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Chapter-05 Problem Solving and Decision Making . Dr. Gehan Shanmuganathan , (DBA). Hammond’s Candies. Hammond’s Candies. Schuman bought the 90 year old company in 2007 Offered $ 50 bonus for the assembly-line workers to come up with successful ideas to cut manufacturing costs

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hammond s candies1
Hammond’s Candies
  • Schuman bought the 90 year old company in 2007
  • Offered $ 50 bonus for the assembly-line workers to come up with successful ideas to cut manufacturing costs
    • One worker suggested a tweak in machine gear that reduced workers needed on an assembly line from five to four
    • Another devised a new way to protect candy canes while en route to stores that resulted in a 4% reduction in breakage
learning objectives


Learning Objectives
  • Differentiate between programmed and non-programmed decisions.
  • Explain the steps involved in making a non-programmed decision.
  • Understand the major factors influencing decision making in organizations.
  • Understand the nature of creativity and how it contributes to managerial work.
  • Describe organizational programs for improving creativity and innovation.
  • Implement several suggestions for becoming a more creative problem solver.
  • Appreciate the value and potential limitations of group decision making.
what is a problem1
What is a problem ?
  • A discrepancy between ideal and actual conditions
  • What is a decision?
    • A choice among alternatives
non programmed decisions
Non-programmed decisions
  • A decision that is difficult because of its complexity and the fact that the person faces it infrequently
    • All strategic decisions are non-programmed decisions
    • A well-planned and highly structured organization reduces the number of non-programmed decisions
    • E.g- outsourcing, merging, acquisitions
programmed decisions
Programmed decisions
  • A decision that is repetitive, or routine, and made according to a specific procedure
    • First level managers or supervisors make more routine decisions. E.g- signing payment vouchers
    • Middle managers generally make both routine and non-routine decisions
    • A well-managed organization encourages all managers to delegate as many non-programmed decisions as possible
programmed and nonprogrammed decisions a comparison

Programmed Decisions

Nonprogrammed Decisions

Types of problems

Repetitive, routine, frequent; decisions made according to specific procedures

Novel, complex, difficult, infrequent; decisions require original thinking


Depend on policies and rules

Require creativity, intuition, tolerance for ambiguity, innovation


Business firm: Periodic reorders of inventory

Health care: Procedure for admitting patients

University: Necessary GPA for good academic standing

Business firm: Diversification into new products and markets

Health care: Purchase of experimental equipment

University: Construction of new classrooms

Programmed and Nonprogrammed Decisions: A Comparison
steps in problem solving and decision making1

“What really, really is our problem?”

“Let’s dream up some great ideas.”

“Some of these ideas are good; others are wacko.”

Identify and diagnose the problem

Develop creative alternatives

Evaluate the alternative solutions

“How really good was that idea?”

“Now let’s take action.”

“This alternative is a winner!”

Evaluate and control

Implement the decision

Choose one alternative solution

Steps in Problem Solvingand Decision Making
1 identify and diagnose the problem
1. Identify and diagnose the problem
  • The first step in problem solving and decision making is to identify a gap between desired and actual conditions
    • Why our sales dropped over time?
    • Why former customers stopped buying from us?
    • Why can not we have a global presence?
2 develop alternative solutions
2. Develop alternative solutions
  • To explore all kinds of possibilities
3 evaluate alternative solutions
3. Evaluate alternative solutions
  • Examination of pros and cons of all the possibilities and considers the feasibility of each
  • Evaluation parameters
    • Cost
    • Time
    • Return
    • Risk
    • Resources availability
    • Capabilities
4 choose one alternative solution
4. Choose one alternative solution
  • The process of weighing the alternatives must stop at some point
    • Analysis paralysis
5 implement the decision
5. Implement the decision
  • Converting a decision into action
6 evaluate and control
6. Evaluate and control
  • The final step in the decision making process is to investigate how effectively the chosen alternative solved the problem
    • Single loop and double loop learning
bounded rationality
Bounded rationality
  • The observation that people’s limited mental abilities, combined with external influences over which they have little or no control, prevent them from making entirely rational decisions
  • Superstitions
    • Hong Kong people avoid 40-59
    • Westerners avoid 13
  • Satisficing decisions- a decision meets the minimum standards of satisfaction
  • Heuristics- rule of thumb using decision making
    • Smiling within first three minutes at an interview
  • Intuition – experience based reasoning
factors influencing decision making

“I like risks and I’m really bright.”

“Let’s wait before deciding.”

“I’m great at hunches.”

“I’ve got integrity.”

“I can read people great and control my emotions.”

“Our backs are to the wall, and we disagree.”

Decision Maker

“The IS group is feeding me great stuff.”

“What does my boss want me to decide?”

“Looks like a sure thing.”

