Fundamental of Management Chap 6

PowerPoint Presentation
to Accompany
Management, 10/e
John R. Schermerhorn, Jr.
Chapter 6:
The Decision Making Process
Prepared by: Jim LoPresti

University of Colorado, Boulder
Published by: John Wiley & Sons, Inc.
Planning Ahead Chapter 6 Study Questions
What is the role of information in

the management process?
How do managers use information
to make decisions?
What are the steps in the decisionmaking process?
What are the current issues in
managerial decision making?
Management 10/e - Chapter 6
Study Question 1:What is the role of information in

Information and knowledge basic

linkages:
Knowledge and knowledge workers provide a

decisive competitive factor in todays economy.
Knowledge worker.
Someone whose value to the organization
rests with intellect, not physical capabilities.
Intellectual capital.
Shared knowledge of a workforce that can be
used to create wealth.

Information and knowledge basic

linkages (cont.)
Knowledge and intellectual capital are

irreplaceable organizational resources.
The productivity of knowledge and knowledge

workers depends on:
Computer competency.
Information competency.
Figure 6.1 Internal and external information needs of

an organization
Study Question 1:What is the role of

information in the management process?
Implications of IT within
organizations:
Facilitation
of communication and
information sharing.
Operating
with fewer middle managers.
Flattening
of organizational structures.
Faster
decision making.
Increased
coordination and control.
Study Question 1: What is the role of
information in the management process?
What is useful information?
Data.
Raw facts and observations.
Information.
Data made useful for decision making.
Information drives management

functions.
Characteristics of useful information:
Timely.
High quality.
Complete.
Relevant.
Understandable.

Implications of IT for relationships

with external environment:
Helps
with customer relationship

management.
Helps
organizations with supply chain

management.
Helps
in monitoring outsourcing and

other business contracts.
Figure 6.2 Information technology is breaking

barriers and changing organizations.
Study Question 1: What is the role of information in

Information needs of organizations.

Information
exchanges with the

external environment:
Gather intelligence information.
Provide public information.
Information
exchanges within the

organization:
Facilitate decision making.
Facilitate problem solving.
10
Study Question 1: What is the role of information in

Basic information system concepts:

Information
system.
Use of the latest IT to collect, organize, and

distribute data for use in decision making.
Management
Information System (MIS).
Specifically designed to meet the

information needs of managers in daily
decision making.
11
Study Question 2: How do managers use information

to make decisions?
Managerial advantages of IT
utilization:
Planning
advantages.
Better and more timely access to useful

information.
Involving more people in planning.
Organizing
advantages.
More ongoing and informed communication

among all parts of the organization.
Improved coordination and integration.
12
Study Question 2: How do managers use information

to make decisions?
Managerial advantages of IT
utilization (cont.):
Leading
advantages.
Improved communication with staff and

stakeholders.
Keeping objectives clear.
Controlling
advantages.
More immediate measures of performance

results.
Allows real-time solutions to performance
problems.
13
Figure 6.3 The manager as an informationprocessing nerve center.
14
Study Question 2: How do managers use

information to make decisions?
A performance deficiency
A performance opportunity
Actual performance being better than desired

performance.
Problem solving
Actual performance being less than desired

performance.
The process of identifying a discrepancy

between actual and desired performance and
taking action to resolve it.
A decision
A choice among possible alternative course of

action.
15

Problem-solving approaches or styles:
Problem avoiders.
Problem solvers.
Inactive in information gathering and solving

problems.
Reactive in gathering information and solving
problems.
Problem seekers.
Proactive in anticipating problems and

opportunities and taking appropriate action to gain
an advantage.
16

Systematic versus intuitive thinking.
Systematic thinking approaches problems in a

rational, step-by-step, and analytical fashion.
Intuitive thinking approaches problems in a

flexible and spontaneous fashion.
Multidimensional thinking applies both intuitive

and systematic thinking.
Effective multidimensional thinking requires

skill at strategic opportunism.
17

Cognitive styles.
Sensation Thinkers emphasize the impersonal

rather than the personal and take a realistic
approach to problem solving.
Intuitive Thinkers are comfortable with abstraction

