Lecture 4 decision making
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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.

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Lecture 4 Decision Making

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Lecture 4 decision making

Lecture 4 Decision Making

The Essence of the Manager’s Job


Outline of the lecture

Outline of the Lecture

  • The Decision-Making Process

  • The Manager as Decision Maker


Learning outcomes

Learning Outcomes

  • The decision-making process

    ▲Define decision and decision-making process.

    ▲ Describe the eight steps in the decision-making process.

  • The manager as decision maker

    ▲Discuss the assumptions of rational decision making

    ▲ Describe the concepts of bounded rationality, satisficing, and escalation of commitment


Learning outcomes1

Learning outcomes

▲ 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.


Which one do you choose

Which one do you choose?


The decision making process

The Decision-Making Process

  • Decision

    A choice from 2 or more alternatives

    Decision-making process

    A set of 8 steps that include identifying a problem, selecting alternative, and evaluating the decision’s effectiveness.


Lecture 4 decision making

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。”


Lecture 4 decision making

瓦匠的故事

  • 三个泥瓦匠都在砌墙。有人问第一个泥瓦匠:你在做什么呀?第一个泥瓦匠一脸沮丧地回答:我在砌墙,枯燥的很!第二个泥瓦匠则喜滋滋地回答:我在造房子,这座房子造好了一定很漂亮!第三个泥瓦匠则信心十足地回答:我在搞城市建设,将来我们的这座城市不但漂亮,而且生活在这里的人也一定很幸福。

  • 二十年后,第一个瓦匠仍然在垒砖;第二个瓦匠成为当地第一建筑公司董事长,第三个瓦匠成为这个城市的市长。

  • 这个故事说明了一个什么问题呢?


8 steps of decision making process

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step1 identifying a problem

Step1 Identifying a problem(界定问题)

  • What is problem?

  • A discrepancy between an existing state and a desired state of affairs.


Some cautions about problem identification

Some Cautions about problem identification

  • A problem or a symptom of problem?

  • Did all discrepancies be considered ?

  • Is there any pressure on correcting it?

  • Are there any resources be assigned to solve the problem?

  • Is the problem subjective?


Lecture 4 decision making

鸡贵有自知之明

我不叫太阳

就不会出来

鸡贵有自知之明


8 steps of decision making process1

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step2 identifying decision criteria

Step2 Identifying Decision Criteria

•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


Lecture 4 decision making


Gnh gross national happiness

全球幸福指数 GNH(Gross National Happiness国民幸福总值)

  • 是全球第一个将生态环境因素考虑进幸福程度的指数。

  • 该指数不衡量一国或地区有多少资源和财富,或享有多么高的社会福利或人均收入,而是看各国在生态资源利用上是否合理、有效,是否以较少的消耗实现了较大的价值。

  • “全球幸福指数”囊括三个方面的信息,包括“生态足迹”度量指标、生活满意程度和人均寿命。其中“生态足迹”度量指数是指在现有消费水平、技术发展和自然资源背景下,一定数目的人口需多少土地才能养活。用生活满意度乘以人均寿命,再除以“生态足迹”度量指标,就得出了“幸福指数”。

  • “全球幸福指数”旨在衡量一个国家或地区在尊重有限的自然资源的同时,为人民赢得了多少幸福。


8 steps of decision making process2

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step 3 allocating weights to the criteria

Step 3 -Allocating Weights to the Criteria

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?


Gdp gnp gnh

GDP、GNP 与GNH作为标准其权重如何确定?

  • GDP指标与“幸福指数”的辩证关系:“GDP是唯效率主义或独尊经济指数的发展取向;“幸福指数”关怀则体现了“以人为中心”发展理念的高级层面,标志着人本取向发展观的出现。

  • 经济增长只是手段,人的幸福才是目的。

  • 当经济发展到一定水平之后,健康的身体、稳定的工作、美满的婚姻、和谐的人际关系等,对于人的幸福程度的影响力不亚于收入的高低、财产的多少等经济因素。


8 steps of decision making process3

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step 4 developing alternatives

Step 4 - Developing Alternatives

  • list the viable alternatives that could resolve the problem without evaluating them

  • As much as possible


8 steps of decision making process4

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step 5 analyzing alternatives

Step 5 - Analyzing Alternatives

  • each alternative is evaluated against the criteria2 and 3.

