advanced organizational management Chapter 1

1. advanced organizational management Chapter 1 Critical Thinking and Decision-Making Processes

2. Overview • Decisions are made in an atmosphere in which there is uncertainty, risk, time pressure, imperfect information and a lack of knowledge as to responses. • Decision making is a part of ALL the management functions: planning, organizing, leading, and controlling; • Focus on this chapter: decisions made in the name of the organization by managers.

3. A. Organizational Decision Making • Manager’s primary function = decision making—the process of identifying and solving problems creatively; making appropriate and rational decisions! • 1. Theories of Managerial Decision Making • A. Classical theory • B. Behavioral (administrative) theory

4. A. Organizational Decision Making (cont’d) • A. Classical theory: * represents anidealmodel, with maximizing outcomes as a primary goal; * maximizing = process of making decisions that is aimed at realizing the best possible outcome on one dimension – seeking the best answer! Used with non-programmed decisions * considered the normative model – defines how a decision maker should make decisions • B. Administrative theory: * describes how managers actually make decisions with uncertain outcomes where satisficing is necessary

5. A. Organizational Decision Making (cont’d) Satisficing: * manager adopts the solution that minimally meets the objectives, often found in the first acceptable option that arises; * alternatives are not studied much; * commonly used and appropriate with programmed and recurring decisions Example: Purchasing software without reviewing whether the same needs exist this year as last year.

6. A. Organizational Decision Making (cont’d) Optimizing: * involves the selection of the BEST alternative from a range of options that have been evaluated within existing time/price constraints; * involves the use of the classical decision-making model more than the other two types. Example: Selecting a particular brand of computers to buy for use within the entire office from a range of six major options and within the time allotted.

7. A. Organizational Decision Making (cont’d) • Characteristics of “Classical Theory” Managers are expected to: * gather information * examine it objectively * consider all alternative solutions * make an appropriate choice of alternatives leading to the best possible outcome * managers who are “left-brain” thinkers tend to arrive at logical and analytical decisions and are stronger advocates of the classical theory

8. A. Organizational Decision Making (cont’d) • Identification of the problem – clearly stated/defined • Presence of certainty – amount of risk is evident and easily determined • Information about alternatives – full set of information about each alternative available and expected outcomes are determined • Maximization of outcomes – direct application of classical theory results in rational choice of alternatives in relation to the maximization of outcomes • Goal – attempt to make the ideal decision

9. A. Organizational Decision Making (cont’d) • Characteristics of “Behavioral (administrative) Theory” – based on work of Herbert A. Simon; how managers actually make decisions in business situations Model incorporates two basic concepts: (1) bounded rationality and (2) satisficing * managers who are “right-brain” thinkers tend to rely more on intuitive and creative pursuits and more apt to follow a behavioral model

10. A. Organizational Decision Making (cont’d) • Identification of the problem – problem exists and is identified but difficulty in determining what it is; vagueness • Presence of uncertainty and intuition – exists because there is only incomplete information available; sometimes manager must use intuition, based on personal experience • Information about alternatives – limited information available about alternative solutions and outcomes • Satisficing decision making - managers select the alternative solution that satisfies “minimal” decision criteria and seems “good enough”

11. A. Organizational Decision Making (cont’d) • Classical procedures – associated with high performance in stable environment • Behavioral procedures – associated with high performance in unsuitable environments where decisions made under more complex and difficult conditions within a short time span

12. A. Organizational Decision Making (cont’d) • 2. Two Types of Decisions to be Made • Programmed: * decisions made routinely/recurring basis * most often do not require huge expenditures * less complex in nature (buying copy paper/stocking the supply cabinet) • Nonprogrammed: * have no precedents/situations not dealt with previously * have no rules, procedures or policies for manager to follow

13. A. Organizational Decision Making (cont’d) • 3. Personal v. Organizational Decisions – follow proper protocol to make sure the two areas do not collide! • 4. Business Decisions * leaders are expected to act in a totally rational manner * moral responsibility of management – making decisions that affect the work lives of others * emotions and intuition enter into the making of business decisions

14. A. Organizational Decision Making (cont’d) * need for rational behavior – follow a well- established logical process * most decisions combine objectivity and subjectivity * use of decision-making aids - computers - statistics - decision trees

15. B. Critical Thinking • Definition: means using evidence and reason to evaluate claims, dilemmas, or choice options * rational decision making requires critical thinking * unique, unanticipated, not encountered before – requires a more detailed process to define, analyze and solve “nonprogrammed” decisions • 1. Scientific Method – steps of critical thinking; method of research follows scientific rules that knowledge can be obtained in an unbiased manner

16. B. Critical Thinking (cont’d) • 2. Logical Reasoning Using the Scientific Process a. Identifying/defining problem – most important step! * reasons for failure to identify real causes: 1) haste; 2)work pressure; 3)discomfort with ambiguous, vague and ill-defined situations * results of failure to identify real cause b. Gathering information about the problem – investigate fully the circumstances