and tend to be idealistic. spontaneous fashion.
Intuitive Feelers prefer broad and global issues and

are comfortable with intangibles.
Sensation Feelers emphasize analysis and human

relations and tend to be realistic and prefer facts.
18

Programmed decisions.
Apply solutions that are readily available from

past experiences to solve structured problems.
Structured problems are ones that are familiar,

straightforward, and clear with respect to
information needs.
Best applied to routine problems that can be

anticipated.
19

Nonprogrammed decisions.
Develop
novel solutions to meet the

demands of unique situation that
present unstructured problems.
Unstructured
problems are ones that

are full of ambiguities and information
deficiencies.
Commonly
faced by higher-level
management.
20

Crisis decision making.

A
crisis involves an unexpected problem

that can lead to disaster if not resolved
quickly and appropriately.
Rules for crisis management:
Figure out what is going on.
Remember that speed matters.
Remember that slow counts, too.
Respect the danger of the unfamiliar.
Value the skeptic.
Be ready to fight fire with fire.
21

Decision environments:
Certain environments.
Offer complete information about possible action
alternatives and their outcomes.
Risk environments.
Lack complete information about action
alternatives and their consequences, but offer
some estimates of probabilities of outcomes for
possible action alternatives.
Uncertain environments
Information is so poor that probabilities cannot be
assigned to likely outcomes of known action
alternatives.
22
Figure 6.4 Three environments for managerial

decision making and problem solving.
23
Study Question 3: What are the steps in the

decision-making process?
Five-step decision-making process:

Identify
and define the problem.
Generate
and evaluate possible
solutions.
Choose
a preferred course of action

and conduct the ethics double check.
Implement
Evaluate
the decision.
results.
24
Figure 6.5 Steps in managerial decision making and

problem solving.
25

Step 1 identify and define the

problem.
Focuses
on information gathering,
information processing, and deliberation.
Decision objectives should be established.
Common mistakes in defining problems:
Defining the problem too broadly or too
narrowly.
Focusing on symptoms instead of causes.
Choosing the wrong problem.
26

Step 2 generate and evaluate

possible solutions.
Potential
solutions are formulated and

more information is gathered, data are
analyzed , the advantages and
disadvantages of alternative solutions
are identified
Approaches for evaluating alternatives:
Stakeholder analysis.
Cost-benefit analysis.
27

Step 2 generate and evaluate

possible solutions (cont.).
Criteria for evaluating alternatives:
Benefits.
Costs.
Timeliness.
Acceptability.
Ethical soundness.
Common mistakes:
Selecting a particular solution too quickly.

Choosing a convenient alternative that may have
damaging side effects or may not be as good as other
alternatives.
28

Step 3 decide on a preferred

course of action.
Classical
decision model.
Managers act rationally in a certain world.
Managers face clearly defined problems

and have complete knowledge of all
possible alternatives and their
consequences.
Results in an optimizing decision.
29

Step 3 decide on a preferred

course of action (cont.).
Behavioral
decision model
Managers act in terms of what they

perceive about a given situation.
Recognizes limits to human informationprocessing capabilities.
Cognitive limitations.
Bounded rationality.
Results in a satisficing decision.
30

Step 4 implement the decision

solution.
Involves taking action to make sure the

solution decided upon becomes a reality.
Managers need to have willingness and

ability to implement action plans.
Lack-of-participation error should be

avoided.
31
Figure 6.6 Differences in the classical and behavioral

models of managerial decision making.
32

Step 5 evaluate results.
Involves comparing actual and desired

results.
Positive and negative consequences of

chosen course of action should be
examined.
If actual results fall short of desired

results, the manager returns to earlier
steps in the decision-making process.
33
Study Question 4: What are the current issues in

Types of heuristics for simplifying

decision making:
Availability heuristic.
Representativeness heuristic.
People use information readily available from

memory as a basis for assessing a current event or
situation.
People assess the likelihood of something happening
based upon its similarity to a stereotyped set of
occurrences.
Anchoring and adjustment heuristic.
People make decisions based on adjustments to a

previously existing value or starting point.
34

Framing Error.
The
tendency to evaluate and resolve a

problem in the context in which it is
perceived either positively or
negatively.
Confirmation Error.
the
tendency to focus only on

information that confirms a decision
already made.
35

Escalating commitment.
The tendency to increase effort and apply more

resources to a course of action that is not
working.
Ways to avoid the escalation trap:
Set advance limits and stick to them.

