Managerial Decision Making Organizational Perspective .

Types of Decisions and Problems

 

Decision-a choice made from available alternatives. Decision Making-the process of identifying problems and opportunities and then resolving them. Programmed Decision -a decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future. (SOP) Non programmed Decision - a decision made in response to a situation that is unique, is poorly defined and largely unstructured, and has important consequences for the organization.

Types of Decisions and Problems (cont.)

 

Certainty -all the information the decision maker needs is fully available Risk -a decision has clear cut goals and good information is available, but the future outcomes associated with each alternative are subject to change. Uncertainty -managers know which goal they wish to achieve, but information about alternatives and future events in incomplete. Ambiguity -the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable.

Sources of Organizational and Entrepreneurial Decision

Managers are faced with decisions when a problem occurs or when an opportunity arises.

Sources of Organizational and Entrepreneurial Decisions



Problem


A situation in which some aspect of organizational performance is less than desirable. A situation that has the potential to provide additional beneficial outcomes.

Opportunity


Classification of Decision Situations

Programmed decisions


Decisions made in response to routine situations that have occurred in the past. Decisions made in response to situations that are unique, unstructured, or poorly defined.

Non programmed decisions



Classification of Decision Situations

Responses to Decision Situations
Programmed decisions Alternatives are familiar to decision makers Responses are routine Non programmed decisions Alternatives are not familiar to decision makers Responses require creativity

Operational Decision Making

Operational decision making relates to decision situations that cover much shorter time spans. These decisions are typically made at lower levels within the organization, but that need not always be the case.

DecisionDecision-Making Steps


6 Steps
1. 2. 3. 4. 5. 6.

Recognition of Decision Requirement Diagnosis and Analysis of Causes Development of Alternatives Selection of Desired Alternative Implementation of Chosen Alternative Evaluation and Feedback

These steps are used regardless of which model of decision used or whether the decision is programmed or non programmed.

1. Recognition of Decision Requirement

A decision requirement arises when there is either an opportunity or a problem.

Opportunity-a situation in which managers see potential organizational accomplishments that exceed current goals. Problem-a situation in which organizational accomplishments have failed to meet established goals.


Sources of information: financial reports, performance reports, customer satisfaction reports, etc.

2. Diagnosis and Analysis of Causes

Once a problem or opportunity has come to a managers attention, the understanding of the situation should be refined.


Diagnosis: the step in the decision making process in which managers analyze underlying causal factors associated with the decision situation. (see what is going on!) Ask questions; gather information; how urgent is the problem, is it isolated, will it affect other areas of the organization?

3. Development of Alternatives

Once the problem or opportunity has been recognized and analyzed, decision makers begin to consider taking action.


Dont limit the alternative solutions

4. Selection of Desired Alternatives

Once feasible alternatives have been developed, one must be selected. Choose the most promising of several alternative courses of action. The best alternative is one in which the solution best fits the overall goals and values of the organization and achieved the desired results using the fewest resources. Risk Propensity will affect your choices


The willingness to undertake risk with the opportunity of gaining an increased payoff.

5. Implementation of Chosen Alternative

The implementation stage involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out. Can your decision be carried out? Implementation: the step in a decision making process that involves using managerial, administrative, and persuasive abilities to translate the chosen alternative into action.

6. Evaluation and Feedback

Decision makers gather information that tells them how well the decision was implemented and whether it was effective in achieving its goals. Did you make the right decision? Do you need to make additional decisions? Additional tweaking may be necessary

Personal Decision Making Framework

Each manager has their own style for making decisions  Problems are perceived differently and managers decide to act upon problems and opportunities differently. Directive-simple, clear cut solutions to problems; make decisions quickly with just a few alternatives. Analytical-like to consider complex solutions based upon as much data as they can gather. Base decisions on objective, rational data from management control systems & other sources. Conceptual-consider large amounts of information combined with discussions with other people. Use both people and systems. Behavioral-deep concern for others as individuals. May

make decisions to help others achieve their goals.

