Heading

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3- 1

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Heading

3- 2

Chapter

3
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Managerial Decision
Making

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Heading
Learning
Objectives
After

3- 3

studying Chapter 3, you will know:

the

kinds of decisions you will face as a manager

how to make rational decisions
the pitfalls you should avoid when making decisions
the pros and cons of using a group to make decisions
the procedures to use in leading a decision-making group
how to encourage creative decisions
the processes by which decisions are made in organizations
how to make decisions in a crisis
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2003 The McGraw-Hill Companies, Inc. All rights reserved.

Characteristics
HeadingOf Managerial Decisions

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Risk

Uncertainty

Lack of
Structure

Conflict

3- 4

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The Stages
Of Decision Making
Heading

3- 5

Identifying and
diagnosing
the problem
Generating
alternative
solutions
Evaluating
alternatives
Making the
choice
Implementing
the decision
Evaluating
the decision
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2003 The McGraw-Hill Companies, Inc. All rights reserved.

BarriersHeading
To Effective Decision Making
Psychological

3- 6

biases

biases

that interfere with objective rationality

illusion of control - a belief that one can influence events
even when one has no control over what will happen
framing effects - how problems or decision alternatives are
phrased or perceived

subjective influences can override objective facts

discount

the future - weigh short-term costs and benefits

more heavily than longer-term costs and benefits

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the avoidance of short-term costs or the seeking of short-term

rewards may result in negative long-term consequences
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BarriersHeading
To Effective Decision Making
(cont.)
Time

3- 7

pressures

todays

economy places a premium on acting quickly and

keeping pace
in order to make timely and high-quality decisions one must:
focus on real-time information
involve people more effectively and efficiently
rely on trusted experts
take a realistic view of conflict

Social

realities

many

decisions result from intensive social interactions,

bargaining, and politicking

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2003 The McGraw-Hill Companies, Inc. All rights reserved.

Pros And
Cons Of Using A Group To
Heading
Make Decisions
Potential Disadvantages

Potential Advantages
1.

Larger pool of information

1.

One person dominates

2.

More perspectives and

approaches

2.

Satisficing

3.

Groupthink - team spirit

discourages disagreement

4.

Goal displacement - new

goals replace original goals

3.

Intellectual stimulation

4.

People understand the

decision

5.

People are committed to

the decision

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3- 8

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Managing
Group Decision Making
Heading
Leadership
1. Avoid domination
2. Encourage input
3. Avoid groupthink
and satisficing
4. Remember goals

3- 9

Constructive Conflict
1. Air legitimate
differences
2. Stay task-focused
3. Be impersonal
4. Play devils advocate

Effective Group
Decision Making
Creativity
1. Brainstorm
2. Avoid criticizing
3. Exhaust ideas
4. Combine ideas
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2003 The McGraw-Hill Companies, Inc. All rights reserved.

3 - 10

Organizational
HeadingDecision Making
Constraints

on decision makers

organizations

cannot do whatever they wish

Financial

Organizational

Legal
Constraints

Human
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Market
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Organizational
HeadingDecision Making (cont.)
Models

3 - 11

of organizational decision processes

bounded

rationality - decision makers cannot be truly rational

because:
they have imperfect, incomplete information about alternatives
the problems they face are so complex
human beings cannot process all the information to which they
are exposed
time is limited
people in the organization have conflicting goals

when

the conditions above hold, perfectly rational decision

making gives way to more biased, subjective decision
processes

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Organizational
HeadingDecision Making (cont.)
Models

3 - 12

of organizational decision processes (cont.)

incremental

model - major decisions arise through a series of

smaller decisions

piecemeal approach to larger solutions

coalitional

model - groups with differing preferences use power

and negotiation to influence decisions

used when people disagree about goals or compete for resources

garbage

can model - a chaotic process leading to seemingly

random decisions
occurs when people are unsure of their goals and what should be
done
a dramatic departure from rationality in decision making

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Organizational
HeadingDecision Making (cont.)
Negotiations

3 - 13

and politics

negotiations

necessary to galvanize the preferences of

competing groups and individuals
organizational politics - people try to influence decisions to
promote their own interests

use power to pursue hidden agendas

create

common goals - helps to make decision making a

collaborative rather than a competitive process

Decision

making in a crisis

stress

and time constraints make decisions less effective

should be prepared for crises in advance
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Heading
Mistaken
Assumptions: How Not To
Handle Crisis Management

3 - 14

We dont have a crisis.

We can handle a crisis.
Crisis management is a luxury we cant afford.
If a major crisis happens, someone else will rescue us.
Accidents are just a cost of doing business.
Most crises are the fault of bad individuals; therefore, theres not much
we can do to prevent them.
Only executives need to be aware of our crisis plans; why scare our
employees or members of the community?
We are tough enough to react to a crisis in an objective and rational
manner.
The most important thing in crisis management is to protect the good
image of the organization through public relations and advertising
campaigns.
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2003 The McGraw-Hill Companies, Inc. All rights reserved.