chapter 3 Chapter 3 Section 1 DECISION by luckboy

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									Chapter 3
Section 1 DECISION MAKING: THE ESSENCE OF THE MANAGER’S JOB
Jing Yu

Section 1—Focus on
The decision-making process The manager as decision maker

Jing Yu

Learning Objectives
You should learn to:
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. • Explain what intuition is and how it affects decision making. • Contrast programmed and nonprogrammed decisions.
Jing Yu

Learning Objectives (cont.)
You should learn to: The Manager as Decision Maker (cont’d)
• Contrast the three decision-making conditions. • Make decision by using decision tree. • Explain maximax, maximin, and minimax decision choice approaches. • Describe the four decision making styles. • Explain the managerial decision-making model.

Jing Yu

Lecture Outline
Introduction The Decision-Making Process Step 1: Identifying a Problem Step 2: Identifying Decision Criteria Step 3: Allocating Weights to the Criteria Step 4: Developing Alternatives Step 5: Analyzing Alternatives Step 6: Selecting an Alternative Step 7: Implementing the Alternative Step 8: Evaluating Decision Effectiveness The Pervasiveness of Decision Making The Manager as Decision Maker Making Decisions: Rationality, Bounded Rationality, and Intuition Assumptions of Rationality Bounded Rationality Role of Intuition Types of Problems and Decisions Well-Structured Problems and Programmed Decisions Poorly Structured Problems and nonprogrammed Decisions Integration Decision-Making Conditions Certainty Risk Uncertainty Decision-Making Styles Summing Up Managerial Decision Making 引言 决策制定过程 步骤 1:识别问题 步骤 2:确定决策标准 步骤 3:给每个标准分配权重 步骤 4:拟定方案 步骤 5:分析方案 步骤 6:选择方案 步骤 7:实施方案 步骤 8:评价决策效果 决策的普遍性 管理者作为决策者 决策:理性、有限理性和直觉 理性假设 有限理性 直觉(决策)的作用 问题的类型和决策的类型 结构良好问题和程序化决策 结构不良问题和非程序化决策 综合分析 决策条件 确定性 风险性 不确定性 决策风格 管理决策小结

Decisions

Decision Making

– Definition -choices from two or more alternatives – Key ideas -all organizational members make decisions top-level managers ---make decisions about 1) organization’s goals 2) what new markets to move into 3) what products and services to offer middle and lower-level managers make decisions about 1) setting weekly or monthly production schedules 2) handling problems that arise 3) allocating pay raise 4) selecting or disciplining employees operatives make decisions for their jobs and organizations -decision-making is a process, not just a choice among Jing Yu alternatives

Decision Making (cont.)
Decision-Making Process
– a comprehensive, 8-step process – a set of eight steps that begins with identifying a problem and decision criteria and allocating weights to those criteria; moves to developing, analyzing, and selecting an alternative that can resolve the problem; implements the alternative; and concludes with evaluating the decision’s effectiveness

Jing Yu

Decision Making (cont.)
Decision-Making Process (cont.) – Step 1 - Identifying a Problem • problem - discrepancy between an existing and a desired state of affairs (e.g.) • some cautions about problem identification -make sure it’s a problem and not just a symptom of a problem -problem identification is subjective -before a problem can be determined, a manager must be aware of any discrepancies -discrepancies can be found by comparing current results with some standard -pressure must be exerted on the manager to correct the discrepancy -managers aren’t likely to characterize some discrepancy as a problem if they perceive that they don’t have the authority, money, information, or other resources needed to act on it
Jing Yu

Decision Making (cont.)
Decision-Making Process (cont.)
– Step 2 - Identifying Decision Criteria • decision criteria - what’s relevant in making a decision – Step 3 - Allocating Weights to the Criteria • must weight the criteria to give them correct priority in the decision – Step 4 - Developing Alternatives • list the viable alternatives that could resolve the problem without evaluating them – Step 5 - Analyzing Alternatives • each alternative is evaluated against the criteria
Jing Yu

