managerial decision making process

8/13/2019 Managerial Decision Making Process

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Lecture 2

The Managerial Decision MakingProcess


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Session Coverage

Theory Management on Decision Making Business Decision Making Process

Models of Decision Making in Management

Tools and support for management decisionmaking

Management Decision Making Styles

Factors Influencing Decision-Making in aBusiness Environment

Importance of Decision Making inManagement


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Theory Managementon Decision Making


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Definition

Decision theory is an analytical tool used bydecision-makers.

Theory management of decision-making, or

decision theory, is a theory used andperfected by statisticians, economist and

mathematicians.

It provides managers with an analyticalapproach to decision-making.


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Identification

Decision theory applies statistical andmathematical models to management

decision-making.

For example, managers can use the decisiontheory system to reach a verdict by collecting the

necessary data from within the company, applying

statistical and mathematical models against that

data and then using the results to inform theirchoice.


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Features

When presented with a choice, the user firstassigns an outcome to each possible decision

until he takes into account all possible

combinations, constraints and limitations. The user then applies statistical and

mathematical equations to the problem.

The result of this number crunching will be alist of decision options with assigned

probabilities of success.


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Implementation

A decision support system (DSS) is the primaryimplementation system for decision theoryapplications.

DSS is an information management system thatcollects and analyzes raw data from throughout acorporate enterprise and delivers usefulinformation to managers.

With this in mind, decision theory is the analyticalengine that drives the DSS.


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Process

Define, identify and Develop the problem

Analyze and Select

Implement and Control Follow-up


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Define the problem

Define problem and separate it from the

symptom. For e.g., a symptom is the recall of

vegetables because of E. coli. The problemmay be the improper storage and cleaning of

vegetables.

Ask questions such as: When does the problem occur?

What is the impact of the problem? And

What are the inputs into the problem?


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Limiting factors

and potential solutions

Identifying any limiting factors such as the

amount of time or money a manager has to

implement a solution

Developing potential solutions to the

problem.

a problem must exist, be understood by the

manager and it must be accurately defined inorder to have any opportunity of being dealt with


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Analyze and Select

Analyzing the alternative solutions This analysis should include the resources

needed to accomplish the task as well asconsideration for its long-term effects.

Selecting the best alternative. Once theanalysis is completed, the solution deemedthe best will be selected as the official

response to the problem Often times the best solutions just can't be

implemented because of a lack of necessaryresources


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Implement and Control

Proper implementation involving all ofthe employees so that they all know their

role in solving the problem at hand.

Once the decision is implemented, asystem needs to be put in place to

evaluate that decision.


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Follow-up

A manager must audit his decision-makingskills by following up

Questions to ask are:

Did the solution work? Did the solution create another problem?

What was learned through the process?

How can the key learnings be used to helpothers?


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Models of Decision

Making in

Management


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Models

Rational Decision-making Models

Intuitive Decision-making Models

Contingency Decision-making Models Group Decision-making Models


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Rational Decision-making

Models

This type of model revolves around selecting themost logical and sensible choice available

All the data and useful information is collected,arranged , carefully scrutinized and presented to the

decision maker. The decision maker has all the facts about the choices

involved

He knows the pros and cons of each opportunity

He or she then chooses the most rational opportunity The collection of information is the most important

part in this model. If inadequate information iscollected, poor decisions will be made resulting inloss of money for the company.


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Intuitive Decision-making

Models

This type of model is borrowed from militarystrategies.

The pace at which business moves today isbreathtaking.

Deals come up and are sealed in less than 24 hours.

This model focuses on making decisions based on yourintuition.

Nowadays, when an opportunity presents itself, theremay not be enough time to do the proper research

before cashing in. This type of decision making should be approached

with caution. Although a large number of people havemade excellent choices based on their gut feelings,many people have also made horrible decisions.


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Contingency Decision-making

Models

There comes a time in a person's life when hisplans do not happen as intended.

He then has to come up with a plan B. The samehappens in business.

When a business plans to do something thencomes across some unforeseen circumstances,the management makes new decisions based ontheir current situation.

These decisions are what often defines thestrength of a company. Good businesses andindividuals will have made these decisions inadvance, anticipating future problems.


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Group Decision-making

Models

The decisions here are made by a group ofpeople.

This type of decision making tends to be quite

time consuming as most, if not all the members,of the group have to agree on a certain choice.

Even though better decisions may be made as

different members may add their experiences,

the process takes too much time and

opportunities may pass by before a decision is

ever made.


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Tools & Support for

Management Decision Making


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Tools & support

Pros and Cons

The most rudimentary decision-making process is

weighing the pros and

Brainstorming

Brainstorming is an effective way to open up the

decision-making process, by stimulating a team to

initially look at the broad picture and then focuson the most important issues. cons of a decision.