Make your own decisions.
Carefully determine why you are continuing a
course of action.
Remind yourself of the costs.
Watch for escalation tendencies.
36

Creative Decision making:

Creativity
is the generation of a novel

idea or unique approach that solves a
problem or crafts an opportunity.
creativity is more likely when decision

makers are highly task motivated.
Organizations
should create an
environment that supports and
encourages creativity.
37

Potential advantages of group

decision making:
Greater
amounts of information,
knowledge, and expertise are available.
More action alternatives are
considered.
Increased understanding and
acceptance of outcomes.
Increased commitment to implement
final plans.
38

Potential disadvantages of group

decision making:
Pressure
to conform.
Minority
domination may occur.
Decision
making takes longer.
39

When group decision making works

best:
Individual lacks expertise or information.
Problem is unclear and hard to define.
Acceptance by others needed for effective

implementation
Time is sufficient for group involvement.
40

Ethical decision making.

Any
decision should meet ethics

double check. mentioned in step 3 of
the decision-making process.
How would I feel if my family found out
about this decision?
How would I feel if this decision were
published in the local newspaper?
Any discomfort in answering these
questions indicates the decision has
ethical shortcomings.
41

Ethical decision making (cont.)

Considering
the ethics of a proposed

decision may result in better decisions
and prevention of costly litigation.
Ethical decisions satisfy the following
criteria:
Utility.
Rights.
Justice.
Caring.
42
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PowerPoint Presentation

Prepared by: Jim LoPresti

Planning Ahead Chapter 6 Study Questions

What is the role of information in

Management 10/e - Chapter 6

Study Question 1:What is the role of information in

Information and knowledge basic

Knowledge and knowledge workers provide a

Management 10/e - Chapter 6

Study Question 1:What is the role of information in

Information and knowledge basic

Knowledge and intellectual capital are

The productivity of knowledge and knowledge

Management 10/e - Chapter 6

Figure 6.1 Internal and external information needs of

Management 10/e - Chapter 6

Study Question 1:What is the role of

with fewer middle managers.

coordination and control.

Management 10/e - Chapter 6

Study Question 1: What is the role of

information in the management process?

What is useful information?

Raw facts and observations.

Data made useful for decision making.

Information drives management

Management 10/e - Chapter 6

Study Question 1:What is the role of information in

Implications of IT for relationships

with customer relationship

organizations with supply chain

in monitoring outsourcing and

Figure 6.2 Information technology is breaking

Management 10/e - Chapter 6

Study Question 1: What is the role of information in

Information needs of organizations.

exchanges with the

exchanges within the

Management 10/e - Chapter 6

Study Question 1: What is the role of information in

Basic information system concepts:

Use of the latest IT to collect, organize, and

Information System (MIS).

Specifically designed to meet the

Management 10/e - Chapter 6

Study Question 2: How do managers use information

Better and more timely access to useful

More ongoing and informed communication

Management 10/e - Chapter 6

Study Question 2: How do managers use information

Improved communication with staff and

More immediate measures of performance

Management 10/e - Chapter 6

Figure 6.3 The manager as an informationprocessing nerve center.

Management 10/e - Chapter 6

Study Question 2: How do managers use

Actual performance being better than desired

Actual performance being less than desired

The process of identifying a discrepancy

A choice among possible alternative course of

Study Question 2: How do managers use

Problem-solving approaches or styles:

Inactive in information gathering and solving

Proactive in anticipating problems and