Decision Making (cont.)
Decision-Making Process (cont.)
– Step 6 - Selecting an Alternative • choosing the best alternative from among those considered – Step 7 - Implementing the Alternative • implementation - conveying the decision to those affected by it and getting their commitment to it – participation in decision-making process inclines people to support the decision – decision may fail if it is not implemented properly – Step 8 - Evaluating Decision Effectiveness • determine whether the problem is resolved
Jing Yu

The Pervasiveness of Decision Making
-decision making is part of all four managerial functions

-managers are often called decision makers

Jing Yu

Decisions in the Management Functions

The Manager As Decision Maker
Four points
– how decisions are made: rationality, bounded rationality, and intuition – the types of problems and decisions managers face – the conditions under which managers make decisions – decision-making styles

Jing Yu

The Manager As Decision Maker (cont.)
Rational Decision Making
– decisions are consistent, value-maximizing choices within specified constraints – managers assumed to make rational decisions – Assumptions of Rationality - decision maker would: – be objective and logical – carefully define a problem – have a clear and specific goal – select the alternative that maximizes the likelihood of achieving the goal – make decision in the firm’s best economic interests, not in the manager’s interests
Jing Yu

The Manager As Decision Maker (cont.)
Rational Decision Making (cont.)
– The Assumptions of Rationality can be met if:
-the manager is faced with a simple problem in which goals are clear and alternatives limited -in which time pressures are minimal and the cost of finding and evaluating alternatives is low -for which the organizational culture supports innovation and risk taking -in which outcomes are concrete and measurable

• managerial decision making seldom meets all the tests
Jing Yu

The Manager As Decision Maker (cont.)
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”, rather than maximizing payoffs – escalation of commitment - increased commitment to a previous decision despite evidence that it may have been wrong • refusal to admit that the initial decision may have been wrong
Jing Yu

The Manager As Decision Maker (cont.)
Role of Intuition – intuitive decision making - subconscious
process of 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

Jing Yu

What Is Intuition?
Decisions based on ethical values or culture Values or ethics-based decisions Decisions based on experience Experiencedbased decisions
Decisions based on feelings and emotions

Intuition

Affectinitiated decisions

Subconscious mental processing
Decisions based on subconscious data

Cognitivebased decisions
Decisions based on skills, knowledge, or training

The Manager As A Decision Maker (cont.) Types of Problems and Decisions
– Well-Structured Problems - straightforward, familiar, and easily defined
-the goal of the decision maker is clear -the problem is familiar -and information about the problem is easily defined and complete

– Programmed Decisions -used to address structured problems -a repetitive decision that can be handled by a routine approach (Definition)
Jing Yu

The Manager As A Decision Maker (cont.)
Three Possible Programmed Decisions • procedure – a series of interrelated sequential steps used to respond to a structured problem • rule - explicit statement of what to do or not to do • policy - guidelines or parameters for decision making -a guide that establishes parameters for making
decisions rather than specifically stating what should or should not be done
Jing Yu

The Manager As A Decision Maker (cont.)
Types of Problems and Decisions (cont.) – Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete – Nonprogrammed Decisions –a unique decision that requires a custom-made response -used to address poorly- structured problems
• produce a custom-made response • more frequent among higher-level managers
Jing Yu

Types Of Problems, Types Of Decisions, And Level In The Organization
Ill-structured Top

Type of Problem

Nonprogrammed Decisions

Level in Organization

Programmed Decisions
Well-structured Lower
Jing Yu

The Manager As A Decision Maker (cont.)
Integration – Conclusion
• at the higher levels of the organization, managers are dealing with poorly structured problems and using nonprogrammed decisions • at lower levels, managers are dealing with wellstructured problems by using programmed decisions

– Keep in mind - few decisions in the real world are
either fully programmed or nonprogrammed
Jing Yu

The Manager As A Decision Maker (cont.)
Decision-Making Conditions – Certainty - outcome of every alternative is known
• idealistic rather than realistic

– Risk - 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 = ∑ERij ㄨ Pij
Jing Yu

Expected Value for Revenues from the Addition of One Ski Lift

Jing Yu

The Manager As A Decision Maker (cont.)
Decision-Making Conditions (cont.)
– 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 - optimistic – maximin choice - pessimistic – minimax - minimize the maximum “regret”
Jing Yu