PEST and SWOT Analysis


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Other Decision-Making

Tools Pareto analysis (also known as the 80-20 rule), which helps

to focus on the most important changes to make. The stepladder technique, which allows for better group

decisions.

Cost/benefit analysis, in order to determine if something is

worth the expense. Grid analysis, used when a number of factors enter in to

the decision-making process.

Force field analysis, which analyzes the pressures assertedfor and against a change.

Stepladder Technique Reframing Matrix

Decision Matrix

Blind Spot Analysis


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Management

Decision

Making Styles


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Styles

Directive or Autocratic Informing and Involving

Participation and Engagement

Collective-Participative Consensus

Flexible

Decisive Impulsive

Hierarchic


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Factors Influencing

Decision-Making in a

Business Environment


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Influences

Market Research

According to economist Rob Hyndman, to be successful,

every business needs to be familiar with the market

environment and this is why research is necessary in order

to obtain necessary information.

Competition

Since the market nowadays is highly competitive,

businesspeople always pay attention to the business

operations of their rivals. For example, when Applereleased its iPad tablet, Samsung quickly responded by

releasing its Galaxy Tab which proves that while taking

decisions on future developments, businesses consider

competitors and their business development plans.


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Influences Economic Environment

Economic environment is particularly important because it isrelated to the buying capacity of customers and what productsthe people in general would afford.

When taking decisions, business people bear in mind that they

must comply with some standard and not, for instance, imposehigh prices on their production in times of financial recession.For example, Apple produces the iPhone mobile devices whichare more expensive than similar devices by other brands.However, when major consumer states like the UK entered intosevere financial crisis in the beginning of 2011, the company

announced that it is developing a cheaper version of the iPhonethat would respond to the economic environment in countrieswhere there are financial problems.


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Influences

Cost and Benefit

For successful business decision making, it is required thatbusiness bodies create cost and benefit analysis. Thisapproach takes into account expenses for the businessfrom the process of production and revenue that would begenerated when the production is put on sale.

Thus business people are able to determine whethercertain products would be a good business opportunity.For example, before releasing the Chevy Volt hybrid car,the business developers in Chevrolet analyzed a detailed

cost and benefit plan. It determined that the revenue fromVolt hybrid sales would justify the expenditures of itsproduction.


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Importance of

Decision-Making inManagement
http://www.ehow.com/facts_6804852_importance-decision-making-business.html


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Efficiency

A manager's decisions often impact how anoffice functions. This can alter the pace andconsistency at which individuals are able towork within the system.

For example, if a manager decides that extrapaperwork will be required for each transactionprocessed by a sales representative, it may slowdown their pace.

If a manager decides to invest in automated filingsystems for processing those same kinds of forms,they may save the employees a large amount oftime, speeding up their work.


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Customer Satisfaction

A manager's decisions can largely impactcustomer satisfaction.

First, managerial decisions can affect anemployee's job satisfaction, which in turn affect

their customer service. A 2002 study conducted by Aspect

Communications and the Radclyffe Group foundthat individuals served by people reporting high

levels of satisfaction with their jobs were far moresatisfied with their customer service experiencethan those who were served by people reportinglow levels of satisfaction with their job.


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Company Reputation

Managerial decisions affect the well-being of the entirecompany they decide for. Every day, managers arefaced with important decisions about productdevelopment, marketing and safety. Their judgmentcan make or break the company as a whole. Forexample, British Petroleum, or BP, in CongressionalTestimony in 2010, admitted that hours before anexplosion that killed 11 oil rig workers and releasedhundreds of thousands of gallons of oil into the Gulf ofMexico, managers on the rig were aware of

abnormalities and warning signs, but chose not to takeaction. That choice led to what became one of themost devastating oil spills in history, causing millions ofdollars worth of damage to the shoreline and wreakinghavoc on the area's delicate biodiversity.


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Managerial Job

Security

On a more micro scale, a manager's decisionsimpact his own livelihood.

Failure in judgment may not always have stiff

consequences, but in some instances, poor decision-

making can cause a manager to lose her job. Drucker explains that a company cannot succeed with

a talented staff and valuable product; they need

strong leadership to point their efforts in the right

direction.

As such, a manager's decisions can indicate his ability

to lead, and his suitability for the position he currently

holds.


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Seminar Question

There are a variety of ways to make a decisionusing this method, but they all follow this

same basic outline:

1. Define the issue.

2. Gather the facts.

3. List the pros and cons.

Seminar discussions and examples must

centre around tools for management decision

making.

managerial decision making process

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