CHAPTER 9 Managing Decision Making and Problem Solving

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CHAPTER 9 Managing Decision Making and Problem Solving Power. Point Presentation by Charlie Cook

CHAPTER 9 Managing Decision Making and Problem Solving Power. Point Presentation by Charlie Cook Copyright © by Houghton Mifflin Company. All rights reserved.

Learning Objectives • After studying this chapter, you should be able to: – Define

Learning Objectives • After studying this chapter, you should be able to: – Define decision making and discuss types of decisions and decision-making conditions. – Discuss rational perspectives on decision making, including the steps in decision making. – Describe the behavioral nature of decision making. – Discuss group and team decision making, including its advantages and disadvantages, and how it can be managed more effectively. Copyright © by Houghton Mifflin Company. All rights reserved. 2

Chapter Outline • The Nature of Decision Making – Decision Making Defined – Types

Chapter Outline • The Nature of Decision Making – Decision Making Defined – Types of Decisions – Decision-Making Conditions • Rational Perspectives on Decision Making – The Classical Model of Decision Making – Steps in Rational Decision Making • Behavioral Aspects of Decision Making – The Administrative Model – Political Forces in Decision Making Copyright © by Houghton Mifflin Company. All rights reserved. • Behavioral Aspects of Decision Making (cont’d) – Intuition and Escalation of Commitment – Risk Propensity and Decision Making – Ethics and Decision Making • Group and Team Decision Making in Organizations – Forms of Group and Team Decision Making – Advantages of Group and Team Decision Making – Disadvantages of Group and Team Decision Making – Managing Group and Team Decision-Making Processes 3

The Nature of Decision Making • Decision Making – The act of choosing one

The Nature of Decision Making • Decision Making – The act of choosing one alternative from among a set of alternatives. • Decision-Making Process – The process of recognizing and defining the nature of a decision situation, identifying alternatives, choosing the “best” alternative, and putting it into practice. – An effective decision is one that optimizes some set of factors such as profits, sales, employee welfare, and market share. – Managers make decisions about both problems and opportunities. Copyright © by Houghton Mifflin Company. All rights reserved. 4

Types of Decisions • Programmed Decisions – A decision that is a fairly structured

Types of Decisions • Programmed Decisions – A decision that is a fairly structured decision or recurs with some frequency or both. • Example: Starting your car in the morning. • Nonprogrammed decisions – A decision that is relatively unstructured and occurs much less often a programmed decision. • Example: Choosing a vacation destination. Copyright © by Houghton Mifflin Company. All rights reserved. 5

Decision-Making Conditions • Decision Making Under Certainty – A condition in which the decision

Decision-Making Conditions • Decision Making Under Certainty – A condition in which the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative. • Decision Making Under Risk – A condition in which the availability of each alternative and its potential payoffs and costs are all associated with risks. • Decision Making Under Uncertainty – A condition in which the decision maker does not know all the alternatives, the risks associated with each, or the consequences of each alternative. Copyright © by Houghton Mifflin Company. All rights reserved. 6

Decision-Making Conditions (cont’d) The decision maker faces conditions of. . . Certainty Risk Uncertainty

Decision-Making Conditions (cont’d) The decision maker faces conditions of. . . Certainty Risk Uncertainty Level of ambiguity and chances of making a bad decision Lower Moderate Higher Figure 9. 1 Copyright © by Houghton Mifflin Company. All rights reserved. 7

Rational Perspectives on Decision Making • The Classical Model of Decision Making • obtain

Rational Perspectives on Decision Making • The Classical Model of Decision Making • obtain complete When faced with a and perfect information decision situation, • eliminate uncertainty managers should. . . • evaluate everything rationally and logically . . . and end up with a decision that best serves the interests of the organization. Figure 9. 2 Copyright © by Houghton Mifflin Company. All rights reserved. 8

Steps in the Rational Decision-Making Process Table 9. 1 a Copyright © by Houghton

Steps in the Rational Decision-Making Process Table 9. 1 a Copyright © by Houghton Mifflin Company. All rights reserved. 9

