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Principles of Management

Principles of Management . Week 4 – Decision Making. Rational Decision Making 8-step Process. 1. Identification of problem 2. Identification of Decision Criteria 3. Allocation of weights to criteria 4. Development of alternatives 5. Analysis of alternatives 6. Decide on an alternative

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Principles of Management

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  1. Principles of Management Week 4 – Decision Making

  2. Rational Decision Making 8-step Process • 1. Identification of problem • 2. Identification of Decision Criteria • 3. Allocation of weights to criteria • 4. Development of alternatives • 5. Analysis of alternatives • 6. Decide on an alternative • 7. Implementation of decision • 8. Evaluation of decision

  3. The Decision-Making Process Allocation of Weights to Criteria Problem Identification Identification of Decision Criteria Development of Alternatives Acer Compaq Gateway HP Micromedia NEC Sony Toshiba “My salespeople need new computers” Price Weight Warranty Screen type Reliability Screen size Reliability 10 Screen size 8 Warranty 5 Weight 5 Price 4 Screen type 3 Analysis of Alternatives Selection of an Alternative Implementation of an Alternative R S W W P S Acer 4 3 4 3 2 6 Compaq 3 4 5 2 6 7 Gateway 9 6 7 7 8 2 HP 3 5 6 7 6 5 Micromedia 2 2 3 4 5 4 NEC 3 4 5 6 7 2 Sony 7 5 6 4 2 8 Toshiba 3 4 5 6 7 3 Acer 125 Compaq 142 Gateway 246 HP 174 Micromedia 103 NEC 151 Sony 192 Toshiba 154 Gateway Evaluation of Decision Effectiveness

  4. About Rational Decision Making • Is it always possible to make rational decisions?

  5. Single, well- defined goal is to be achieved Problem is clear and unambiguous All alternatives and consequences are known Rational Decision Making Preferences are clear Final choice will maximize payoff Preferences are constant and stable No time or cost constraints exist

  6. Bounded Rationality behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information satisfice - accept solutions that are “good enough”

  7. Intuitive decision making Based on “gut feeling” subconscious process of making decisions on the basis of experience, values, and emotions does not rely on a systematic or thorough analysis of the problem generally complements a rational analysis

  8. Types of Problems & Decisions Well-Structured Problems - straightforward, familiar, and easily defined Programmed Decisions - used to address structured problems minimize the need for managers to use discretion facilitate organizational efficiency

  9. Types of Problems and Decisions Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete Nonprogrammed Decisions - used to address poorly- structured problems produce a custom-made response more frequent among higher-level managers Procedure, Rule, & Policy

  10. Types of Problems & Level In the Organization Ill-structured Top Type of Problem Level in Organization Lower Well-structured Programmed Decisions Nonprogrammed Decisions

  11. Things to consider . . . Certainty– how certain is a particular outcome? Risk– how much risk can you take? expected value - the conditional return from each possible outcome Uncertain

  12. Decision Making Styles People differ in their decision-making styles on at least 2 dimensions • Way of thinking – rational vs. intuitive • Tolerance for ambiguity – low vs. high • Directive • Analytic • Conceptual • Behavioral

  13. Managers’ Decision Making Style • Autocratic: makes the decision alone • Consultative: Consults employees for information • Participative: Asks for inputs. Based on the inputs, discusses and makes the decision together. • Laissez-fair: Presents the situation and describes limitations to the decision.

  14. Common Errors in Decision Making • Over-confidence • Hindsight • Self-serving • Sunk costs • Randomness • Representation • Availability • Framing • Confirmation • Selective perception • Anchoring • Immediate gratification

  15. Decision-Making Approach • Rationality • Bounded Rationality • Intuition • Types of Problems and Decisions • Well-structured • - programmed • Poorly structured • - nonprogrammed • Decision • Choose best • alternative • - maximizing • - satisficing • Implementing • Evaluating • Decision-Making Conditions • Certainty • Risk • Uncertainty • Decision Maker Style • Directive • Analytic • Conceptual • Behavioral Decision-Making Process

  16. Ethical Decisions • Social Responsibility • Classical View • Management’s only social responsibility is to maximize profit for stockholders • Socioeconomic View • Management’s social responsibility is to protect and improving society’s welfare • Stockholders, employees, constituents in the envt, & broader society

  17. Pros and Cons Pros • Public expectations • Long-run profits • Better environment • Discouragement of govt interference Cons • Violation of profit maximization • Dilution of purpose • Costs • Lack of skills

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