17. B. Critical Thinking (cont’d) • c. Developing alternative solutions * need for clear objectives – clear statement of the objective must be developed * need for creative solutions – brainstorming = technique designed to help individuals become freer in exercising their creativity - brainwriting = individuals write down their ideas independently; group reviews and critiques each idea

18. B. Critical Thinking (cont’d) * need for alternative scenarios – an analytical method with the advantage being the ability of the manager to examine multiple possibilities rather than selecting one path to follow • d. Evaluating alternatives – test of logic requires that alternatives be evaluated according to same set of standards * decision criteria – stated in quantitative or qualitative terms 1. statistical analysis – the term “statistics” is used generally to mean DATA (characteristics) for a sample (subset) of a population; statistical analysis is a set of methods or techniques for collecting, organizing and interpreting the data (graphs/tables)

19. B. Critical Thinking (cont’d) The way data data are displayed can aid the reader to derive meanings from the data: * Graphs – data organized and presented in terms of: 1) most common plot, or 2) total volume per time period * Tables – data organized into arrays by chronology, size, location or some other characteristic

20. B. Critical Thinking (cont’d) * Inferential statistics – provide techniques for calculating the odds, or probabilities that certain events will happen * Payoff tables or matrices – show results of a comparison of different alternatives; arranges information so that comparisons of outcomes can be examined simultaneously * Computers have made the preparation of payoff tables and matrices a much simpler process (Fig. 1-3)

21. B. Critical Thinking (cont’d) 2. Operations research – includes a wide range of mathematical formulas and techniques for analyzing a complex decision problem * linear programming – used to find the best answer to situations where many known elements may be put together in different combinations that yield different profits 3. Qualitative factors – are those which cannot be measured directly in quantitative terms

22. B. Critical Thinking (cont’d) a. certainty – all possible alternatives must be known, direct and predictable methods and all possible outcomes must be known * Question in the realm of certainty = “What is the least expensive way to ship a package from point A to point B?” * uncertainty – we have little or no information about possible alternatives or outcomes * limited certainty – decision maker has some knowledge about some alternatives but has little information about outcomes

23. B. Critical Thinking (cont’d) b. Risk – where alternatives, the possible outcomes, and the probabilities of those outcomes occurring are known, the problem can be converted to one of “gambling” or risk 4. Analytical tools for decision making * Decision trees – powerful method of graphing complex decision problems, especially in which one is considering a sequence of decisions to be made across a period of time * VROOM MODEL – most common decision-making tree developed by Vroom and Yelton

24. B. Critical Thinking (cont’d) * Decision making using groups – T group, Delphi technique, nominal group technique, quality circles, brainstorming (all covered in Ch. 8) * Computerized decision making – decision support system (DSS) is an interactive computer-based system that aids decision makers in solving problems e. Choosing an alternative – final step * use judgment as it is needed in addition to quantitative data * consider possible negative consquences * personal values – bias, attitude toward risk, ambition, fear of public opinion –come into play in the act of choosing the alternative

25. B. Critical Thinking (cont’d) * use of groups or committees for implementation – compromise, trading votes, filibustering are all involved in the process of making important decisions * implementing the decision (decision has been made) * monitoring the decision - feedback: either positive (decision was appropriate) or negative (poor decision) * internal and external environments (evaluate outcomes)

26. B. Critical Thinking (cont’d) 3. Logical Thinking Patterns a. Inductive reasoning – defines the problem then moves to identify factors or variables inherent to the problem; b. Deductive reasoning – thought processes move from a general premise toward specific conclusions c. Comparison – key is to use the same procedures for comparing all objects or attributes being investigated d. Causation – most difficult thought process

27. C. Creative Thinking in Organizational Decision Making CREATIVITY – generation of new ideas; INNOVATION – is the translation of a new idea into a new product, service, method of production or even a new organization Creativity and innovation need to be encouraged and fostered by individuals and organizations.

28. C. Creative Thinking in Organizational Decision Making (cont’d) • Individual creativity – manager has the awesome task of identifying people within the organization who are creative and fostering that creativity * Highly creative people tend to be: - more original in thought and ideas; - willing to shift from one approach to another; - more flexible and less rigid with time, resources; - more independent in their pursuit of solutions - more apt to disobey orders that make no sense - more difficult to manage (question authority)

29. C. Creative Thinking in Organizational Decision Making (cont’d) • Creative process in Organizations a. Idea generation – variety of sources: outside consultants, employees, new employees, etc. b. Idea development or problem solving –supported or inhibited c. Implementation of creative ideas – high degree of integration is required among units of an organization d. Monitoring of innovation – enables the organization to examine the results to see if further research is needed

30. MOCK EXAM QUESTIONS

31. MOCK EXAM QUESTIONS (cont’d)

32. MOCK EXAM QUESTIONS (cont’d)

33. MOCK EXAM QUESTIONS (cont’d)