Decision Making

DECISION MAKING
(WEEK 6)
20-Jul-14
BE2601 Instructors:
Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh
S1 AY 2014-15 1
Seminar Outline for Today
BE 2601: Kumaran Rajaram (Course Coordinator), Adeline Tay, Lam Chow Loon and Alan Goh S1 AY 2014-15
2
20-J ul-14
Course Format Title Remarks
Interactive Lecture
& Discussion
Decision Making 70 - 80 mins.
Case Study The Wallingford Bowling
Center
B&S: pp. 112 113
50 - 60 mins.
Game Group
Activity
[Supplementary If
Time Permits]
Decision Making Handout
50 - 60 mins.
Quiz (Class
Discussion)
Critical Thinking Questions
Recap last lesson..
1. SWOT Analysis
Levels of
Strategies
3
20-J ul-14
2. Corporate Level Strategy
(a) Concentration
(b) Vertical Integration
(c) Concentric Diversification
(d) Conglomerate
Diversification
3. Business Level
Strategy
(a) Low Cost Strategy
4. Functional Strategy
5. Boston Consulting Group (BCG) Matrix
(b) Differentiation Strategy
6. Porters Five Factors as a major threats
7. Strategy Implementation 8. Strategic Control
Link between last and this weeks lesson
Decision Making, Creativity &
Innovation

4
20-J ul-14
Planning for Business Operations
(Part II)
(Week 5)
(Week 6)
5
20-J ul-14
Key Concepts
What is decision making?
Why managers avoid making decision?
Factors affecting decision making
Decision making process
Barriers to making good decision
Group decision making
How to encourage creativity in decision making?
Decision making during crisis
Decision making is the
process by which managers
respond to:
Opportunities and threats
by
Analyzing options and
Making decision about
specific goals or course
of action to take
E.g. How PUMA transformed its
flagging business from loss-
making to profitability

6
What is Decision Making?
20-J ul-14
Refer to pg. 86, Chap 3
(Bateman & Snell, 2013)
(Jones & George, 2011)
7
20-J ul-14
The Classical Model of Decision Making

Instead,
managers
procrastinate
decision making
or get busy with
less demanding
activities

Unable to anticipate resources needed in
terms of:
Time
8
20-J ul-14
Why Managers Avoid Making Decision?
Energy
Commitment
Afraid of failure
9
20-J ul-14
Factors Affecting Decision Making
Incomplete
Information
Refer to pg. 87-89, Chap 3
Lack of Structure

Programmed Decision

Decision Making Structure

10
20-J ul-14

Routine, virtually automated process

Encountered and made before based on:
- simple rules, policies or numerical computations that
establishes the decision rules

Non-programmed Decision

Non-routine, new/novel, complex
decision

No proven answers or decision rules
Depends on criteria or
guiding principles to
facilitate decision making
Lack of Structure

How are non-
programmed
decisions
made?

Intuition

Generating

Feelings

Careful gathering of
information
11
20-J ul-14
Beliefs
Hunches for on-the-
spot decision
Evaluating alternatives

Reasoned Judgment

Quiz
Managers typically face structured problems they have seen before,
which makes the decision process easier because there is already a
procedure to follow
True False

12
20-J ul-14
13
20-J ul-14
Comparison of Types of Decisions
Incomplete Information
14
Insufficient resources to
search all alternative
solutions and evaluate
them for potential
consequences

Ambiguous
information

Time constraint and
information cost

Reason for
Incomplete
Information

20-J ul-14
Same piece of
information being
interpreted differently
and decisions made
based on individual
interpretation
Not clear, it can
be interpreted in
multiple and
conflicting ways
Uncertainty and risk
Prepared by Dr. Kumaran Rajaram
15
20-J ul-14
Incomplete Information
Young Woman or Old Woman
16
Certainty
The state that exists when
decision makers have accurate
and comprehensive
information
Uncertainty
The state that exists when decision
makers have insufficient information
to know the consequences of
different action
Probabilities of alternative
outcomes cannot be determined
and future outcomes are unknown
E.g. When will US & Europe
recover from the economic
slowdown and Euro-zone debt
crisis?
20-J ul-14
Certainty and Uncertainty
Risk
17
Taking risk
versus
Managing risk

The state that exists when the probability of success is less than 100
percent and losses may occur
E.g. In pharmaceutical industry, new drugs often have a 10% probability of
successfully passing advanced clinical trials and a 90% probability of
failing

