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MGT 211 PRINCIPLES OF MANAGEMENT

CHAPTER 02

Foundation of Decision Making

YANBU UNIVERSITY COLLEGE

Management Science Department

Describe the steps in the decision-making process

Explain the three approaches managers can use to make decisions

Identify the two types of decision problems

Describe the types of decisions and decision-making conditions managers face

Describe group decision making and explain the advantages and disadvantages of group decision making

Learning Objectives

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How Do Managers Make Decisions.

What Is Rational Model.

What Is Intuitive Decision Making.

Types Of Decision And Problems.

What Is Group Decision Making.

Outline

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How Do Managers Make Decisions?

Decision-Making Process

A set of eight steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution.

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Step 1: Identifying the Problem

Problem

A discrepancy between an existing and desired state of affairs.

Characteristics of Problems

A problem becomes a problem when a manager becomes aware of it.

There is pressure to solve the problem.

The manager must have the authority, information, or resources needed to solve the problem.

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Step 2: Identifying Decision Criteria

Decision criteria are factors that are important (relevant) to resolving the problem.

Costs that will be incurred (investments required)

Risks likely to be encountered (chance of failure)

Outcomes that are desired (growth of the firm)

If a decision maker does not identify a particular factor in the second step, it’s treated as irrelevant

Step 3: Allocating Weights to the Criteria

NOT all decision criteria are equally important

Assigning a weight to each item based on the priority order/degree of importance – to use personal preferences.

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Step 4: Developing Alternatives

Identifying viable alternatives

Alternatives are listed (without evaluation) that can resolve the problem.

Step 5: Analyzing Alternatives

Appraising each alternative’s strengths and weaknesses

An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3.

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Step 6: Selecting an Alternative

Choosing the best alternative

The alternative with the highest total weight will be chosen.

Step 7: Implementing the Decision

Putting the chosen alternative into action.

Conveying the decision to the persons who will be affected by it and getting their commitment to it.

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Step 8: Evaluating the Decision’s Effectiveness

The soundness of the decision is judged by its outcomes OR to see whether the problems has been corrected.

Did the alternative chosen in STEP 6 and implementation in STEP 7 achieved the desired results?

If the problem was not resolved, what went wrong?

(For further reading please refer to :Pg 84-88)

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What is the Rational Model of Decision Making?

Rationality

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

Assumptions of Rationality for 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.

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Assumptions of Rationality

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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:

(culture, internal politics, etc).

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What Role Does Intuition Play in Managerial Decision Making?

Intuitive Decision Making

making decisions on the basis of experience, feelings and accumulated judgment

described as “unconscious reasoning.”

Exhibit 3.7 : Five different aspects of intuition

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How Do Problems Differ?

Structured Problems	Unstructured Problems
Straightforward & the familiar problem	New or unusual situations faced by managers
Information about the problem easily defined & complete	Information about such problems is ambiguous or incomplete
The goal of the decision maker is clear	Problems that will require custom-made solutions

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What Are Programmed and Nonprogrammed Decisions?

Programmed Decisions	Non-programmed Decisions
A repetitive decision that can be handled by a routine approach	Decisions that must be custom-made to solve unique & non-recurring problems (Different from previous organizational decisions because the issue is new, a different set of environmental factors & other conditions have changed)
The problem is well structured	The problem is unstructured
Relatively simple & tends to rely heavily on previous solutions	Involves creation of a new organizational strategy

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Programmed Decision-Making Aids

Policy

A general guide that establishes parameters for making decisions about recurring problems.

Rule

An explicit statement that tells managers what they ought or ought not to do (limits on procedural actions).

Procedure

A series of interrelated sequential steps that can be used to respond to a well-structured problem (policy implementation).

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EXAMPLE : Policy, Procedure & Rule

Policy

Accept all customer-returned merchandise.

Rules

Managers must approve all refunds over SR5,000.

No credit purchases are refunded for cash.

Procedure

Follow all steps for completing merchandise return documentation.

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(For further reading please refer to :Pg 95,96)

How are problem, types of decisions, and organizational level integrated ?

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Group Decision Making

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Group Decision Making

Advantages

Group decisions provide more complete information

Diversity of experiences and perspectives are higher

Groups generate more alternatives

Group decisions increase acceptance of a solution

Disadvantages

Group decisions are time consuming

May be subject to minority domination

Subject to pressure to conform

Responsibility is ambiguous

Subject to Groupthink which undermines critical thinking

Groupthink

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When a group exerts extensive pressure on an individual to withhold his or her different views in order to appear to be in agreement.

Groupthink has Negative impact on Decision Making

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When Are Groups Most Effective?

Groups are more effective for decisions requiring

Accuracy (G)

Speed(I)

Creativity (G)

Acceptance (G)

Ideal Group Size

5-15

(For further reading please refer to :Pg 98,99)

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How Can You Improve Group Decision Making?

Brainstorming

An idea-generating process that encourages alternatives while withholding criticism

Nominal Group Technique

A decision-making technique in which group members are physically present but operate independently

Electronic Meeting

Participants are linked by computer

END OF LECTURE

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