Decision – Routine, virtually automatic decision making that follows established rules or guidelines. • Managers have made the same decision many times before • There are rules or guidelines to follow based on experience with past decisions • Little ambiguity involved 5 -4

Decision Making • Non-Programmed Decisions – Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats. 5 -5

Comparaison chart 5 -6

Question? What are feelings, beliefs, and hunches that come readily to mind and require little effort? A. Reasoned Judgment B. Intuition C. Wild Guess D. Scientific Deduction 5 -7

Decision Making • Intuition – feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering and result in on-the-spot decisions 5 -8

Decision Making • Reasoned judgment – decisions that take time and effort to make and result from careful information gathering, generation of alternatives, and evaluation of alternatives 5 -9

The Classical Model • Classical Model of Decision Making – A prescriptive model of decision making that assumes the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action 5 -10

The Classical Model • Optimum decision – The most appropriate decision in light of what managers believe to be the most desirable future consequences for their organization 5 -11

The Classical Model of Decision Making Figure 5. 1 5 -12

The Administrative Model • Administrative Model of Decision Making – 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 5 -13

The Administrative Model • Bounded rationality – Cognitive limitations that constrain one’s ability to interpret, process, and act on information • Incomplete information 5 -14

Why Information Is Incomplete Figure 5. 2 5 -15

Causes of Incomplete Information • Risk – The degree of probability that the possible outcomes of a particular course of action will occur • Uncertainty – Probabilities cannot be given for outcomes and the future is unknown 5 -16

Causes of Incomplete Information Young Woman or Old Woman • Ambiguous Information – Information that can be interpreted in multiple and often conflicting ways. Figure 5. 3 5 -17

Causes of Incomplete Information • Time constraints and information costs – managers have neither the time nor money to search for all possible alternatives and evaluate potential consequences 5 -18

Causes of Incomplete Information • Satisficing – Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision – Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision 5 -19

`Comparaison chart Classical Model Administrative model Can perfectly define problem Decision make lacks info to completely define problem Identify and weigh all Cannot be knowledgeable decision criteria about all criteria Know and assess all Due to time or money cannot alternatives based on criteria assess all alternatives Review all solutions until optimal choice is made “Satifices” by taking first good alternative 5 -20

Six Steps in Decision Making Figure 5. 4 5 -21

Discussion Question? Which is the most important step in the decision making process? A. B. C. D. E. F. Recognize the need for a decision Generate Alternatives Assess Alternatives Choose among Alternatives Implement the Chosen Alternative Learn from Feedback 5 -22

Decision Making Steps Step 1. Recognize Need for a Decision • Sparked by an event such as environment changes. • Managers must first realize that a decision must be made. 5 -23

Decision Making Steps Step 2. Generate Alternatives • Managers must develop feasible alternative courses of action – If good alternatives are missed, the resulting decision is poor – It is hard to develop creative alternatives, so managers need to look for new ideas 5 -24

Decision Making Steps Step 3. Evaluate Alternatives • What are the advantages and disadvantages of each alternative? • Managers should specify criteria, then evaluate. 5 -25

General Criteria for Evaluating Possible Courses of Action Figure 5. 5 5 -26

Decision Making Steps Step 4. Choose Among Alternatives • Rank the various alternatives and make a decision – Tendency is for managers to ignore critical information, even when available 5 -27

Decision Making Steps Step 5. Implement Chosen Alternative • Managers must now carry out the alternative • Often a decision is made and not implemented 5 -28

Decision Making Steps Step 6. Learn From Feedback • Compare what happened to what was expected to happen • Explore why any expectations for the decision were not met • Derive guidelines that will help in future decision making 5 -29