20-J ul-14

Opposing pressures from different sources, occurring on
the level of:

18
Psychological conflict within the decision-maker or
20-J ul-14
Conflict

Conflict between individuals or groups

19
20-J ul-14
Conflict
1
st
level conflict
Individual decision maker experiences psychological
conflict when several options are attractive or when
none of the options is attractive
E.g. layoff decision, hiring choices etc.
2
nd
level conflict
Conflict arises between people
E.g. revenue versus profit, volume versus quality
20
20-J ul-14
Step 2
Generate alternative
solutions

Step 3
Evaluate alternative
solutions
Step 4
Make the choice
Step 5
Implement the
decision
Step 6
Evaluate the
decision
Step 1
Identify and
diagnose the
problem
Six-steps in Decision Making
21
20-J ul-14
Step 1: Identify and Diagnose the
Problem
Recognize the need for a decision
Sparked by changes in the organizational environment that
result in opportunities and threats
E.g. Sun Microsystem made a bold decision to launch Carrera
(new workstation) ahead of its competitor (Apollo) in spite of
uncertain microprocessor supply from Motorola and its own
software readiness
Realized gap between the current state and the desired
state
22
20-J ul-14
Problem
Discrepancies detected by comparing current
performance against:
past performance
current performance of other organizations, or
future expected performance as determined by plans
An opportunity to create positive future
Diagnostic approach to identify causes for the gap
23
20-J ul-14
Problem
The following questions are useful to ask in this stage:

Is there a difference between what is actually happening
and what should be happening?
How can you describe the deviation as specifically as
possible?
What is/are the cause(s) of the deviation?
What specific goals should be met?
Which of these goals are absolutely critical to the success
of the decision?
24
20-J ul-14
Step 2: Generate Alternative
Solutions
Ready-made solutions
Ideas that have been
seen or tried before
Custom-made solutions
New, creative solutions
designed specifically for
the problem
Generate alternative solutions based on the diagnostic
findings
Rely on past experience to generate solutions
Set aside mental-models of the world
Two-type of solutions:
25
20-J ul-14
Step 3: Evaluate Alternatives
Evaluate the
advantages and
disadvantages of
each alternative
Evaluation based on
these 4 criteria
26
20-J ul-14
Step 3: Evaluate Alternatives
Legality
Do not violate any domestic or
international laws or government
regulations

Ethicalness
Do not unnecessarily harm any
stakeholder group
Be clear about potential effects of
their decisions

Economic Feasibility
Are the alternatives economically
feasible?
Perform cost-benefit analysis of the
various alternatives to determine the
best net financial payoff

Practicality
Decide whether they have the
capabilities and resources required to
implement the alternative
Ensure the alternative does not
threaten the attainment of other
organizational goals

27
20-J ul-14
Step 4: Make the Choice
Rank the various alternatives and make a decision
Make sure all information is available
In most instances, information is incomplete
Avoid paralysis by analysis which lead to
indecisiveness caused by too much analysis
28
20-J ul-14
Step 4: Make the Choice
Satisficing Maximizing
Optimizing
Acceptable option, not
necessarily the best
Search for alternatives
stop
Why?
laziness
lack of time
Ideal approach if:
consequences not
huge
decision making is
fast paced
Best possible outcome
Greatest benefit at
lowest cost and largest
return
Time consuming
because:
thoroughly search
for complete
alternatives
assess each
alternative
carefully
Achieve best possible
balance among several
goals
E.g. getting the best
combination in terms of
price, quality, durability

29
20-J ul-14
Step 5: Implement the Decision
Assign middle manager to make follow-up decisions
Provide sufficient resources
Empower them to be accountable for their
performance
Link rewards on how well the decision is
implemented
Ensure what was decided was actually done

Steps for decision implementation:

1. Determine how things will look like when fully operational

30
20-J ul-14
Step 5: Implement the Decision

2. Chronologically order the steps necessary to achieve a
fully operational decision

3. List the resources and activities required to implement each step

4. Estimate the time needed for each step

5. Assign responsibility for each step to specific individuals

31
20-J ul-14
Step 6: Evaluate the Decision
Collect quantifiable information:
e.g. % increase in sales, accidents etc.
Decision which is working can continue and be applied
elsewhere
Learn from feedback
Negative feedback means:
Implementation require more resources/thought or
Decision was a bad one
Quiz
In almost every business situation, the quality of the decision is far
more important than the speed at which the decision is made?

