Business HW
dfaert
chapter4.pptxChapter 4 Decision-making Skills
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
Explain the difference between decision making and problem solving
Distinguish between programmed and nonprogrammed decisions
Explain the intuitive approach to decision making
Discuss two rational approaches to decision making
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Learning Objectives
List the different conditions under which managers make decisions
Explain the role values play in making decisions
Summarize the positive and negative aspects of group decision making
Define creativity and innovation, and outline the basic stages in the creative process
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Learning Objectives
Identify several specific tools and techniques used to foster creative decisions
List the six stages in creative decision making
Explain the role of a management information system (MIS)
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Stages in the Decision Process
Intelligence
Searching the environment for conditions requiring decisions
Design
Inventing, developing and analyzing possible courses of action
Choice
Actual selection of a course of action
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Decision Making versus Problem Solving
Decision making
The process of choosing from among various alternatives
Problem solving
Determination of the appropriate responses or actions necessary to alleviate a problem
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Programmed Versus Nonprogrammed Decisions
Programmed decisions
Decisions that are reached by following an established or systematic procedure
Nonprogrammed decisions
Decisions that have little or no precedent
They are relatively unstructured and generally require a creative approach by the decision maker
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Intuitive Approach to Decision Making
Decisions are made solely on hunches or intuition
There are chances of managers ignoring facts and relying on feelings alone
Managers tend to become emotionally attached to certain positions
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Rational Approaches to Decision Making
Rational approaches to decision making attempt to evaluate factual information through the use of some type of deductive reasoning
Two types of rational approaches are:
The optimizing approach
The Satisficing Approach
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The Optimizing Approach: Steps
Recognize the need for a decision
Establish, rank, and weigh the decision criteria
Gather available information and data
Identify possible alternatives
Evaluate each alternative with respect to all criteria
Select the best alternative
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Limitations of the Optimizing Approach
Optimizing approach is based on the concept of “economic man” which assumes:
People have clearly defined criteria, and the relative weights they assign to these criteria are stable
People have knowledge of all relevant alternatives
People have the ability to evaluate each alternative with respect to all the criteria and arrive at an overall rating for each alternative
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Limitations of the Optimizing Approach
People have the self-discipline to choose the alternative that rates the highest (they will not manipulate the system)
These assumptions are unrealistic
Many decisions are based on limited knowledge of the possible alternatives
There is always a temptation to manipulate or ignore the gathered information and choose a favored alternative
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The Satisficing Approach: Assumptions
Principle of bounded rationality: Assumes people have the time and cognitive ability to process only a limited amount of information on which to base decisions
A person’s knowledge of alternatives and criteria is limited
People act on the basis of a simplified abstraction of the real world
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The Satisficing Approach: Assumptions
People do not attempt to optimize but will take the first alternative that satisfies their current level of aspiration - satisficing
Individual aspirations concerning a decision fluctuate upward and downward, depending on the values of the most recently identified alternatives
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Rational Approaches to Decision Making
Optimizing
Selecting the best possible alternative
Satisficing
Selecting the first alternative that meets the decision maker’s minimum standard of satisfaction
Level of aspiration
Level of performance a person expects to attain; determined by a person’s prior successes and failures
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Figure 4.1 - Model of the Satisficing Approach
Source: Adapted from James G. March and Herbert A. Simon, Organizations, 1958, John Wiley & Sons.