Factors Influencing Decision Making

Personality and cognitive intelligence



Emotional intelligence


Quality of information

Crisis and conflict

Political considerations

Degree of uncertainty

personality and cognitive intelligence
Personality and cognitive intelligence
  • Risk taking, cautiousness, and conservatism influences decisiveness
    • Cautiousness will lead to low risk taking decisions
  • Good decision makers, by definition, are decisive
  • Perfectionism- people who seek perfect solution to a problem are usually indecisive
  • Optimism and pessimism- optimistic people are more decisive
  • Cognitive intelligence- imagination, adaptability, and practical intelligence
    • In general, intelligent and well educated people are more likely to identify problems and make sound decisions
emotional intelligence
Emotional intelligence
  • The ability to connect with people and understand their emotions
  • Key factors of emotional intelligence
    • Self- awareness – to understand your own emotions
    • Self- management – control one’s emotions
    • Social- awareness – having empathy for others
    • Relationship management – interpersonal skills of clear and convincing communication
quality and accessibility of information
Quality and accessibility of information
  • Accessing high quality and valid information for decision making
  • Sources
    • Organizational reports, Interviews, Observations, News and Case studies
    • Avoid
      • Anchoring and perceptual errors (selective, figure-ground, stereotyping, and closure)
political considerations
Political considerations
  • Status quo
  • Take revenge
  • Political affiliations to stay in favor with,
    • Senior managers
    • Middle managers
    • Operational level staff
degree of certainty
Degree of certainty
  • The more certain a decision maker is of the outcome of a decision, the more calmly and confidently the person will make the decision
crisis and conflict
Crisis and conflict
  • In a crisis many decision makers panic and they become less rational and more emotional than they would be in a calm environment
  • In such situation, some managers concentrate poorly, use poor judgment, and think impulsively
  • Some managers consider crisis as an exciting challenge that energizes them towards their best level of problem solving and decision making
values of the decision maker
Values of the decision maker
  • What do the manager value?
    • Employees
    • Profits
    • Prestige
    • Any other
  • Delaying taking an action without a valid reason
  • Procrastination results in indecisiveness
decision making style
Decision making style
  • Managers use
    • Intuition
    • Procrastination
    • Satisficing
    • Decisive
    • Flexible (many options and less information)
    • Hierarchic
    • Integrative (many options more information)
group problem solving and decision making1
Group problem solving and decision making
  • The process of several people contributing to a final decision
advantages and disadvantages
Advantages and disadvantages



  • High quality due to combined wisdom of the group
  • Errors are likely to avoid due to individual evaluation
  • Gains acceptance and commitment
  • Time consuming
  • Depends on intelligent individuals
  • Groupthink lose ability to evaluate bad ideas
general method of group problem solving1
General method of group problem solving
  • Identify the problem
  • Clarify the problem
    • Everyone share the same definition of the problem
  • Analyze the cause
    • Search for “what we want”
  • Search for alternative solutions
  • Select alternatives
  • Plan for implementation
    • Decide what actions are necessary
  • Clarify the contract
    • What group members have agreed to do
  • Develop an action plan
  • Provide evaluation and accountability
    • Hold people accountable for results
suggestions for improving group problem solving

1. Have a specific agenda and adhere to it

2. Rely on qualified group members

5. Build consensus so the decision is more likely to be implemented

4. Provide summaries for each major point

3. Have the leader share decision-making authority

Suggestions for ImprovingGroup Problem-Solving
the nominal group technique ngt
The nominal group technique (NGT)
  • A group-decision making technique that follows a highly structured format
the nominal group technique

1. Small group is assembled

6. Alternatives are rated and best-rated one is chosen

2. Leader presents a problem

5. Group clarifies and evaluates all suggestions

3. Members write down ideas individually

4. Each participant presents one idea to group

The Nominal Group Technique
  • The process of developing novel ideas that can be put into action
  • Creativity is closely linked to innovation by the application of the ideas
the creative personality
The creative personality
  • Creative people think outside the box or get beyond the usual constraints when solving problems
  • Creative people want to learn new things, stretch themselves, and strive to do better in their jobs
  • They break the rule challenging the status quo
  • Unconventional
key parts of creativity
Key parts of creativity
  • Lateral thinking
    • A thinking process that spreads out to find many alternative solutions to a problem
  • Vertical thinking In contrast
    • An analytical, logical process that results in few answers
conditions necessary for creativity1
Conditions necessary for creativity
  • Expertise
  • Creative-thinking skill
  • Internal motivation
  • Environment need
  • Encouragement from others

Providing challenges

Allowing freedom

Encouraging risk taking

Establishing a Creative Atmosphere Involves. . .

Providing organizational support

Allocating ample resources

Providing encouragement



organizational programs for improving creativity and innovation1
Organizational programs for improving creativity and innovation
  • Creativity training
  • Brainstorming
  • Systematically gathering ideas
  • Appropriate physical surroundings
suggestions to build creativity

1. Keep an idea notebook

2. Stay current in your field

3. Listen to other people

4. Learn to think in the five senses

5. Improve your sense of humor

6. Adopt a risk-taking attitude

7. Develop a creative mental set

8. Identify your most creative times

9. Be curious about your environment

10. Step back when faced with a creativity block


Suggestions to Build Creativity
our discussion today


Our discussion today
  • Differentiate between programmed and non-programmed decisions.
  • Explain the steps involved in making a non-programmed decision.
  • Understand the major factors influencing decision making in organizations.
  • Understand the nature of creativity and how it contributes to managerial work.
  • Describe organizational programs for improving creativity and innovation.
  • Implement several suggestions for becoming a more creative problem solver.
  • Appreciate the value and potential limitations of group decision making.
midterm presentations due march 14 th 2012 10 15 minutes
Midterm Presentations- Due March 14th 2012 – 10-15 minutes
  • Find mission statements of three large corporations in different industries from the web
  • Compare the mission statements in terms of the purposes of being in the business and its concern for employees, customers, and shareholders
  • Which company you would like to work for and why?