True False

32
20-J ul-14
33
Is there
such thing
as the Best
Decision?
Nothing
guarantees a
best decision
A process in which a
decision maker
carefully executes
all stages of decision
making
Manager must follow procedures
properly to yield the best possible
decision

Vigilance

20-J ul-14
The Best Decision
Influencing Organizational Environment

Tips in making/implementing
decision:

34
Get sufficient
rest, avoid
distraction and
manage stress
20-J ul-14
Define
consequences,
collect relevant
data to be
measured against
goals
Imagine the vision
of the decision
Take responsibility for
consequences of the
decision (strength of
character)
Encourage challenge process to:
seek best knowledge but
eventually end the debate

act upon those decision

35
20-J ul-14
Barriers to Decision Making
Psychological Biases
Time Pressure
Social Realities
Prior-Hypothesis Bias
Representativeness Bias
Illusion of Control
Framing Effects
Escalating Commitment
Discounting the Future
Prior-Hypothesis Bias
36
Strong prior belief about the relationship between
two variables tend to make decisions based on
those belief even when presented with evidence
that their beliefs are wrong
20-J ul-14
Representative Bias
Inappropriate generalization based on:
a small sample or
a single vivid case or episode
Illusion of control
Peoples belief that they can influence events,
even when they have no control over what will
happen; E.g. gambling, over-confidence, overate
the value of their experience etc.
Framing effects
A decision bias influenced by the way in which
a problem or decision alternative is phrased or
presented
Focus on data that fit the managers
expectations
Escalating the effect
37
Tendency to commit additional resources to a
project even if evidence shows that the project is
failing due to feeling of personal responsibility for
a project
20-J ul-14
Discounting the future
- A bias weighting short-term costs and benefits
more heavily than longer-term costs and benefits
E.g. Wall Streets focus on quarterly earnings,
reforestation cost that yield harvest in 60 years
time
38
20-J ul-14
Speed versus quality of
decision making
Timing of decision
making
Tactics for making good
decision:
Time Pressure
Real-time information
Involve people or experts
Value differing opinions
by taking realistic view of
conflict
If disagreements not
resolved, top executive
make final decision
39
20-J ul-14
Social Realities
Social Realities
Interpersonal factors can affect decision-making
effectiveness
Consider the preferences and reactions of many people
(e.g. boss and stakeholders)
Decision influenced by conflict among interested parties
marked by:
intensive social interactions
bargaining
politicking
40
20-J ul-14
Group Decision Making - Potential Problems
Groupthink
Group members avoid
disagreement as they strive for
consensus
Does not develop appropriate
criteria to evaluate alternatives
Rally around one central
manager such as CEO
Commitment is based on
emotional rather than objective
assessment of action
Goal displacement
Occurs when group members
lose sight of the original goal
and a new, less important goal
emerges
41
20-J ul-14
Group Decision Making
- Advantages and Disadvantages
Advantages
Larger pool of information
Combined skills, competencies
and accumulated knowledge
of members:
intellectually stimulating
more perspectives and
approaches
Avoid biases and errors
Higher probability of successful
decision implementation
Greater understanding and
stronger commitment from
members
Disadvantages
Take much longer to make
decision
One person may dominates
Satisficing
Groupthink
Goal displacement due to
members different interests
and preferences.
42
20-J ul-14
Managing Group Decision Making
Source : B & S, pp. 102
Quiz
The three requirements for effective group decision making are an
appropriate leadership style, the constructive use of disagreement and
conflict, and the enhancement of creativity
True False

43
20-J ul-14
44
20-J ul-14
Devils Advocacy and Dialectical Inquiry
Devils advocate
Assign a person to criticize ideas to
ensure the downsides are fully
explored
Lessen inhibitions about disagreeing
Conflict is less personal and
emotional
Dialectic
A structured debate comparing two
conflicting courses of action
E.g. one team present the case of
acquisition while another team
opposes the acquisition
45
20-J ul-14
Cognitive Conflict and Affective Conflict
Cognitive conflict
Issue-based differences in
perspectives or
judgments
Voice legitimate
differences of opinion
and develop better ideas
and problem solutions
Affective conflict
Emotional disagreement
directed towards other
people
Likely to be destructive
because it can lead to
anger, bitterness, goal-
displacement and lower
quality decision-making

Diversity Among Decision Makers
Promote diversity in decision-making groups
46

Why?
Improve quality of decisions from broader range of life experiences and
options
Less prone to groupthink because members differ from each other and
subject to less pressure for uniformity

20-J ul-14

How?
Include managers of both genders from various ethnic, national and
functional backgrounds

47
20-J ul-14
Senges Principles for Creating a Learning
Organization
Quality of decision depends on innovative responses
developed by a Learning Organization (LO)
48
20-J ul-14
Encouraging Creativity
Creation
(bring new things
into being)
Synthesis
(join two previous
unrelated things)
Modification
(improve something or
give it a new application)

How to encourage creativity?

