Chapter 12- Decision- Making Flashcards
Contextualise decision-making in terms of the management process
Answer: While performing the fundamental functions of managing(Planning, Organising, Leading and Controlling) managers are faced with opportunities and threats that need to be addressed and problems that need to be solved.
Explain relationships between
Problems
Problem Solving
Decision Making
Problems
Managers perceive a difference between what is actually happening and what they had planned to happen.
Problem Solving
The process of taking corrective action.
Decision Making
Process of choosing between various courses of action.
Compare the various decision making conditions
Certainty
Risk
Uncertainty
Under conditions of CERTAINTY all available options, benefits and costs associated are known.
Making a decision under risk- is when the manager does not know the outcome of each alternative in advance but can assign a probability to each.
Making a decision under UNCERTAINTY- This is when a manager does not know the available options, the probability of their occurrence or their potential benefits.
Rational Decision Making Model
Optimising: When the decision-maker makes high-risk decisions in conditions of uncertainty they should select the best possible solution to a problem.
Satisficing: The decision maker selects the first possible solution to a problem that meets minimal criteria in low risk environments.
The decision-making process
Stage 1 - Recognise
Stage 2 - Set Goals and Criteria
Stage 3 - Generate alternative courses of action
Stage 4 - Evaluate alternative courses of action
Stage 5 - Select the best option
Stage 6 - Implement the chosen option
Stage 7 - Conduct Follow up evaluation
Bounded Rationality model
The decision maker selects the first option that meets minimal criteria
Advantages of Group Decision Making
Variety of skills and specialised knowledge that improves quality of decision making.
Considering conflicting views between members may lead to improvement of decision making.
Different beliefs and values of group members can be transmitted and aligned.
May lead to Improved commitment
Participation in problem solving and decision making may improve morale and motivation of employees
Participation in group decision making may improve peoples ability to work effectively and efficiently.
Disadvantages of Group Decision Making
More time consuming
More likely to chose first possible option.
An individual may dominate the groups decision making and nullify the group decision
May inhibit creativity and lead to conformity.
Techniques for improving Group decision making
Brainstorming
- Normally used by lower management
- A technique used to break group norms and conformity by stimulating creativity and generating as many ideas from group members as possible without evaluation of others. No criticism allowed.
Nominal Group Technique
- Normally used by middle management
- This technique restricts discussion or interpersonal communication during the decision making process by allowing member to operate independently although all of them being physically present.
Appropriate for when groups are affected by dominant person or conformity.
Delphi Technique:
Decisions are made by experts in different geographical areas.
Uses a series of confidential questionnaires to refine a solution.
GDSS- Group Decision Support Systems
Computer supported group decision making system. Blends the nominal technique with sophisticated computer technology.
Electronic meetings can be about 55% faster than traditional meetings.
Decision making tools for conditions of CERTAINTY
Linear Programming
- Tool for optimally allocating scarce resources to maximise benefits an minimise losses.
Queuing Theory
- Achieving optimal balance between the cost of increasing service to amount of time individuals, machines or materials must wait for service.
Decision making tools for conditions of RISK and UNCERTAINTY
Probability analysis
- Pay-off matrices and decision trees.
Pay off Matrix
- Calculating possible pay off from using different courses of action.
Decision Tree
- Graphic illustration of the various solutions available to solve a problem.
Break Even Analysis
- Selecting the best option by calculating the volume of sales that will eventually result in a profit.
Simulation
- imitating real life conditions to evaluate possible outcomes using a model
Capital Budgeting
- Technique used to evaluate alternative investments.
