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The Managerial Decision-Making Process

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Decision-Making Function No. 2 The limitations of time and money (because of this, ... (From an old fable of an ass placed between two equally nice bales of hay. – PowerPoint PPT presentation

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Title: The Managerial Decision-Making Process


1
The Managerial Decision-Making Process
Topic 2
2
Decision-Making
  • Thinking of decision-making as a process has a
    long intellectual tradition
  • John Dewey in his book How We Think (1910)
    characterized it as consisting of (1) defining
    the problem, (2) identifying the alternatives,
    and (3) choosing the best one.

3
Rowe Boulgarides, 1994
  • Formulation of the problem
  • Search for alternative solutions
  • Analysis of alternatives
  • Selection of alternative
  • Action
  • Evaluation

4
  • Most theories accept the idea that
    decision-making consists of a number of steps or
    stages such as recognition, formulation,
    generation of alternatives, search, selection,
    action.
  • Process is a series of steps, actions, functions

5
The Managerial Decision-Making Process
  • Process components are decision-making functions.
    (I.e. integrated) (components of decision-making
    are the functions of decision-making.)
  • Decision-making functions are highly interrelated
    and interdependent
  • The process is highly dynamic with 3 principal
    subprocesses.
  • 1. Taking Corrective Action
  • 2. Renewing The Search
  • 3. Revising Objectives

6
Figure 2.1 The Decision-Making Process
Revise objectives
Setting managerial objectives
Searching for alternatives
Comparing evaluating alternatives
Revise or update objectives
Renew search
Implementing decisions
Follow-up and control
The act of choice
Take corrective action as necessary
7
Decision-Making Function No. 1
Setting Managerial Objectives Objectives that
are relevant, practical, challenging, measurable,
flexible, cost effective, ones where
accountability can be discerned, etc.
  • Objectives constitute the foundation for rational
    decision making. (A decision-maker must first
    set goals to ensure a fruitful decision-making
    process)
  • Objectives are the ends for the means of
    managerial decision making.
  • Attainment of the objective is the ultimate
    measure of decision success.

8
Decision-Making Function No. 1 (contd)
  • Objectives are commitments to action, and their
    attainment requires decisions that represent
    purposive investments of various types of
    resources.
  • Objectives provide a yardstick for measuring the
    performance of individual managers and of the
    total organization.

9
Decision-Making Function No. 2
Searching for Alternatives
  • The limitations of time and money (because of
    this, decision-makers often have to consider
    several possible alternatives at the same time)
  • The declining value of additional information
  • -get the facts but remember you cannot get all
    the facts
  • -get only the information you need and use it
  • -seek simplicity
  • -strive to avoid biases

10
Decision-Making Function No. 2
Searching for Alternatives (contd)
  • The rising cost of additional information
    (beyond some point additional information is all
    cost and no value.)
  • Abort the search in the zone of cost effectiveness

11
Optimality
  • The point of optimality is that point on the
    marginal-value curve where the next unit of
    information will decline in value and one less
    unit will result in a loss in value. Because of
    the difficulty of identifying a precise point of
    optimality, decision makers may elect to pursue
    additional information within a zone of cost
    effectiveness.

12
Decision-Making Function No. 3
Comparing and Evaluating Alternatives
  • Alternatives result from the search and are
    evaluated through (1) judgment, (2) bargaining
    and analysis.
  • Make a list of all the possible alternatives you
    have, including the choice of doing nothing.
    Thus, one alternative is to do nothing. Often a
    non-decision is harmful to your organization, but
    sometimes the decision to do nothing is useful or
    at least better than the alternatives, so it
    should always be included in the decision-making
    process (so perhaps no decision is good, perhaps
    disastrous).