The Manager As A Decision Maker (cont.)
Decision-Making Styles
– two dimensions define the approach to decision making • way of thinking - differs from rational to intuitive • tolerance for ambiguity - differs from low to high – define four decision-making styles • Directive – characterized by low tolerance for ambiguity and a rational way of thinking -fast, efficient, and logical • Analytic – characterized by a high tolerance for ambiguity and a rational way of thinking -careful and able to adapt or cope with new situations
Jing Yu

The Manager As A Decision Maker (cont.) Decision-Making Styles (cont.)
• Conceptual –characterized by a high tolerance for
ambiguity and an intuitive way of thinking

-able to find creative solutions • Behavioral – characterized by a low tolerance for
ambiguity and an intuitive way of thinking

-seek acceptance of decisions -most managers realistically probably have a
dominant style and alternate styles
Jing Yu

Decision-Making Styles
High Tolerance for Ambiguity

Analytic

Conceptual

Directive

Behavioral

Low Rational Way of Thinking Intuitive Jing Yu

Overview Of Managerial Decision Making
Decision-Making Approach • Rationality • Bounded Rationality • Intuition Types of Problems and Decisions • Well-structured - programmed • Poorly structured - nonprogrammed

Decision-Making Process

Decision-Making Conditions • Certainty • Risk • Uncertainty

Decision • Choose best alternative - maximizing - satisficing • Implementing • Evaluating

Decision Maker Style • Directive • Analytic • Conceptual • Behavioral Jing Yu

Case 3
C.F.Martin Guitar Company

Jing Yu

Answers to Case Questions
1. How do you think good decision-making has contributed to the success of this business?
The decisions that have been made are carefully considered, and tied to the fundamental philosophy of the company. It is a privately held company so that the immediate stakeholders are more limited that would be the case in a publicly held firm. It is clear the company gathers customer information and participates in programs that are socially responsible.
Jing Yu

2. A decision to move into a new market as Chris did is a major decision. How could he have used the decision-making process to help make this decision? It is clear that Chris used the eight-step decisionmaking process in reaching the decision to enter this new market. The problem is two-fold: the reduction in the supply of choice woods and the fact that 65 percent of the guitar market is in the under $800 price range. It is clear also that Chris applied decision criteria that are consistent with the company’s philosophy. Once the decision alternative was selected and implemented, it was followed through and monitored through customer feedback.
Jing Yu

3. What criteria do you think would be most important to Chris as he makes decisions about the company’s future? The criteria would be the on-going viability of the firm, socially responsible corporate behavior, maintaining a high quality product, and staying true to the company’s philosophy of origin.

Jing Yu

4. Would you characterize the conditions surrounding C.F. Martin Guitar Company as conditions of certainly, risk, or uncertainty? Explain your choice. It appears that there are elements of all three. The conditions of certainty are clear in terms of the diminishing supply of natural wood products; the element of risk pertains to whether or not a lowerpriced Martin guitar would be accepted by consumers and uncertainty deals with the ability of the firm to identify other wood products to build guitars of quality into the future.

Jing Yu

5. What could Chris learn from the concept of highly reliable organizations to help him be a better decision maker?
It appears that C.F. Martin does already have some of the characteristics associated with HRO’s. It is clear that Chris is “not tricked by the company’s historical success—as they enter a new market and substitute wood products for their traditional products. We do not know whether he defers to experts on the front lines, but we do know that the skilled people building these guitars exercise both care and patience. The unexpected circumstances (such as the depletion of rosewood) did generate a solution in terms of using cosmetically flawed natural woods that customers did not reject. C.F. Martin clearly embraces complexity given the balance of social responsibility, depletion of natural materials, price levels of their guitars, and new markets.

Jing Yu

Team-Based Exercise
Small groups of students are to discuss previous decision-making experiences. They are to decide whether or not they felt they made good/bad decisions and what happened during the decision-making process that contributed to it being a good/bad decision. The group is also to develop a list of practical suggestions for making good decisions.

Jing Yu


								
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