  • Comparing the weaknesses and strengths of each alternatives


8 steps of decision making process5

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step 6 selecting an alternative

Step 6 - Selecting an Alternative

  • Comparing with the results and select the best one from those considered


The first choice

抓周的宝宝—The first choice


8 steps of decision making process6

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step 7 implementing the alternative

Step 7 - Implementing the Alternative

  • implementation – try to get operatives’ commitment

    *operatives’participation in decision-making process

    ★Reassess the environment for any changes


8 steps of decision making process7

8 Steps of Decision-Making Process

  • Identifying a problem(界定问题)

  • Identification of Decision Criteria(确定决策标准)

  • Allocation of Weights to Criteria(确定标准的权重)

  • Development of Alternatives(罗列待选项)

  • Analysis of Alternatives(分析选项)

  • Selection of an Alternative(选择)

  • Implementation of the Alternative(实施所选)

  • Evaluation of Decision Effectiveness(决策效果评估)


Step 8 evaluating decision effectiveness

Step 8 - Evaluating Decision Effectiveness

  • The soundness of the decision is judged by its outcomes.

    • How effectively was the problem resolved by outcomes resulting from the chosen alternatives?

    • If the problem was not resolved, what went wrong?

  • After evaluation, the whole decision process will start over.

    Question:What if the problem isn’t solved by my decision? Did I make a bad decision?


Practice

Practice

三个和尚没水吃

请分别从小和尚、高和尚、和胖和尚的角度进行“不去挑水”的决策过程分析。


Lecture 4 decision making

Exhibit 6–5Decisions in the Management Functions


The manager as decision maker

The Manager as Decision Maker

How decisions are made: rationality, bounded rationality, and intuition

  • The types of problems and decisions managers face

  • Decision-making conditions

  • Decision-making styles


Assumption of rationality

Assumption of Rationality

  • Rationality

    • Managers make consistent, value-maximizing choices with specified constraints.

    • Assumptions are that decision makers:

      • Are perfectly rational, fully objective, and logical.

      • Have carefully defined the problem and identified all viable alternatives.

      • Have a clear and specific goal

      • Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests.


Lecture 4 decision making

Exhibit 6–6Assumptions of Rationality


Making decisions cont d

Making Decisions (cont’d)

  • Bounded Rationality

    • Managers make decisions rationally, but are limited (bounded) by their ability to process information.

    • Assumptions are that decision makers:

      • Will not seek out or have knowledge of all alternatives

      • Will satisfice—choose the first alternative encountered that satisfactorily solves the problem—rather than maximize the outcome of their decision by considering all alternatives and choosing the best.


Influence on decision making

Influence on decision making

  • In accordance with reality in decision-making.

  • Escalation of commitment(承诺升级):an increased commitment to a previous decision despite evidence that it may have been wrong.


Lecture 4 decision making

完全理性决策与有限理性决策


Question

Question

  • Satisficing seems like settling for second best(退而求其次). Is that true?

  • How to avoid the escalation of commitment?


Role of intuition

Role of Intuition

- making decisions on the basis of experience and accumulated judgment

  • does not rely on a systematic or thorough analysis of the problem

  • generally complements a rational analysis


Lecture 4 decision making

Exhibit 6–7What is Intuition?


Credit card and rush shopping

Credit Card and Rush Shopping


Types of problems and decisions

Types of Problems and Decisions(自学)

  • -Structured Problems

    Straight forward, familiar, and easily defined problems

  • -the goal of the decision maker is clear

  • -the problem is familiar

  • -and information about the problem is easily defined and complete


Programmed decisions

Programmed Decisions

  • –A repetitive decision that can be handled by a routine approach.

  • -used to address structured problems

  • -a repetitive decision

    Question: give us an example.


