CHAPTER 3
MANAGERIAL DECISION MAKING
LEARNING OBJECTIVES
• What are characteristics of managerial decisions?
• How to take decision through various phases of decision making?
• Identify barriers to effective decision making.
• [Link]
CHARACTERISTICS OF MANAGERIAL
DECISION
• Programmed vs Nonprogrammed decision
• Certainty vs Uncertainty
• Conflict
LACK OF STRUCTURE
Programmed decisions
situations that occur often enough to enable decision rules to be developed.
Nonprogrammed decisions
are made in response to situations that are unique, are poorly defined and
largely unstructured.
No predetermined source to rely
UNCERTAINTY AND RISK
Certainty
– all the information the decision maker needs is fully
available. (rare)
Uncertainty
– Insufficient information about alternatives and future
events.
– managers may have to come up with creative approaches
to alternatives.
Risk
– Estimate the likelihood of various consequences
– Probability of an action being successful is less than 100 percent
– Future outcomes associated with each alternative are subject to chance.
Conflict
– Opposing pressures from different sources
– Psychological conflict
– Conflict arises between people
SHORT CASE
You are the owner of a company that makes casual shoes at two small factories, each with a
workforce of 40 people. One is located in Lahore and the other in Karachi. You have been in
business for over 30 years and both factories have long been profitable. Unfortunately,
however, competitive conditions in the industry have changed in the recent years. In, particular,
you are now facing stiff competitions from Italian firms, whose shoes not only sell at a
competitive price but are also higher quality.
You are confident that you can close the quality gap with a new high-tech equipment, but your
overhead is still 30 percent higher than that of your Italian competitors. At the moment, you
feel that your best option is to close the factory in Lahore and lay off the workers but you are a
bit reluctant to do so.
THE PHASES OF DECISION MAKING
Identifying and
Evaluating Alternatives Implementing the Decision
Diagnosing the Problem
Generating Alternative
Making the choice Evaluating the Decision
Solution
• Maximizing
– A decision realizing the best possible outcome.
– Example: Decision made after going through 6 steps of decision making is maximizing.
• Optimizing
– Achieving the best possible balance among several goals.
– Example: Best balance among multiple goals such as quality and durability
• Satisficing
– Choosing an option that is acceptable although not necessarily the best or perfect
– Example: Stopping the search after you find a thing that is okay.
ACTIVITY
Go to google form and give answer to the following questions.
BARRIERS TO EFFECTIVE DECISION
MAKING
• Psychological Biases
• Illusion of control: People’s belief that they can influence events when they have no control
over what will happen.
• Framing Effects: How problem or decision alternative is phrased or presented.
• Discounting the future: Weighting short term costs and benefits more heavily than longer term
costs and benefits.
“Your best players have to unite and inspire the
group. Otherwise, they will divide the group”
(Jeff Van Gundy)
GROUP DECISION MAKING
Advantages Disadvantages
1. Greater Pool of Knowledge 1. A Few people May Dominate
2. Different Perspectives 2. Groupthink – avoiding disagreement
3. Intellectual Stimulation 3. Satisficing
4. Better Understanding by Employees 4. Goal Displacement – loosing sight
5. Deeper Commitment to the Decision of primary goal.
MANAGING GROUP DECISIONS
GROUP DECISION MAKING
Concerns for Managers
1. Less Efficient
2. Size Affects Quality Inversely
3. Group May Be Too Confident
4. Knowledge Counts
GROUP DECISION MAKING
Best Times to Utilize Groups
1. When It Can Increase Quality
2. When It Can Increase Acceptance
3. When It Can Increase Development
DECISION MAKING IN GROUPS
LEARNING OUTCOMES
• Evaluate the pros and cons of using a group to make decisions
• Identify procedures to use in leading a decision making groups.
• Discuss the processes by which decisions are made in organizations.
FORMAT OF CLASS
• Written CP Individual Activity: Based on Movie
• Spoken CP: Chance to students who didn’t get chance to speak in previous spoken CP class.
• Break out room activity: In groups
• Lecture on Organizational Decision Making
INDIVIDUAL CP WRITTEN ACTIVITY
• 15 minutes
• 2 points
A DIFFICULT
DECISION? WHY?
IN YOUR OPINION, WAS THE DECISION FACING THE JURY
WAS A TOUGH OR EASY ONE. JUSTIFY.
• Accused of killing his father
• Difficult: Relating to someone’s life
• Difficult: There were not many facts.
• Difficult: It took a lot of time
WHAT WERE THE CHALLENGES THAT
THE GROUP WAS FACING?
• Satisfice
• 11 people were on one side and 1 on other side. Fighting against the other person.
• Not respecting other’s opinion. Supporting majority: Group think, less creativity
• Personal biases. Stereotypes. People from slum.
• Heat in the room
WHAT WERE THE CHALLENGES THAT
THE GROUP WAS FACING?
• Dominating participants
• Biases
– Overconfidence Bias
– Stereotypes - “those kids” “Happens all the time” - “that’s the way they are by human nature.. they don’t care…”they” can do
anything”
• Groupthink – When people choose not to disagree
• Satisficing Behavior
– “Got to get out of here!”
– Personal Agenda
• Lack of ownership and accountability
• Goal Displacement
WHAT WERE YOUR KEY LEARNINGS FROM THE
MOVIE REGARDING DECISION MAKING IN GROUPS?
• Creativity: Switch knife (how to use that knife)
• Stay composed, don’t be aggressive
• Integrity: Stand for right thing
• Good mindset, open to all members within a group
• Responsibility/Commitment
• Right over easy
• Stand up for fair thing
• Logics, explaining their evidence, possibility,
• Art of persuasion “Rational Persuasion”. Intellectual Stimulation
WHAT LESSONS CAN WE LEARN ABOUT
CHALLENGES OF MANAGING GROUPS?
• Difference in opinion
• Differences in priorities
• Differences in personalities- angry, egoistic, overconfident, inexperienced, lazy
• People don’t want to listen – “Owe him a few words”
• People don’t want to agree or disagree – “Groupthink at the beginning- show of
hands”
• People get personal – “I am gonna kill you!”
• As conflict becomes personal, emotions begin to play a greater role rather than
cognitive or rational thinking
• Not everyone gets equally involved in decision making because stakes are not there,
ownership is not taken, accountability is not present…
• Sub groups emerge - people begin taking sides…
• Anchoring bias, overconfidence bias, stereotypes
WHEN DID THINGS BEGIN TO
CHANGE?
• Supported his argument with reasonable evidence.
• Minute details
• Outside of jury investigation
• Anonymous voting
HOW DID THINGS BEGIN TO CHANGE?
• Role of a Devil’s Advocate
– I just want to talk!
• Emergence of a Leader
– Breaking the Groupthink
– Avoid Dominating
– Convince through rational persuasion
– Cognitive conflict versus affective conflict “Justify – guilty or not guilty – explain!”
– Reminding of Group Goals – “turning to some kind of a contest.”.
– Creative thinking- synthesis, diverse perspectives
ORGANIZATIONAL DECISION MAKING
• Bounded Rationality
• Incremental Model
• Coalitional Model
• Garbage Can Model
BOUNDED RATIONALITY
INCREMENTAL MODEL
• [Link]
COALITIONAL MODEL
GARBAGE CAN MODEL
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