Kay 235: Introduction to Management Lecture 6 Subject: Decision-Making Reading: Starling, Chapter 6.

Kay 235: Introduction to Management

Lecture 6Subject: Decision-Making

Reading: Starling, Chapter 6

235 Announcements 2nd midterm

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Decision-making

Selecting one course of action from various alternatives

Can’t be divorced from the planning processes Better Data Better Decision-Making Batter Planning

Steps of Decision-Making

Four steps in decision-making Identify the problem or opportunity Gather facts Make the decision Implement and evaluate the decision

Problem Type: Pressing or Dispensable?

When does the problem require a decision? Must the problem be decided upon

immediately? Can the decision be deferred until:

New information Unexpected developments Better ideas to occur?

Is the problem pressing or dispensable? Global Warming? Dealing with terrorism?

Problem Type: Generic or Unique?

Is it a generic problem? Very few problems or events are

isolated Generic problems occur over and over

Problem Type: Generic or Unique?

Is it a unique (sui generis) problem? Latin word for “of its own kind” A problem that constitutes a class alone

Examples Giving handguns to pilots against

terrorists Building an international space station

Problem Type: Symptom or Root Cause?

Symptoms or root causes? Symptom

Is the problem part of a pattern of problems stemming from one underlying cause?

Tendency to view symptoms as problems

Examples School violence? Increase in crime?

Characteristics of an Effective Manager

Effective managers Make few decisions

Like a good doctor, deals with the root causes, not the symptoms

What is the problem that causes these symptoms?

Solve pressing problems first Use similar solutions for similar (generic)

problems No quick fixes, no cosmetic solutions

Framing a Decision: Upper Limit

Establishing an upper limit The ever present limitations that

determine how far the administrator can go

Limits of permissibility Is it legal? Will others accept it?

Limits of available resources (time, money, information)

Past mistakes and accomplishments

Framing a Decision: Lower Limit

Establishing a lower limit What, at least, must occur for the

problem to be solved? Example: Germany in WW1 could win

the war if two conditions are met at minimum

Put up weak resistance against Russia Concentrate forces to win war with

France

Framing a Decision: Limiting (Strategic) Factor

Limiting/ Strategic factor Quite similar idea to the lower limit The factor, whose control, in the right

form, at the right place and time, will establish a new system of conditions which meets the purpose.

Lack of potash in a grain field Nuclear power in WW2

Permissibility

Resources

Time

Commitments

Information

Strategic Factor 1

Strategic Factor 2

Strategic Factor 3

Zone of feasible, potentially successful solutions

These factors drastically reduce the number of possible solutions that a manager has to consider.

Source: Starling, 2002: 235.

Gathering Facts: Consulting Effective Planning and decision-

making requires a multiplicity of inputs

Consulting people Expert advice

Advisory groups Consult those who will be most effected

by the decisions Stakeholders Proactively seek citizens’ comments

Analytical Techniques for Decision-making

Cost-benefit analysis (one objective) Multiobjective models Decision analysis Systems analysis Operations research Nominal group technique

Cost-Benefit Analysis (CBA)

Comparing costs and benefits Real (direct, indirect, tangible, and

intangible); Pecuniary (monetary) Decision rules

NB=B-C

Example Building a new opera house in Ankara

Cost-Benefit Analysis-2 Opportunity Cost

What could have been produced if resources had been used in the best alternative way?

Distributional impacts of public programs How will the costs and benefits of a

public program be distributed among the citizenry?

Multi-objective Models Multiple objectives (criteria)

Choosing a shopping mall site Criteria

Local transportation Land-use planning Neighborhood impact Community economy Tax base

A weighting scheme => a weighted score What about moral goals that can not be

quantified?

Decision Analysis Payoff Matrices

Expected Value Use of decision tree to factor in

probability Example:

Should the US drop the atom bomb to Japan or not in WW2?

Would they Japanese surrender?

Decision Tree: Wall & Slide

Source: Starling, 2002: 248.

Systems Analysis Interdependency of things Four basic steps in systems analysis

Problem formulation Modeling Analysis and optimization Implementation

Example What about we put 100,000 more police to

the streets?

Modeling of the Criminal Justice System

Operations Research Operations research

Using mathematics for solving problems (optimization) in WW2

What is the optimal formation of bomber planes as a function of a target shape?

When to fuse a bomb dropped from an aircraft onto a submarine?

What is the optimal location of radar stations? Sensitivity Analysis

Making very small changes in the model so as to see the impact on the whole model

Group Decision-Making: When?

Prerequisites Do the group members have the required

knowledge and skills? Are the members overloaded?

Group decision-making can be preferred when the problem Is uncertain, complex and conflict-laden Requires cooperation of persons or

organizations Has significant, but not immediate deadlines Requires widespread acceptance and

commitment in implementation

Group Decision-Making: Pros Strengths and weaknesses of groups as

decision-makers Strengths:

+ Broader perspective for defining the problem

+ Diversity of experience and thinking styles + Offer more knowledge and information

than individuals can +Easier to implement because people

participated

Group Decision-Making: Cons

Weaknesses - Time consuming and expensive - Should not be used for routine

decisions - May lead to compromise solutions

that satisfy no one - There is no clear focus for

responsibility if things go wrong

Nominal Group Technique

In the nominal group technique Goal: ensure every group member

has equal input in the process No evaluative discussions when the

ideas are presented Secret voting for preferred solutions Raking of alternatives in terms of

priority

Roles and Issues in Groups Devil’s advocate

Someone is assigned the role of challenging the assumptions and assertions made by the group

Brainstorming Generation of solutions by prohibiting criticism The wilder or more radical the idea, the better

Groupthink The pressure to conform to the group norms and

decisions, rather than to state one`s honest opinion.

Limitations to analytical approach

Source: biases in human decision-making Simon & Lindblom

Bounded rationality Too much information, limited mental capacity

Satisficing Not the best solution, but good enough solutions

Some pitfalls Personal biases enter when structuring the

problem Letting the method supplant the problem