Lecture 4 Decision Making. The Essence of the Manager ’ s Job. Outline of the Lecture. The Decision-Making Process The Manager as Decision Maker. Learning Outcomes. The decision-making process ▲ Define decision and decision-making process.
Lecture 4 Decision Making
The Essence of the Manager’s Job
▲Define decision and decision-making process.
▲ Describe the eight steps in the decision-making process.
▲Discuss the assumptions of rational decision making
▲ Describe the concepts of bounded rationality, satisficing, and escalation of commitment
▲ Explain intuitive decision making
▲ Contrast programmed and nonprogrammed decisions
▲ Contrast the 3 decision-making conditions
▲ Explain maximax, maximin, and minimax decision choice approaches
▲ Discuss the 4 decision-making styles
▲ Explain the managerial decision-making model.
A choice from 2 or more alternatives
A set of 8 steps that include identifying a problem, selecting alternative, and evaluating the decision’s effectiveness.
Significance of decision-making
＊Each use it frequently ,even some are unconsciously
＊Outcomes are different based on the different choices.
＊Different level managers and operatives have their own decisions. Can you give an example?
★Decision-making is a process, not just a choice among Alternatives---《老子》第六十四章：“慎终如始，则无败事。”
•decision criteria - what’s relevant in making a decision
★Costs that will be incurred (investments required)
★Risks likely to be encountered (chance of failure)
★Outcomes that are desired (growth of the firm): market share/time saving/customer satisfaction
Assigning a weight to each item, making them in the correct priority order in the decision making process.
Question: How do decision makers know what weight to assign to the decision criteria?
＊operatives’participation in decision-making process
★Reassess the environment for any changes
Question:What if the problem isn’t solved by my decision? Did I make a bad decision?
Exhibit 6–5Decisions in the Management Functions
How decisions are made: rationality, bounded rationality, and intuition
Exhibit 6–6Assumptions of Rationality
- making decisions on the basis of experience and accumulated judgment
Exhibit 6–7What is Intuition?
Straight forward, familiar, and easily defined problems
Question: give us an example.
•procedure(程序） – a series of interrelated sequential steps used to respond to a structured problem
•rule （规定）- An explicit statement of what to do or not to do
•policy（政策） -A guidelines or parameters(范围） for decision making
-A guide that establishes parameters for making decisions
Question: Policies seem kind of wishy-washy(特征模糊）. What purpose do they serve?
-UnStructured Problems (非结构性问题）- new, unusual problems for which information is ambiguous or incomplete
–Nonprogrammed Decisions （非程序性决策）–a unique decision that requires a custom-made response
-used to address unstructured problems
•produce a custom-made response
•more frequent among higher-level managers
Exhibit 6–8Programmed versus Nonprogrammed Decisions
–Certainty: A situation in which a manager can make accurate decisions because all outcomes are known.
•idealistic rather than realistic
–Risk :A situation in which the decision maker is able to estimate the likelihood of certain outcomes
•expected value - the conditional return from each possible outcome
–multiply expected revenue from each outcome by the probability of each outcome
expected value = expected revenues × probability
Ei = ΣERij ㄨ Pij
–Uncertainty - a situation in which the decision maker has neither certainty nor reasonable probability estimates available
•the limited amount of information available to the decision maker
•psychological orientation of decision maker
Exhibit 6–10Payoff Matrix
Exhibit 6–11Regret Matrix
4.Then choose the minimum one as the result---S4=7
–two dimensions define the approach to decision making
•way of thinking - differs from rational to intuitive
Rational: Look at information in order and make sure it is logical
Intuitive: Need not to process information in a certain order but look at it as a whole.
•tolerance for ambiguity - differs from low to high
Low tolerance: Try to get structured information to minimize the ambiguity
High tolerance: Tolerate for ambiguity and process many thoughts
–define four decision-making styles
Exhibit 6–12Decision-Making Matrix
•Directive – characterized by low tolerance for
ambiguity and a rational way of thinking
-fast, efficient, logical, focus on short run.
-making decisions with minimal information and assessing few alternatives.
•Analytic – characterized by a high tolerance for
ambiguity and a rational way of thinking
-careful and able to adapt or cope with new situations
-want more information and consider more alternatives
•Conceptual –characterized by a high tolerance for ambiguity and an intuitive way of thinking
-broad outlook, look at many alternatives
-focus on long run and good at finding creative decisions.
•Behavioral – characterized by a low tolerance for ambiguity and an intuitive way of thinking
-seek acceptance of decisions from others
－most managers realistically probably have a
Dominant（统治的） style and alternate（交替变化的） styles
Exhibit 6–13 Common Decision-Making Errors and Biases
Exhibit 6–14 Overview of Managerial Decision Making