MGMT ch3

Managerial decision making
The phases of decision making:

1. Identifying the problem
2. Generating alternative solutions
3. Evaluating alternatives
4. Making the choice
5. Implementing the decision
6. Evaluating the decision
1. Identifying and Diagnosing the Problem

The first phase in the decision-making process is to recognize that a problem exists and must be
solved. Typically, a manager realizes some discrepancy between the current state (the way
things are) and a desired state (the way things ought to be). Such discrepancies—say, in
organizational or unit performance—may be detected by comparing current performance
against (1) past performance, (2) the current performance of other organizations or units, or (3)
future expected performance as determined by plans and forecasts.
2. Generating Alternative Solutions

The second phase of decision making links problem diagnosis to the development of
alternative courses of action aimed at solving the problem. Managers generate at least some
alternative solutions based on past experiences. Solutions range from ready-made to custom-
made. Decision makers who search for ready-made solutions use ideas they have tried before
or follow the advice of others who have faced similar problems. Custom-made solutions, by
contrast, must be designed for specific problems. This technique often combines ideas into
new, creative solutions.
3. Evaluating Alternatives
The third phase of decision making involves determining the value or adequacy of the
alternatives that were generated. In other words, which solution will be the best? Especially
when decisions are important, alternatives should be evaluated with careful thought and logic.
Fundamental to this process is to predict the consequences that will occur if the various options
are put into effect. Managers should consider several types of consequences, including
quantifiable measures of success such as lower costs, higher sales, lower employee turnover,
and higher profits.
Contingency plans
Alternative courses of action that can be implemented based on how the future unfolds.
4. Making the Choice

Once you have considered the possible consequences of your options, it is time to make your
decision. Quantitatively inclined people can easily tweak the assumptions behind every scenario
in countless ways. But the temptation can lead to paralysis by analysis—that is, indecisiveness
caused by too much analysis rather than the assertive decision making that can help an
organization seize new opportunities or thwart challenges.
As you make your decision, important concepts include maximizing, satisficing, and optimizing.
Maximizing
A decision realizing the best possible outcome.
Satisficing
Its choosing the first option that is minimally acceptable or adequate. When you satisfice, you
compare your choice against your goal, not against other options. Satisficing means that a
search for alternatives stops after you find one that is okay. You do not expend the time or
energy to gather more information. Instead you make the expedient decision based on readily
available information.
Optimizing
means that you achieve the best possible balance among several goals. Perhaps, in purchasing
equipment, you are interested in quality and durability as well as price. So instead of buying the
cheapest piece of equipment that works, you buy the one with the best combination of
attributes, even though there may be options that are better on the price criterion and others
that are better on the quality and durability criteria.
5. Implementing the Decision

The decision-making process does not end once a choice is made. The chosen alternative must
be implemented. Sometimes the people involved in making the choice must put it into effect.
At other times, they delegate the responsibility for implementation to others, such as when a
top management team changes a policy or operating procedure and has operational managers
carry out the change. Decision makers should assume that things will not go smoothly during
implementation. It is useful to take a little extra time to identify potential problems and identify
potential opportunities associated with implementation. Then you can take actions to prevent
problems and be ready to seize unexpected opportunities.
6. Evaluating the Decision

The final phase in the decision-making process is evaluating the decision. It involves collecting
information on how well the decision is working. Quantifiable goals—a 20 percent increase in
sales, a 95 percent reduction in accidents, 100 percent on-time deliveries—can be set before
the solution to the problem is implemented. Then objective data can be gathered to determine
its success or failure accurately. Decision evaluation is useful whether the conclusion is positive
or negative. Feedback that suggests the decision is working implies that the decision should be
continued and perhaps applied elsewhere in the organization. Negative feedback means that
either (1) implementation will require more time, resources, effort, or thought or (2) the
decision was a bad one.
Vigilance
A process in which a decision maker carefully executes all stages of decision making.
Psychological Biases
Decision makers are far from objective in the way they gather, evaluate, and apply information
in making their choices. People have biases that interfere with objective rationality.
The illusion of control
It is a belief that one can influence events even when one has no control over what will happen.
Gambling is one example: some people believe they have the skill to beat the odds, even
though most of the time they cannot. In business, such overconfidence can lead to failure
because decision makers ignore risks and fail to evaluate the odds of success objectively.
framing effects
A decision bias influenced by the way in which a problem or decision alternative is phrased or
presented.
discounting the future
A bias weighting short-term costs and benefits more heavily than longer-term costs and
benefits.
Group decision making

Potential Advantages Potential Disadvantages
1. Larger pool of information. 1. One person dominates.
2. More perspectives and approaches. 2. Satisficing.
3. Intellectual stimulation. 3. Groupthink.
4. People understand the decision. 4. Goal displacement.
5. People are committed to the decision.
These first three potential advantages of using a group improve the odds that a more fully
informed, higher-quality decision will result. Thus managers should involve people with
different backgrounds, perspectives, and access to information. They should not involve only
their cronies who think the same way they do. The last two advantages improve the chances
that the decision will be implemented successfully. Therefore, managers should involve the
people who will be responsible for implementing the decision as early in the deliberations as
possible.
Potential Problems of Using a Group
Things can go wrong when groups make decisions. Most of the potential problems concern the
process through which group members interact with one another. Sometimes one group
member dominates the discussion. When this occurs— such as when a strong leader makes his
or her preferences clear—the result is the same as it would be if the dominant individual made
the decision alone. Individual dominance has two disadvantages. First, the dominant person
does not necessarily have the most valid opinions—and may even have the most unsound
ideas. Second, even if that person’s preference leads to a good decision, convening as a group
will have been a waste of everyone else’s time.
Satisficing is more likely with groups. Most people don’t like meetings and will do what they can
to end them.
Pressure to avoid disagreement can lead to a phenomenon called groupthink. Groupthink
occurs when people choose not to disagree or raise objections because they don’t want to
break up a positive team spirit. Such groups are overconfident, complacent, and perhaps too
willing to take risks
Goal displacement happens when a decision-making group loses sight of its original goal and a
new, less important goal emerges.
Effectively managing group decision making has three requirements: (1) an appropriate
leadership style, (2) the constructive use of disagreement and conflict, and (3) the
enhancement of creativity.
Effective group decision making
Leadership
1. Avoid domination.
2. Encourage input.
3. Avoid groupthink and satisficing.
4. Remember goals.
Constructive conflict
1. Air legitimate differences.
2. Stay task-related.
3. Be impersonal.
4. Play Devil’s Advocate
Cognitive conflict: Issue-based differences in perspectives or judgments.
Affective conflict: Emotional disagreement directed toward other people.
Devil’s advocate: A person who has the job of criticizing ideas to ensure that their downsides
are fully explored. Dialectic: A structured debate comparing two conflicting courses of action.
Creativity
1. Brainstorm.
2. Avoid criticizing.
3. Exhaust ideas.
4. Combine ideas.
In brainstorming, group members generate as many ideas about a problem as they can. As the
ideas are presented, they are posted so that everyone can read them, and people can use the
ideas as building blocks. The group is encouraged to say anything that comes to mind, with one
exception: no criticism of other people or their ideas is allowed.

MGMT ch3

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MGMT ch3

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Managerial decision making

The phases of decision making:

1. Identifying and Diagnosing the Problem

2. Generating Alternative Solutions

4. Making the Choice

5. Implementing the Decision

6. Evaluating the Decision

Group decision making

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