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Lecture05 Decision Making 2021 02

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Lecture05 Decision Making 2021 02

Uploaded by

kyleliukaixin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lecture 05—Decision Making

Learning Outcomes
• discuss the difference between programmed and non-programmed decisions
and the decision characteristics of certainty and uncertainty.
• describe the ideal, rational model of decision making and the political model
of decision making.
• explain the process by which managers actually make decisions in the real
world.
• identify the six steps used in managerial decision making.
• describe four personal decision styles used by managers, and explain the
biases that frequently cause managers to make bad decisions.
• identify and explain techniques for innovative group decision making

Types of Decisions and Problems


• decision is a choice made from available alternatives
• decision making is the process of identifying problems and opportunities and
then resolving them—involves effort both before and after the actual choice
• good decision making is an important part of good management

(Classical) Rational Model of Decision Making


• The historical foundation for the examination of decision making is called the
rational model of decision making.
• Decisions are logically sound, uninfluenced by emotion or other non-rational
factors.
• This model provides a useful basis of decision making, as it is still used in
practice when data are available, and also allows contrasting other decision
models with it.
1. Defines a Decision Problem? Problem – A discrepancy between an existing
and a desired state of affairs.
2. Factors in the Decision-Making Process
3. Weighing Criteria and Analyzing Alternatives
4. Determining the Best Choice
5. Implementing Decisions

Page 1 of 4; Lecture 05 Decision Making


Assumptions of (Classical) Rational Model of Decision Making
a prescriptive model that tells how the decision should be made.
• assumes managers have access to all the information needed to reach a
decision.
• assumes managers can then make the optimum decision by easily ranking
their own preferences among alternatives.
• unfortunately, mangers often do not have all required information or mangers
are not always rational

Adminstrative Model of Decision Making by Herbert Simon


• It challenged the rational assumptions that managers have and process all
the information; as a result, decision making is risky.
• Herbert Simon describes the process that managers use to make decisions
as bounded rationality.
• Bounded rationality - People do not have the ability to process all the
information and solutions that face them, leading to limiting their problems
and solutions—decisions are limited by people’s cognitive abilities

Administrative Model of Decision Making


Incomplete information: most managers do not see all alternatives and decide
based on incomplete information.

Why Information is Incomplete


• Uncertainty—probabilities cannot be given for outcomes and the future is
unknown. Many decision outcomes are not known such as a new product
introduction.
• Risk—managers know a given outcome can fail or succeed and probabilities
can be assigned.
• Ambiguous Information—information whose meaning is not clear.
Information can be interpreted in different ways.
• Time constraints and Information costs—managers do not have the time or
money to search for all alternatives.
• Satisficing—managers explore a limited number of options and choose an
acceptable decision rather than the optimum decision.

Page 2 of 4; Lecture 05 Decision Making


Personal Decision Framework
different managers have different personal decision making styles
4 major decision styles
directive style—used by people who prefer simple, clear-cut solutions to problems
analytical style—managers consider complex solutions based on as much data as
they can gather
conceptual style—managers consider a broad range of information
behavioral style—style adopted by managers having a deep concern for others as
individuals. Managers talk to people and understand their feelings about situation,
and then make the decision

Group Decision Making


Brainstorming
• people can build on one another’s ideas; all ideas are acceptable, no matter
how crazy they seem; and criticism and evaluation are not allowed
Debating
• debating encourages divergent points of view, clarifies people’s ideas,
stimulates creative thinking, limits the role of bias, and creates a broader
understanding of issues and alternatives
• improves decision quality
• Devil’s advocate
o challenges the assumptions and assertions made in a group
• Point-counterpoint
o breaks the groups into sub-groups and assigns them different,
competing responsibilities

Avoiding Groupthink
tendency of people in groups to suppress contrary opinions
group members maintain unity rather than realistically challenging the problems
people censor the criticism of others’ opinions

DECISION MAKING BIASES

Hasty Generalization
when one only has very little information/evidence in hand (both quantity and
qualitative) but makes a haste and generalized decision.
Example 1: at O-Camp, you heard that Jimmy Chiu was a good teacher and
you decided to take his class, now you regretted
Example 2: you just hired an older worker in your office but she is very slow
in her work, you therefore believe that older workers must be slow

Page 3 of 4; Lecture 05 Decision Making


False Dilemma Fallacy
When one faces a highly complicated matter but falsely forces it to be a
EITHER/OR situation
Example 1: Hong Kong, you love it or leave it
Example 2: if our iPhone 11 does not sell well, our business will collapse

Escalating Commitment
• manager has already committed considerable resource to project and then
commits more even after feedback indicates problems;
• sunk cost trap: making decision to justify past choices

Knowing When to Bail


• avoid escalating commitment, whereby managers often continue to invest
time and money in a solution despite strong evidence that it is not
appropriate.
• act with speed
• don’t ignore a crisis

Acting with Speed


• quick decision making

Not Ignoring a Crisis


• expecting and planning for a crisis
• keeping emotions and ego in place
• looking at the big picture
• taking quick action

Page 4 of 4; Lecture 05 Decision Making

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