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Figure 4.2 - Environmental Factors Influencing Decision Making in an Organization
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Conditions for Making Decisions
Situation of certainty
When a decision maker knows exactly what will happen and can calculate the precise outcome for each alternative
Situation of risk
When certain reliable but incomplete information is available, the decision maker is in a risky situation
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Conditions for Making Decisions
Situation of uncertainty
Situation that occurs when a decision maker has very little or no reliable information on which to evaluate the different possible outcomes
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Figure 4.4 - Possible Approaches to Making Decisions under Uncertainty
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Timing the Decision
The need for a decision must be recognized to time the decision well
Knowing when to make a decision is complicated because different decisions have different time frames
No magic formula exists to tell managers when a decision should be made or how long it should take to make it
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Role of Values/Ethics in Decision Making
Value
Conception, explicit or implicit, defining what an individual or group regards as desirable
It impacts the decision process through:
Selection of performance measures
Alternatives
Choice criteria
Ethics
Set of moral principles or values that govern behavior
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Pragmatic mode
Ethical/moral mode
Affect, or feeling, mode
Suggests that an individual has an evaluative framework that is guided primarily by success–failure considerations
Implies an evaluative framework consisting of ethical considerations influencing behavior toward actions and decisions that are judged to be right and away from those judged to be wrong
Suggests an evaluative framework that is guided by hedonism: One behaves in ways that increase pleasure and decrease pain
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George England’s Major Categories of Values
| Pragmatic mode | Suggests that an individual has an evaluative framework that is guided primarily by success–failure considerations |
| Ethical/moral mode | Implies an evaluative framework consisting of ethical considerations influencing behavior toward actions and decisions that are judged to be right and away from those judged to be wrong |
| Affect, or feeling, mode | Suggests an evaluative framework that is guided by hedonism: One behaves in ways that increase pleasure and decrease pain |
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Figure 4.5 - Positive and Negative Aspects of Group (Team) Decision Making
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Figure 4.6 - Basic Guidelines for Encouraging Employee Participation in Making Decisions
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Barriers to Effective Decision Making
Daniel Wheeler and Irving Janis identified four basic barriers to effective decision making:
Complacency
Defensive avoidance
Panic
Deciding to decide
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Making Creative Decisions
Several techniques can be used to foster creative decision-making within an organization
Creativity
Coming up with an idea that is new, original, useful, or satisfying to its creator or to someone else
Innovation
Applying a new and creative idea to a product, service, or method of operation
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The Creative Process
Preparation – Investigate to fully understand the problem and identify all relevant facts and ideas pertaining to the problem
Concentration – Commit to solving the problem in a timely manner
Incubation of ideas and information – Allow creative sparks to catch fire
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The Creative Process
Illumination/ Eureka connection – Connect the problem with an acceptable solution
Verification – Test the solution and accept the results
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Establishing a Creative Environment
Instill trust
Develop effective internal and external communication
Seek a mix of talent within the organization
Reward useful ideas and solutions
Allow for flexibility in the organization’s structure
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Tools to Foster Creativity
Brainstorming: Presenting a problem to a group of people and allowing them to present ideas for a solution to the problem
Phase 1:
No criticism of ideas is allowed
No praise of ideas is allowed
No questions or discussion of ideas is allowed
Combinations of and improvements on ideas that have been previously presented are encouraged
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Tools to Foster Creativity
Phase 2
Merits of each idea are reviewed; leading to additional alternatives
Alternatives with little merit are eliminated
Phase 3
One of the alternatives is selected, frequently through group consensus
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Tools to Foster Creativity
Drawback
The more vocal members participating may dominate while the more reticent may never be heard
Nominal group technique
Highly structured technique for solving group tasks
Minimizes personal interactions to encourage activity and reduce pressures toward conformity
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Tools to Foster Creativity
Listing
Recording
Voting
Discussion
Final voting
No verbal interaction is allowed during the first three steps
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Tools to Foster Creativity
Brainwriting
A group is presented with a problem situation
Members anonymously write down ideas, then exchange papers with others, who build on the ideas and pass them on until all members have participated
Involves four basic steps:
Write
Read
Review
Select
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Tools to Foster Creativity
Synectics
Creative problem solving technique that uses metaphorical thinking to “make the familiar strange and the strange familiar”
Personal analogies - Place yourself in the role of the object
Direct analogies - Make direct comparisons
Symbolic analogies - Look at the problem in terms of symbols
Fantasy analogies - Imagine the most perfect solution
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Tools to Foster Creativity
Mind mapping
Simple thinking tool
Aids people in extracting ideas from their brains and creating relationships between all the bits and pieces
Traditional approach involves:
Noting the central topic and then adding branches for subtopics as they are discussed
Branches can be identified with ideas using a single word or with short and distinct phrases
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Tools to Foster Creativity
This technique improves concentration and recall
Free and commercially produced software programs are available to create mind maps
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Figure 4.7 - Model for Creative Decision Making
Source: Bruce Meyers, unpublished paper, Western Illinois University, 1987.
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Decision Making With Computers/Management Information Systems
Management information system (MIS)
An information system used by managers to support the day-to-day operational and tactical decision-making needs of managers
MIS is not the same as data processing
Data processing is the capture, processing, and storage of data
Data processing provides the database of MIS
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Decision Making With Computers/Management Information Systems
Transaction-processing systems
Substitute computer processing for manual recordkeeping procedures
Examples - payroll, billing, and inventory record systems
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Figure 4.8 - Characteristics of an MIS
Source: From Information Technology in Business, 2nd edition, by J. A. Senn. Copyright © 1998 by Pearson Education, Inc. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ.
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Decision Making With Computers/Management Information Systems
MISs have been developed for use by specific organizational subunits:
Operational information systems
Marketing information systems
Financial information systems
Human resource information systems
Computer-aided innovation (CAI), a relatively recent development, has emerged as a very helpful MIS
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