13
Having Only 2 Choices
  • Buridens Ass. This method of decision making is
    used when two or more equally attractive
    alternatives are faced. (From an old fable of an
    ass placed between two equally nice bales of hay.
    The ass couldnt decide which bale to turn to
    because they were both so attractive, and so it
    starved to death from indecision.) The method is
    simply to list all the negative points or
    drawbacks about each decision. That is, when two
    or more alternatives seem very desirable, we
    become blinded to any drawbacks. The Buridens
    Ass method simply focuses on the drawbacks.
  • For example, suppose youre a young lady about
    to become engaged. Mr. Right asks you, Darling,
    would you rather have a 4,000 diamond engagement
    ring or 4,000 worth of furniture for our new
    Swiss chalet? You find these to be both very
    attractive alternatives, so you decide to use the
    Buridens Ass method to decide between them.
    What are the drawbacks of the ring? It might get
    stolen or lost it isnt useful like furniture
    people might think you married Mr. Right for his
    money (or that he had to buy your consent with a
    big rock) it might make your friends feel bad
    because they have little rings you might worry
    about damaging it. And so on.

14
Having Only 2 Choices (contd)
  • Now, what are the drawbacks of the furniture?
    It will wear out eventually and be gone, while
    the ring should last a lifetime you might worry
    about staining or damaging the furniture
    furniture isnt romantic like diamonds and so
    on.
  • Only 2 choices is rare in the decision-making
    process---Though it often characterizes the
    inexperienced decision-maker---an either/or
    philosophy

15
Decision-Making Function No. 3 (contd)
  • There are usually three to five alternatives.
  • Actually, there are usually multiple
    alternatives, but the best way to think about
    alternatives is to think in terms of 3-5 or
    perhaps a better way to say it is best of few
    because it involves limiting the number of
    alternatives to three or four or five or six.
  • Alternatives are evaluated using criteria derived
    from the objective.

16
Decision-Making Function No. 3 (contd)
  • Does each alternative meet all the criteria
    needed to accomplish the objective?
  • What are the pros and cons of each alternative?
  • How do you as a manager/leader (I.e.
    decision-maker) feel about each choice?

17
Decision-Making Function No. 3 (contd)
  • Evaluation should also anticipate obstacles or
    difficulties at the time of implementation.
  • 3 possible states
  • (1) Certaintyknowledge of consequences of each
    alternative
  • (2) Uncertaintylack of knowledge of
    consequences of each alternative
  • (3) Riskassumptions about alternatives

18
Decision-Making Function No. 4
The Act of Choice
  • The choice is the culmination of the process, not
    all of it.
  • The choice confronts the decision maker with
    discernible constraints.
  • The best alternative may not be readily apparent
    to the decision maker. (Remember, research tells
    us we spend a lot of managerial time (approx 50)
    correcting bad decisions.)

19
Decision-Making Function No. 5
Implementing Decisions
  • Samuel Trull tells us
  • Decision success is a function
  • of decision quality
  • and
  • decision implementation.

20
Decision Quality
  • Decision Quality Rating of whether decision is
    good or badA good decision is a logical one
    based on the available information and reflecting
    the preferences of the decision-maker.
  • In judging decision quality, consider the
    following
  • Decision must meet stated objective(s) thoroughly
    and completely.
  • Decision must meet stated objectives efficiently,
    with concern over cost, energy, side effects.
  • Decision must take into account valuable
    by-products or indirect advantage.

21
Decision Implementation
  • Decision Implementation Those who must
    implement the decision or who will be affected by
    it must accept it both intellectually
    emotionally.
  • A decision that may be technologically brilliant
    but that is sociologically stupid will not work.
    Only decisions that implemented, and implemented
    with thoroughness (and preferably enthusiasm)
    will work the way they are intended to.

22
Decision-Making Function No. 5 (contd)
Areas contributing to decision success
  • Observance of operating constraints
  • Influence of the decision maker
  • Involvement of decision implementers
  • Absence of conflict of interest

23
Decision-Making Function No. 5 (contd)
Areas detracting from decision success
  • Disregard of timeliness
  • Unlimited additional information
  • Disregard of risk/reward relationships
  • So, Trulls study showed that managerial
    decision-makers need to improve in the areas of
    timing, determining the value of additional
    information and evaluating risk-reward
    relationships.

24
Decision-Making Function No. 6
Follow-Up and Control
  • Follow-up and control is essential to ensure that
    an implemented decision meets its objective.
    (Proper sequence of activities in follow-up
    control is establishing standards, measuring
    performance, taking corrective action.)
  • Performance is measured by observing the
    implemented decision in relation to its standard
    derived from the objective.
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