3 - Managerial Decision Making 6i3543

Management Information Systems Mrs. Rosemarie M. Coronejo Math-IT Dept, IAS, FEU 1

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Describe the kinds of decisions you will face as a manager Summarize the steps in making “rational” decisions Recognize the pitfalls you should avoid when making decisions Evaluate the pros and cons of using a group to make decisions

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Identify procedures to use in leading a decision-making group Explain how to encourage creative decisions Discuss the process by which decisions are made in organizations Describe how to make decisions in a crisis

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“The business executive is by profession a decision maker. Uncertainty is his

opponent. Overcoming it is his mission.”

• -John McDonald

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The act of making up your mind about something, or a position or opinion or judgement reached after consideration. The process of selecting from several choice, products or ideas, and taking action.

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Decision-making is not easy! It must be done amid: Ever-changing factors  Unclear information  Conflicting points of vews 

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Information may be unclear May have deal with conflicting point of view 6 6

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Crisis A serious difficulty requiring immediate action. Non-Crisis An issue that requires resolution but does not simultaneously have the importance and immediacy characteristics of a crisis. Opportunity Problems A situation that offers strong potential for significant orgnizational gain if appropriate actions are taken. 7 7

Managerial Decision Making

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Characteristics of Managerial Decisions

Lack of structure

Programmed decisions versus nonprogrammed decisions

Uncertainty and risk

Certainty versus uncertainty versus risk

Conflict

Psychological conflict versus conflict between people

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Why Do Managers Sometimes Avoid Making Decisions? • Managers can’t be sure how much time, energy, or trouble lies ahead • Getting involved is risky; tackling a problem but failing to solve it can hurt a manager’s track record • It is easier to procrastinate or get busy with less demanding activities

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Lack of Structure • Programmed decisions – Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations

• Nonprogrammed decisions – New, novel, complex decisions having no proven answers

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Uncertainty and Risk • Certainty – Decision makers have accurate and comprehensive information • Uncertainty – Decision makers have insufficient information • Risk – The probability of success is less than 100% and losses may occur • Ambiguity – Unclear goals or problems; alternatives are difficult to define; unavailable information about the outcomes 12

Conflict • Conflict – Opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups • Decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive • Conflict arises between people

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Identifying and diagnosing a problem Generating alternative solutions Evaluating alternatives Making a choice or decision Implementing the decision Evaluating the decision

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Identifying and Diagnosing the Problem

• Recognize a problem exists by comparing the current state (the way things are) to the desired state (the way things ought to be – Past performance – Current performance – Future expected performance

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Generating Alternative Solutions

• Ready-made solutions

– Ideas that have been seen or tried before

• Custom-made solutions – New, creative solutions designed specifically or the problem

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Evaluating Alternatives • Choosing the best solution – Is information complete and current? If not, can we get more and better information? – Does the alternative meet our primary objective? – What problems could we have if we implement the alternative? • Contingency plans are alternative courses of action that can be implemented based on how the future unfolds.

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Making the Choice • Maximizing – Making the best possible decision

• Satisfying – Choosing an option that is acceptable, although not necessarily the best or perfect

• Optimizing – Achieving the best possible balance among several goals

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Implementing the Decision • Those implementing the decision must understand and be committed to its successful implementation • Decision makers should assume implementation will not go smoothly – Identify potential problems – Identify potential opportunities

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Evaluating the Decision • Collecting information on how well the decision is working • Decision information is useful whether is positive or negative. Negative means that either: – Implementation will require more time, resources, effort, or thought – The decision was a bad one in which case managers process back to the first stage and redefine the problem 20

The Best Decision • Nothing can guarantee a “best” decision, but managers should be confident they followed proper decision-making procedures • Vigilance occurs when the decision maker carefully executes all stages of decision making 21

Barriers to Effective Decision Making • Why don’t managers use rational decision processes? – – – –

Improperly defined or misidentified goal Too few solution alternatives generated Poorly planned execution Inadequate or nonexistent monitoring

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Barriers to Effective Decision Making Psychological biases

Biases that interfere with objective rationality including the illusion of control, framing effects, and discounting the future

Time pressures

The pressure to act quickly; managers employ a variety of tactics to manage time pressures

Social realities

Interpersonal factors that decrease decision-making effectiveness

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Psychological Biases • Illusion of control – People’s belief that they can influence events, even when they have no control over what will happen • Framing effects – A psychological bias influenced by the way a problem or decision alternative is phrased or presented • Discounting the future – A bias weighting short-term costs and benefits more heavily than longer-term costs and benefits 24

Tactics to Manage Time Pressures

• Focus on real-time information

• Involve people more effectively and efficiently in the decision-making process • Take a realistic view of conflict

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Decision Making in Groups • “Two heads are better than one” • Groups usually make higher quality decisions than most individuals acting alone • However, group decisions are often inferior to the best individual decisions

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Decision Making in Groups

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Decision Making in Groups Potential Advantages More information Greater number of perspectives

Potential Disadvantages One member may dominate the discussion Satisficing is more likely

Opportunity for intellectual Pressure to avoid stimulation disagreement can lead to groupthink Participants likely to understand why decision was made

Goal displacement is more likely

Higher level of commitment to decision

More time consuming 28

Satisficing • Decision-makers select the first option that meets a given need or select the option that seems to address most needs rather than the "optimal" solution. Groupthink • A phenomenon that occurs in decision making when group avoid disagreement as they strive for consensus Goal Displacement • A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges 29

Managing Group Decision Making • Leadership style – Minimize process-related problems – Avoid dominating the discussion – Encourage less-vocal group to air opinions and suggestions – Be alert to groupthink, satisficing, and goal displacement

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Managing Group Decision Making Constructive conflict helps avoid groupthink and uncreative solutions while bringing out diverse viewpoints

Cognitive conflict

Issue-based differences in perspectives or judgments

Affective conflict

Emotional disagreement directed toward other people

Devil’s advocate

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

Dialectic

A structured debate comparing two conflicting courses of action

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Managing Group Decision Making • Encouraging creativity – Give creative efforts the credit they deserve – Don’t punish creative failures – Avoid extreme time pressures – Stimulate and challenge people intellectually – Listen to employees’ ideas – Put together groups with different styles of thinking – Get your people in touch with customers – Protect your people from managers who demand immediate payoffs – Be creative yourself 32

Managing Group Decision Making • Brainstorming – A process in which group generate as many ideas about a problem as they can – Criticism is withheld until all ideas have been proposed

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Learn from past decisions, but don’t waste time regretting past Distinguish between idea getting and evaluating (Don’t be too critical when generating ideas.) Seek advice, when practical As a group leader, don’t dominate the discussion When possible, “sleep on” decisions, but don’t wait too long.

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