49
20-J ul-14
Encouraging Creativity

Read widely, try new experiences

Take a
course

Talk to people

Simulate and challenge people intellectually

Listen to employees ideas and allow enough time to explore
different idea

Put together groups of people with different styles of thinking and
behaving

Get in touch with customers and bounce ideas around

Create a culture of encouraging and rewarding creativity within the organization

50
20-J ul-14
Group Decision Making
Technique
Brainstorming
About 5 to 15 people meet
face-to-face to generate
and debate a wide variety
of alternatives from which to
form a decision
Nominal Group
Technique
Group members write down
ideas and solutions, read
their suggestions to the
whole group and discus
and rank the alternatives
Delphi Technique
Group members do not
meet face-to-face but
respond in writing to
questions posed by the
group leader
Group
Decision
Making
Technique


Brainstorming technique:

a) A group of people meet together to generate a wide variety of alternatives
b) Facilitator describes the problem

51
20-J ul-14

Group members perform the followings:

Share ideas and generate alternative courses of action
Brainstorming

Do not criticize any alternatives until all have been listed

Piggyback or build upon others suggestions, be innovative and
radical

Debate the pros and cons of each idea and develop a short list of
good alternatives


An effective Crisis Management (CM) should include the following elements:

52
20-J ul-14

Create CM team and dedicate budget to it

Perform audits on threats, liabilities and early warning signals

Communication on dealing with media, local communities, police
and government officials

Top management commitment through psychological and cultural
actions

Decision Making in a Crisis

Integrate CM into planning and policies

Provide training and psychological support services regarding human
and emotional impact of crises

53
What kinds
of crises
could your
company
face?
Can your
company
detect a crisis
in its early
stages?
How can it benefit
from a crisis after it
has passed?

How will it manage a
crisis if one occurs?

20-J ul-14
Decision Making in a Crisis
54
20-J ul-14
Elements of a
Crisis Plan
Strategic
actions
Technical
and
structural
actions
Evaluation
and
diagnostic
actions
Communication
actions
Psychological
and cultural
actions
Elements of a Crisis Plan
Quiz
Decision makers should presume that with a carefully made
decision, things will go smoothly during implementation

True False

55
20-J ul-14
56
20-J ul-14
Decision Making in a Crisis - Two Disasters
Recap takeaways.. (1/2)
1. What is
decision-making
57
20-J ul-14
3. Why managers avoid
making decision?
4. Factors affecting
decision making
7. Reasons for
incomplete
information
11. Six steps in decision-
making
14. Psychological Biases
17. Group Decision Making
a) Potential Problems
b) Advantages/Disadvantages
c) How to manage it?

2. Classical model of
Decision Making
5. Lack of Structure
6. Comparison of Types of
Decision
8.
Certainty
& Uncertainty
9. Risk
10. Conflict
12. Influencing organizational
Environment
13. Barriers to
Decision Making
15. Time Pressure
16. Social Realities
18. Devils Advocacy and Dialectical Inquiry
19. Cognitive Conflict and affective Conflict
Continuation..
Recap takeaways.. (2/2)
20. Cognitive
conflict and
affective conflict
58
20-J ul-14
22. Senges Principles for
creating a learning
organization
23. Encouraging
Creativity
21. Diversity among
decision makers
24. Group Decision
Making Technique
25.
Brainstorming
26. Decision
Making in a
Crisis
27. Elements of a
Crisis Plan
Case Study
59
20-J ul-14
The Wallingford Bowling Center
Source: Bateman & Snell, page 112 to 113

Question
Apply the decision-making process (discussed during the seminar) to
this case. What is the major problem facing Wallingford? List five specific
alternative solutions that could be implemented to solve that major
problem
As general manager of this company, how could you utilize and
manage the group decision-making process and technique to improve
company profits? Which employees would you include in the group?

Decision Making - (Week 6) (SO)

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Decision Making - (Week 6) (SO)

Încărcat de

Drepturi de autor:

Formate disponibile

S-ar putea să vă placă și