Making Decisions Flashcards
decision
choice between two or more alternatives
decision making process
1) identify problem (A problem is ___ . Don’t confuse symptoms with cause) and decision criteria
2) allocate weights to criteria (give most important 10 and rank others relative to this)
3) identify and evaluate alternatives
3) select and implement the highest weighted alternative - convey decision to those affected and get commitment by allowing them to participate in decision making
4) evaluate decision effectiveness - is problem solved? if not, was it IDing wrong problem, evaluating alternatives or poor implementation?
5) re-assess environment for changes, especially for LT decisions - e.g. entering new market
problem
- discrepancy between an existing and desired condition that makes it hard to achieved a desired goal
- characteristics:
1) manager must be aware of it
2) pressure to solve
3) manager has authority, info and resources to solve
decision making in the managerial functions
planning - LT objectives and strategies, individual goals
organising - span of control, centralisation, job design
leading - motivation, contingent leadership styles
controlling - how to monitor performance, what kind of MIS to use
5 approaches to decision making
- rationality
- bounded rationality
- intuition
- evidence-based mgmt
- crowdsourcing
rationality
assumes that choices are logical, consistent and maximise value
other assumptions:
1) unambiguous problems
2) single, specific goal
3) all alternatives and consequences known
4) preferences clear
5) decisions made in the best interest of the organisation
6) no time or cost constraints exist
bounded rationality
managers make decisions rationally while being limited by their ability to process information. assumes:
1) will not seek out or know all alternatives
2) will satisfice rather than maximise outcome - choose the first alternative that satisfactorily solves the problem instead of considering all alternatives
intuitive decision making
making decisions on the basis of experience, feelings and accumulated judgement
can complement both rational and bounded rational decision mkaing as managers with experience with certain types of situations can act quickly with otherwise limited info
can be:
1) experience based
2) affect-initiated (feelings)
3) congnitive based (knowledge and skills)
4) subconscious mental processing
5) ethics-based (personal or org)
evidence-based mgmt (EBMgt)
systematic use of best available, relevant and reliable evidence to operationalise rationality, e.g. computer data, expert opinions or experience of colleagues
1) expertise of decision maker
2) opinions of stakeholders in decision
3) relevant organisational factors e.g resources and members
4) external evidence
crowdsourcing
using a network of people outside the org’s appointed decision-makers to solicit ideas via the internet
useful for getting diverse external inputs and innovative solutions to problems, as well as decisions like what products and who to promote
e.g. Hershey
types of decisions
structured problems - use programmed decisions
unstructured problems - use non-programmed decisions
structured problems and programmed decision
straightforward, familiar and easily defined problems and info about the problem and how to overcome it is available and complete e.g. customer making a return to store
PD - repetitive decisions that can be handled by a routine approach; involved decision process not required. 3 types:
1) procedure
2) rule
3) policy
procedure vs rule vs policy
procedure - series of sequential steps to respond to an identified structured problem
rule - explicit statement limiting what can and cannot be done while carrying out the steps of a procedure
policy
general guidelines and parameters for decision making that typically involve some ambiguity and interpretation - e.g. employee wages should be ‘competitive’ - does not specify higher or lower
unstructured and non-programmed decisions
new or unusual problems with ambiguous and incomplete information that require judgement and creativity for custom solutions
NPD - unique and non-recurring that involve custom-made solutions
types of problems and decisions VS level in the org
lower level - highly structured problems and programmed decisions
top level - more unstructured problems and unprogrammed decisions
lower level managers handle routine ones, including through delegation by top level, so top level can handle more complex ones e.g. strategic planning
comparison
type of problem
managerial level
frequency
information
goals
time-frame
solution relies on
individual decision making dimensions and styles
way of thinking - rational or intuitive
tolerance for ambiguity - high or low
1) analytical - highly rational and high ToA; best for coping with new situations
2) conceptual - highly intuitive and high ToA - broad outlook, consider many alternatives and good at creative long-term solutions
3) directive - highly rational and low ToA; make decisions quickly, focused on the SR and consider few alternatives
4) behavioural style - highly intuitive and low ToA; work well with others, care about peer achievement and are receptive to suggestions and information. Tries to avoid conflict
most managers have a dominant style and backup styles that may shift depending on the situation
12 decision making biases and errors
- overconfidence
- immediate gratification
- anchoring effect
- selective perception bias
- confirmation bias
- framing bias
- availability bias
- representation bias
- randomness bias
- sunk costs error
- self-serving bias
- hindsight bias
these are the result of using heuristics to make sense of complex and ambiguous decisions
can be avoided by (1) being aware of them and not using them, helped by training; (2) identify heuristics used and their appropriateness and (3) ask trusted individuals to identify weaknesses in decision making style
ways to improve decision making
1) design thinking
2) big data and AI
design thinking
approaching management problems as designers approach design problems by considering how processes can be redesigned
problem identification should be collaborative, should understand situation well and look at both rational and emotional elements (difference between traditional style and DT)
big data, AI and analytics
BD - huge, complex sets of data that traditional data-processing systems cannot deal with.
e.g. cloud-computing can process in seconds to make complex decisions
AI - using computers to replicate the reasoning functions of humans, using machine learning (systems can learn from data, identify patterns and make decisions with little human assistance) and deep learning (creating artificial neural networks that stimulate human cognitive functions and process data non-linearly)
Analytics - using maths, stats and machine learning to find meaningful patterns in data sets
with this tech, managers will be less reliant on intuition and incomplete data thus moving towards rational outcomes; because of AI decisions can reflect the values and goals of decision makers and the org