Three possible programmed decisions

Three Possible Programmed Decisions

•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 and nonprogrammed d ecisions

Unstructured problems and nonprogrammed decisions

-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


Programmed versus nonprogrammed decisions

Programmed versus Nonprogrammed Decisions


Lecture 4 decision making

Exhibit 6–8Programmed versus Nonprogrammed Decisions


Integration

Integration (自学)

  • at the higher levels of the organization, managers are dealing with poorly structured problems and using non-programmed decisions

  • at lower levels, managers are dealing with well-structured problems by using programmed decisions

  • Keep in mind - few decisions in the real world are either fully programmed or non-programmed


Decision making conditions

Decision-Making Conditions

–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

Uncertainty

–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

  • –maximax choice(大中取大) - optimistic

  • –maximin choice (小中取大)- pessimistic

  • –minimax (最小最大后悔值)- minimize the maximum “regret”


Lecture 4 decision making

Exhibit 6–10Payoff Matrix


Lecture 4 decision making

Exhibit 6–11Regret Matrix


Steps of uncertainty decision making minimax

Steps of Uncertainty Decision Making - minimax

  • 1. To select the maximum payoffs from different conditions.

  • 2. To get the regret

  • 3.In contrast to the regret and get the maximum ones.

  • 4. Compare them and choose the minimum one as the result.


3 lateral compare to select the maximum regret figure

3.Lateral Compare to select the maximum regret figure

  • S1:17

  • S2:15

  • S3:13

  • S4:7

    4.Then choose the minimum one as the result---S4=7


Decision making styles

Decision Making Styles(自学)

–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


Lecture 4 decision making

Exhibit 6–12Decision-Making Matrix


Decision making styles1

Decision-making Styles

•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


Decision making styles2

Decision-Making Styles

•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


Question1

Question

  • Did you ask others for their opinions on important decisions (such as deciding a major or make a big purchase )? Did you seek out advice from a variety of people?

  • “三个臭皮匠,赛过一个诸葛亮”对否?为何?


Lecture 4 decision making

Exhibit 6–13 Common Decision-Making Errors and Biases


Decision making biases and errors

Decision-Making Biases(偏见) and Errors

  • Heuristics (启发方法)

    • Using “rules of thumb”(经验法则)to simplify decision making.

  • Overconfidence Bias(自负)

    • Holding unrealistically positive views of one’s self and one’s performance.

  • Immediate Gratification (sth that gives pleasure)Bias(即刻回报)

    • Choosing alternatives that offer immediate rewards and that to avoid immediate costs.


Decision making biases and errors cont d

Decision-Making Biases and Errors (cont’d)

  • Anchoring (锚定)Effect(第一印象)

    • Fixating on initial information and ignoring subsequent information.

  • Selective Perception Bias(选择性感知)

    • Selecting organizing and interpreting events based on the decision maker’s biased perceptions.

  • Confirmation Bias(寻求认同)

    • Seeking out information that reaffirms past choices and discounting(低估) contradictory(矛盾的) information.


Decision making biases and errors cont d1

Decision-Making Biases and Errors (cont’d)

  • Framing Bias(框架效应)

    • Selecting and highlighting(emphasize) certain aspects of a situation while ignoring other aspects.

  • Availability Bias(可获性)

    • Losing decision-making objectivity by focusing on the most recent events.

  • Representation Bias(典型性)

    • Drawing analogies and seeing identical situations when none exist.

  • Randomness Bias(随机性)

    • Creating unfounded (not based on reason or fact,无端的,无来由的)meaning out of random events.


Decision making biases and errors cont d2

Decision-Making Biases and Errors (cont’d)

  • Sunk Costs Errors(沉没成本)

    • Forgetting that current actions cannot influence past events and relate only to future consequences.

  • Self-Serving Bias(自利性)

    • Taking quick credit for successes and blaming outside factors for failures.(成事在己,败事在人)

  • Hindsight Bias(事后诸葛亮)

    • Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).


Lecture 4 decision making

Exhibit 6–14 Overview of Managerial Decision Making


Team work

Team Work

  • Did you make a wrong decision? If so, did you learn something from it? Would you like share some with us?

  • Read the materials and comment on increasing luxury expenditure in our society.


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