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The manager as a decisionmaker
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Managerial decision makin
• Decision making: the process by which managerespond to opportunities and threats by analyzioptions, and making decisions about goals andcourses of action.
• Decisions in response to opportunities: managerespond to ways to improve organizationalperformance.
• Decisions in response to threats: occurs whenmanagers are impacted by adverse events to thorganization.
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The classical model
• Classical model of decision making: a prescriptmodel that tells how the decision should be ma
• Assumes managers have access to all the information needreach a decision.
•Managers can then make the optimum decision by easily ratheir own preferences among alternatives.
• Unfortunately, managers often do not have all (even most re!uired information.
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Decision making process
• Step 1: dentifying a problem
• Step !: dentifying a decision criteria
• Step ": Allocating weights to the criteria
• Step #: Developing alternatives
• Step $: Analy%ing alternatives
• Step &: Selecting an alternative
• Step ': mplementing the alternative
• Step (: )valuating decision e*ectiveness
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The classical model
"istalternatives
#conse!uence
s
$ank each
alternativefrom low to
high
%elect bestalternative
&ssumes allinformation is
available tomanager
&ssumes manager
can processinformation
&ssumes managerknows the bestfuture course ofthe organization
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Making decisions
• $ational decision making: A type of decision making in which care logical and consistent and ma+imi%e value
• Assumptions of ,ationality: 1- problems would be clear and unamdecision making would be speci/c and all possible outcomes will bknown. !- decisions are made in the best interest of the organi%ati
• Decision managers make decision in all four functions of managem• 0lanning
• rgani%ing
• 2eading
• 3ontrolling
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The Administrative model
• &dministrative 'odel of decision making: Challenged the classassumptions that managers have and process all the informatio
• As a result decision making is risky.
• ounded rationality : )here is a large number of alternatives aninformation is vast so that managers cannot consider it all.
•
Decisions are limited by people4s cognitive abilities.,
Decision making that is rational but not limited 5bounded- by an individual4s abilitprocess information.
• *ncomplete information: most managers do not see all alternatand decide based on incomplete information.
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6hy information is incomple
Uncertainty #$isk
&mbiguousinformation
)ime constraints # informationcosts
*ncomplete
information
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ncomplete information facto
• *ncomplete information e+ists due to many issu
• ,isk: managers know a given outcome can fail or succeed aprobabilities can be assigned.
• 8ncertainty: probabilities cannot be given for outcomes an
future is unknown.Many decision outcomes are not known such as a new produc
introduction.
• Ambiguous information: information whose meaning is not
nformation can be interpreted in di*erent ways.
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ncomplete information facto
• )ime constraints and *nformation costs: 'anagdo not have the time or money to search for allalternatives.
• This leads the manager to again decide based on incomple
information.• %atiscing: 'anagers e+plore a limited number
options and choose an acceptable decision raththan the optimum decision.
• This is the response of managers when dealing with incominformation.
• Managers assume that the limited options they e+amine re
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6hat is intuition
ntuition
)+perience9based
decisions
alues or
ethics baseddecisions
Subconsciousmental
processing
A*ect9
initiateddecisions
3ognitive9based
decisions
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Decision making ; role of
intuition• ntuitive decision making: Making decisions on the b
of e+perience feelings and accumulated
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Types of decision making
• -rogrammed Decisions: routine, almost automatic proces
• Managers have made decision many times before.
• There are rules or guidelines to follow.
• )+ample: Deciding to reorder o*ice supplies.
• on/programmed Decisions: unusual situations that have
been often addressed.• =o rules to follow since the decision is new.
• These decisions are made based on information and a manger4s intuitio
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Structured problems and
programmed decisions• %tructured problem: a straightforward familiar and e
de/ned problem.
• -rogrammed decision: a repetitive decision that can bhandled using a routine approach.
•-rocedure: a series of se>uential steps used to respondwell9structured problem.
• $ule: e+plicit statement of what should or should not be
• -olicy: guidelines for making decisions.
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8nstructured problems and no
programmed decisions• Unstructured problem: a problem that is new or
unusual and for which information is ambiguous orincomplete.
• on/programmed decision: a uni>ue and non9rec
decision that re>uires a custom9made solution.
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Decision9making condition
• Certainty : A situation in which a decision maker camake accurate decisions because all outcomes are k
• $isk: A situation in which the decision maker is ablestimate the likelihood of certain outcomes.
• Uncertainty: A situation in which a decision makerneither certainty nor reasonable probability estimatavailable.
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Decision9making styles
• "inear thinking style: A decision making characteby a person4s preference for using e+ternal data andand processing this information through rational logthinking.
• on/linear thinking style: A decision stylecharacteri%ed by a person4s preference for internalsources of information and processing this informatiwith internal insights feelings and hunches.
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Decision making biases and
errors• Make sense of information which is ambiguous unc
and comple+.
• ,efer to /gure &.11 pg. 1"$ 51?th )d.-
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verview of managerial decis
making
Decision9making
process
Types of problems andDecisions
1. 6ell structured9programmed
!. 8nstructured9nonprogrammed
Decision9making conditions1.3ertainty
!. ,isk ". 8ncertainty
Decision makingapproach1. ,ationality!. @ounded
rationality". ntuition
Decision maker4sstyle
1. 2inear thinkingstyle
!. =onlinearthinking style
Dec1. 3h
ma
altema
sat!. mp
". )v
Decisioerrors
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Decision9making in today4s
world• 8nderstand cultural di*erences
• Bnow when it4s time to call it >uits
• 8se an e*ective decision9making process
• @uild an organi%ation that can spot the une+pected a
>uickly adapt to the changed environment
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Croup decision making
• 'any decisions are made in a group setting.
• Croups tend to reduce cognitive biases and can call on combined and abilities.
• )here are some disadvantages with groups:
• 0roup think: biased decision making resulting from members striving for agreement.
• 8sually occurs when group members rally around a central mang53)- and become blindly committed without considering alterna
• The group tends to convince each member that the idea must go f
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@uilding group creativity
• rainstorming: managers meet face/to/face togenerate and debate many alternatives.
• Croup members are not allowed to evaluate alternatives unalternatives are listed.
•
@e creative and radical in stating alternatives.• 6hen all are listed then the pros and cons of each are disc
and a short list created.