Increasing Participation in Decision Making Learn, Dont Punish

Decisions are made under conditions of uncertainty and time pressure which may cause some errors. How will you react? Each failure provides new information and learning. Late Departures:


American Airlines (who has done it?) vs. Southwest Airlines (team delay)

Know When to Bail

fail early, fail often, and pull the plug early. Escalating Commitment-invest time and resources in a failing decision. Your solution from time to time may in fact be wrong!

Increasing Participation in Decision Making (cont.)

Practice the Five Whys

Learn to ask why, not just once, but 5 times. Each subsequent answer will generate alternatives for solving the problem and probes deeper into the problem Combined knowledge, experience, and understanding of the group. Meet as a group and work together on a solution allowing everybody's ideas to interplay bringing additional alternatives and solutions. A diverse group with varied levels of experience. Devils Advocate-challenge the assumptions and assertions to prevent premature consensus or group think. Point-Counterpoint: divide the group and argue two sides of the issue.

Build Collective Intuition

Engage in Constructive Conflict

Using Information Technology for decision making.



Managers use information systems that rely on a massive data warehouse to make decisions about what to stock, how to price and promote it, and when to reorder or discontinue items. Enhances ability to analyze buying patters, spot problems or opportunities and convey the information to lower levels.

Uneasy lies the head that wears the crown.

Economies of scale


Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producers average cost per unit to fall as scale is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility, or scale, increases. Diseconomies of scale are the opposite. Economies of scale may be utilized by any size firm expanding its scale of operation. The common ones are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), and marketing (spreading the cost of advertising over a greater range of output in media markets). Each of these factors reduces the long run average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve down and to the right.

Recession is a business cycle contraction, a general

slowdown in economic activity over a period of time. During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; while bankruptcies and the unemployment rate rise. Recessions are generally believed to be caused by a widespread drop in spending. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

Information Technology

The hardware, software, telecommunications, database management, and other technologies used to store, process, and distribute information. Data-raw, un-summarized, and unanalyzed facts and figures. Information-data that have been converted into a meaningful and useful context for the receiver.

Characteristics of useful information



Time: information should be available and provided when needed, up to date, and related to the appropriate time period. Content: useful information is error free, suited to the users needs, complete, concise, relevant (get rid of the unnecessary data), and an accurate measure of performance. Form: information should be provided in a form that is easy for the user to understand and that meets the users needs for the level of detail.

Types of Information Systems

 

Operations Information Systems Management Information Systems

Operations Information Systems



A computer based information system that supports a companys day-to-day operations. 2 Types of Systems


Transaction Processing System



Records and processes data resulting from routine business transactions such as sales, purchases, and payroll. Combine modern hardware and software to handle the tasks of publishing, distributing information, and process accounting procedures electronically.

Office Automation Systems



Management Information Systems



Provides information and support for effective managerial decision making. Reporting systems, decision support systems, executive information systems and groupware.

The Internet and E-Business E  

 

Internet World Wide Web E-business: any business that takes place by digital processes over computer network rather than physical place. E-commerce: business exchanges that occur electronically. Intranet: an internal communications system that uses the technology and standards of the internet but is accessible only to people within the organization. Electronic Data Interchange (EDI): a network that links the computer systems of buyers and sellers to allow the transmission of structured data primarily for ordering, distribution, and payable and receivables. Extranet: an external communications system that uses the internet and is shared by two or more organizations.

How to get Business into EEBusiness



E-business strategies


In-house internet division



your own company site Barnes & Noble vs. barnesandnoble.com Whirlpool vs. brandwise.com Toys R Us and Amazon.com

Spin-off
 

Strategic partnership


Enhanced Collaboration


Intranets and networks keep customers, suppliers, and other organizations in better communication. What is available online for the customers?


Hong Kongs Li & Fung, A&F, Guess, Ann Taylor

 

They own no factories or machines Electronically connected to 7,500 supply and manufacturing partners in 37 countries

Are there risks for customers?

Organizational Learning
  

Information gets to Managers faster Information gets to Employees faster Decisions are made with more and better information Access to databases about industry, financial, and demographic trends in their environments will help managers stay on top of important trends.

IT Trends
   

Instant Messaging Wireless Internet Peer-to-Peer File Sharing Google Desktop Search