Steps in the Rational Decision-Making Process (cont’d) Table 9. 1 b Copyright © by

Steps in the Rational Decision-Making Process (cont’d) Table 9. 1 b Copyright © by Houghton Mifflin Company. All rights reserved. 10

Evaluating Alternatives in the Decision-Making Process Is the alternative feasible? Yes Is the alternative

Evaluating Alternatives in the Decision-Making Process Is the alternative feasible? Yes Is the alternative satisfactory? Yes Are the alternative’s consequences affordable? No No No Eliminate from consideration Yes Retain for further consideration Figure 9. 3 Copyright © by Houghton Mifflin Company. All rights reserved. 11

Behavioral Aspects of Decision Making • The Administrative Model of Decision Making • use

Behavioral Aspects of Decision Making • The Administrative Model of Decision Making • use incomplete and When faced with a decision situation managers actually… imperfect information • are constrained by bounded rationality • tend to satisfice . . . and end up with a decision that may or may not serve the interests of the organization. Figure 9. 4 Copyright © by Houghton Mifflin Company. All rights reserved. 12

Behavioral Aspects of Decision Making (cont’d) • Bounded Rationality – The concept that decision

Behavioral Aspects of Decision Making (cont’d) • Bounded Rationality – The concept that decision makers are limited by their values and unconscious reflexes, skills, and habits. • Satisficing – The tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency to resolve the problem. • Coalition – A political force in decision making which consists of an informal alliance of individuals or groups formed to achieve a goal. Copyright © by Houghton Mifflin Company. All rights reserved. 13

Behavioral Aspects of Decision Making (cont’d) • Intuition – An innate belief about something

Behavioral Aspects of Decision Making (cont’d) • Intuition – An innate belief about something without conscious consideration. • Escalation of Commitment – A decision maker is staying with a decision even when it appears to be wrong. • Risk Propensity – The extent to which a decision maker is willing to gamble when making a decision. Copyright © by Houghton Mifflin Company. All rights reserved. 14

Behavioral Aspects of Decision Making (cont’d) • Ethics and Decision Making – Individual ethics

Behavioral Aspects of Decision Making (cont’d) • Ethics and Decision Making – Individual ethics (personal beliefs about right and wrong behavior) combine with the organization’s ethics to create managerial ethics. – Components of managerial ethics: • Relationships of the firm to employees • Employees to the firm • The firm to other economic agents Copyright © by Houghton Mifflin Company. All rights reserved. 15

Group and Team Decision Making in Organizations • Forms of Group Decision Making –

Group and Team Decision Making in Organizations • Forms of Group Decision Making – Interacting groups or teams • are the most common form of decision-making groups which consists of an existing group or newly formed team interacting and then making a decision. – Delphi groups • are sometimes used for developing a consensus of expert opinion from a panel of experts who individually contribute through a moderator. – Nominal groups • are a structured technique designed to generate creative and innovative ideas through the individual contributions of alternatives that are winnowed down through a series of rank-ordering of the alternatives to reach a decision. Copyright © by Houghton Mifflin Company. All rights reserved. 16

Advantages and Disadvantages of Group and Team Decision Making Table 9. 2 Copyright ©

Advantages and Disadvantages of Group and Team Decision Making Table 9. 2 Copyright © by Houghton Mifflin Company. All rights reserved. 17

Managing Group and Team Decision-Making Processes • Managers Can Promote the Effectiveness of Group

Managing Group and Team Decision-Making Processes • Managers Can Promote the Effectiveness of Group and Team Decision Making – Being aware of the pros and cons of having a group or team make a decision. – Setting deadlines for when decisions must be made. – Avoid problems with dominance by managing group membership. – Have each group member individually critically evaluate all alternatives. – As a manager, do not make your position known too early. – Appoint a group member to be a “devil’s advocate. ” – Hold a follow-up meeting to recheck the decision. Copyright © by Houghton Mifflin Company. All rights reserved. 18