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40 Pages

Chapter 6

Course: COBA MGT340, Spring 2010
School: Missouri State
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Word Count: 1916

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edition Stephen Management tenth P. Robbins Mary Coulter Chapter 6 Managers Managers as Decision Makers Decision 61 Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Learning Outcomes Follow this Learning Outline as you read and Follow study this chapter. study 6.1 The Decision-Making Process. Define decision. Describe the eight steps in the decision-making process. 6.2 Managers Making Decisions. Discuss the assumptions of rational decision making. Describe the concepts of bounded rationality, satisficing, and Describe escalation of commitment. escalation Explain intuitive decision making. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 62 Learning Outcomes 6.3 Types Of Decisions and Decision-Making Conditions. Explain the two types of problems and decisions. Contrast the three decision making conditions. Explain maximax, maximin, and minimax decision choice Explain approaches. approaches. 6.4 Decision-Making Styles Describe two decision-making styles. Discuss the twelve decision-making biases. Explain the managerial decision-making model. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 63 Learning Outcomes 6.5 Effective Decision Making In Todays World. Explain how managers can make effective decisions Explain in todays world. in List the six characteristics of an effective decision List making process. making List the five habits of highly reliable organizations. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 64 Decision Making Decision Making a choice from two or more alternatives. The Decision-Making Process Identifying a problem and decision criteria and Identifying allocating weights to the criteria. allocating Developing, analyzing, and selecting an alternative Developing, that can resolve the problem. that Implementing the selected alternative. Evaluating the decisions effectiveness. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 65 Exhibit 61 The Decision-Making The Process Process Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 66 Step 1: Identifying the Problem Problem A discrepancy between an existing and desired state discrepancy of affairs. of Characteristics of Problems A problem becomes a problem when a manager problem becomes aware of it. becomes There is pressure to solve the problem. The manager must have the authority, information, or The resources needed to solve the problem. resources Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 67 Step 2: Identifying Decision Criteria Decision criteria are factors that are important Decision (relevant) to resolving the problem such as: (relevant) Costs that will be incurred (investments required) Risks likely to be encountered (chance of failure) Outcomes that are desired (growth of the firm) Step 3: Allocating Weights to the Criteria Decision criteria are not of equal importance: Assigning a weight to each item places the items in Assigning the correct priority order of their importance in the decision-making process. decision-making Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 68 Exhibit 62 Criteria and Weights for Computer Replacement Decision Decision Criterion Memory and Storage Battery life Carrying Weight Warranty Display Quality Weight 10 8 6 4 3 Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 69 Step 4: Developing Alternatives Identifying viable alternatives Alternatives are listed (without evaluation) that can Alternatives resolve the problem. resolve Step 5: Analyzing Alternatives Appraising each alternatives strengths and Appraising weaknesses weaknesses An alternatives appraisal is based on its ability to An resolve the issues identified in steps 2 and 3. resolve Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 610 Exhibit 63 Exhibit Assessed Values of Laptop Computers Using Decision Criteria Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 611 Step 6: Selecting an Alternative Choosing the best alternative The alternative with the highest total weight is The chosen. chosen. Step 7: Implementing the Step Alternative Alternative Putting the chosen alternative into action. Conveying the decision to and gaining commitment Conveying from those who will carry out the decision. from Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 612 Exhibit 64 Evaluation of Laptop Alternatives Against Weighted Criteria Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 613 Step 8: Evaluating the Decisions Step Effectiveness Effectiveness The soundness of the decision is judged by its The outcomes. outcomes. How effectively was the problem resolved by How outcomes resulting from the chosen alternatives? outcomes If the problem was not resolved, what went wrong? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 614 Exhibit 65 Decisions in the Management Functions Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 615 Making Decisions Rationality Managers make consistent, value-maximizing choices Managers with specified constraints. with Assumptions are that decision makers: Are perfectly rational, fully objective, and logical. Have carefully defined the problem and identified all viable Have alternatives. alternatives. Have a clear and specific goal Will select the alternative that maximizes outcomes in the Will organizations interests rather than in their personal interests. organizations Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 616 Making Decisions (contd) Bounded Rationality Managers make decisions rationally, but are limited Managers (bounded) by their ability to process information. (bounded) Assumptions are that decision makers: Will not seek out or have knowledge of all alternatives Will satisficechoose the first alternative encountered that Will satisficechoose satisfactorily solves the problemrather than maximize the satisfactorily rather outcome of their decision by considering all alternatives and choosing the best. choosing Influence on decision making Escalation of commitment: an increased commitment to a Escalation previous decision despite evidence that it may have been wrong. 617 Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall The Role of Intuition Intuitive decision making Making decisions on the basis of experience, feelings, Making and accumulated judgment. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 618 Exhibit 66 What Is Intuition? Source: Based on L. A. Burke and M. K. Miller, Taking the Mystery Out of Intuitive Decision Making, Academy of Management Executive, October 1999, pp. 9199. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 619 Types of Problems and Decisions Structured Problems Involve goals that are clear. Are familiar (have occurred before). Are easily and completely definedinformation about mation the problem is available and complete. the Programmed Decision A repetitive decision that can be handled by a routine repetitive approach. approach. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 620 Types of Programmed Decisions Procedure A series of interrelated steps that a manager can use series to respond (applying a to policy) a structured problem. to Rule An explicit statement that limits what a manager or An employee can or cannot do. employee Policy A general guideline for making a decision about a general structured problem. structured Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 621 Policy, Procedure, and Rule Policy, Examples Examples Policy Accept all customer-returned merchandise. Procedure Follow all steps for completing merchandise return Follow documentation. documentation. Rules Managers must approve all refunds over $50.00. No credit purchases are refunded for cash. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 622 Problems and Decisions (contd) Unstructured Problems Problems that are new or unusual and for which Problems information is ambiguous or incomplete. information Problems that will require custom-made solutions. Nonprogrammed Decisions Decisions that are unique and nonrecurring. Decisions that generate unique responses. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 623 Exhibit 67 Programmed Versus Nonprogrammed Decisions Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 624 Decision-Making Conditions Certainty A situation in which a manager can make an accurate situation decision because the outcome of every alternative choice is known. choice Risk A situation in which the manager is able to estimate situation the likelihood (probability) of outcomes that result from the choice of particular alternatives. from Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 625 Exhibit 68 Exhibit Expected Value for Revenues from the Addition of One Ski Lift Event Heavy snowfall Normal snowfall Light snowfall Expected Revenues $850,000 725,000 350,000 Expected Probability = Value of Each Alternative 0.3 0.5 0.2 = = = $255,000 362,500 70,000 $687,500 Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 626 Decision Making Conditions Uncertainty Limited information prevents estimation of outcome Limited probabilities for alternatives associated with the problem and may force managers to rely on intuition, hunches, and gut feelings. hunches, Maximax: the optimistic managers choice to maximize the maximum payoff maximum Maximin: the pessimistic managers choice to maximize the minimum payoff minimum Minimax: the managers choice to minimize maximum regret. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 627 Exhibit 69 Payoff Matrix Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 628 Exhibit 610 Regret Matrix Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 629 Decision-Making Styles Linear thinking style A persons preference for using external data and persons facts and processing this information through rational, logical thinking logical Nonlinear thinking style A persons preference for internal sources of persons information and processing this information with internal insights, feelings, and hunches internal Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 630 Exhibit 611 Common Decision-Making Errors and Biases Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 631 Decision-Making Biases and Errors Heuristics Using rules of thumb to simplify decision making. Overconfidence Bias Holding unrealistically positive views of oneself and Holding ones performance. ones Immediate Gratification Bias Choosing alternatives that offer immediate rewards Choosing and that to avoid immediate costs. and Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 632 Decision-Making Biases and Errors Decision-Making Anchoring Effect Fixating on initial information and ignoring subsequent Fixating information. information. Selective Perception Bias Selecting organizing and interpreting events based on Selecting the decision makers biased perceptions. the Confirmation Bias Seeking out information that reaffirms past choices Seeking and discounting contradictory information. and Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 633 Decision-Making Biases and Errors Decision-Making (contd) (contd) Framing Bias Selecting and highlighting certain aspects of a Selecting situation while ignoring other aspects. situation Availability Bias Losing decision making objectivity by focusing on the Losing most recent events. most Representation Bias Drawing analogies and seeing identical situations Drawing when none exist. when Randomness Bias Creating unfounded meaning out of random events. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 634 Decision-Making Biases and Errors Decision-Making Sunk Costs Errors Forgetting that current actions cannot influence past Forgetting events and relate only to future consequences. events Self-Serving Bias Taking quick credit for successes and blaming Taking outside factors for failures. outside Hindsight Bias Mistakenly believing that an event could have been Mistakenly predicted once the actual outcome is known (afterpredicted the-fact). Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 635 Exhibit 612 Overview of Managerial Decision Making Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 636 Decision Making for Todays World Guidelines for making effective decisions: Understand cultural differences. Know when its time to call it quits. Use an effective decision making process. Habits of highly reliable organizations (HROs) Are not tricked by their success. Defer to the experts on the front line. Let unexpected circumstances provide the solution. Embrace complexity. Anticipate, but also anticipate their limits. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 637 Characteristics of an Effective Characteristics Decision-Making Process Decision-Making It focuses on what is important. It is logical and consistent. It acknowledges both subjective and objective thinking It and blends analytical with intuitive thinking. and It requires only as much information and analysis as is It necessary to resolve a particular dilemma. necessary It encourages and guides the gathering of relevant It information and informed opinion. information It is straightforward, reliable, easy to use, and flexible. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 638 Terms to Know decision Decision-making process problem decision criteria rational decision making bounded rationality satisficing escalation of commitment intuitive decision making structured problems programmed decision procedure rule policy unstructured problems nonprogrammed decisions certainty risk uncertainty directive style analytic style conceptual style behavioral style heuristics business performance business management (BPM) software management 639 Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, All stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Printed Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 640

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