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Chapter 5 planning and decision making (part 2)
- 3. MANA3335 Rational Decision Making: A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions. 3 Define the problem Identify decision criteria Weight the criteria Generate alternative courses of action Evaluate each alternative Compute the optimal decision 1 2 3 4 5 6
- 4. MANA3335 4 Stepstorationaldecisionmaking Define the problem1 • A problem exists when there is a gap between a desired state and an existing state • To make decisions about problems, managers must… • Be aware of the gap. • Be motivated to reduce the gap. • Have the knowledge, skills, abilities, and resources to fix the problem. One of the most critical steps! Incorrectly defining the problem or identifying the wrong problem is a frequent cause of poor decision making.
- 5. MANA3335 5 Stepstorationaldecisionmaking Identify decision criteria2 • Standards used to guide judgments and decisions. • The more criteria a potential solution meets, the better that solution should be. Decision makers must determine the relevant criteria that will influence the situation.
- 6. MANA3335 6 Stepstorationaldecisionmaking Weight the criteria3 • Absolute comparisons • Each criterion is compared to a standard or ranked on its own merits • Relative comparisons • Each criterion is compared directly to every other criterion In order to prioritize and balance the criteria, they must be given weightings: rarely are all criteria of equal importance to the decision.
- 7. MANA3335 7 Stepstorationaldecisionmaking Generate alternative courses of action4 • In general, the idea is to generate as many alternatives as possible. Listing (not assessing) all possible ways in which the problem can be solved.
- 8. MANA3335 Stepstorationaldecisionmaking 8 Evaluate each alternative5 • Each alternative is systematically evaluated against each criterion. • This step can take much longer and be more expensive than other steps in the process. Rate each alternative upon each criterion. Critically analyze and evaluate each alternative against the identified and weighted criteria.
- 9. MANA3335 9 Stepstorationaldecisionmaking Compute the optimal decision6 • Determine the value of each potential alternative • Sum of (rating for each criterion x weight for each criterion) for all criterion that are relevant for evaluating a potential solution alternative Ranking the rated alternatives and selecting the alternative with the highest score.
- 10. MANA3335 10 Stepstorationaldecisionmaking Define the problem1 2 3 4 5 6 I’m craving ice cream and nothing else will do.
- 11. MANA3335 11 Stepstorationaldecisionmaking Define the problem Identify decision criteria 1 2 3 4 5 6 It has to be sweet, chocolate is a must, and I want something unique. Flavor Sweet Chocolate Unique I’m craving ice cream and nothing else will do.
- 12. MANA3335 12 Stepstorationaldecisionmaking Define the problem Identify decision criteria Weight the criteria 1 2 3 4 5 6 It has to be sweet, chocolate is a must, and I want something unique. Flavor Sweet Chocolate Unique weights 5 4 2 On a scale from 1 to 5 the importance of each criteria is… I’m craving ice cream and nothing else will do.
- 13. MANA3335 Stepstorationaldecisionmaking 13 Define the problem Identify decision criteria Weight the criteria 1 2 3 4 5 6 It has to be sweet, chocolate is a must, and I want something unique. Flavor Sweet Chocolate Unique weights 5 4 2 Marshmallow with choc sprinkles Mint Choc Chip Chocolate On a scale from 1 to 5 the importance of each criteria is… I’m craving ice cream and nothing else will do. Generate alternative courses of action
- 14. MANA3335 Stepstorationaldecisionmaking 14 Define the problem Identify decision criteria Weight the criteria Generate alternative courses of action Evaluate each alternative 1 2 3 4 5 6 It has to be sweet, chocolate is a must, and I want something unique. Flavor Sweet Chocolate Unique weights 5 4 2 Marshmallow with choc sprinkles 5 1 4 Mint Choc Chip 5 3 3 Chocolate 5 5 1 On a scale from 1 to 5 the importance of each criteria is… I’m craving ice cream and nothing else will do.
- 15. MANA3335 Stepstorationaldecisionmaking 15 Define the problem Identify decision criteria Weight the criteria Generate alternative courses of action Evaluate each alternative Compute the optimal decision 1 2 3 4 5 6 It has to be sweet, chocolate is a must, and I want something unique. Flavor Sweet Chocolate Unique Weighted Score Ranking weights 5 4 2 Marshmallow with choc sprinkles 5 1 4 37 3 Mint Choc Chip 5 3 3 43 2 Chocolate 5 5 1 47 1 On a scale from 1 to 5 the importance of each criteria is… I’m craving ice cream and nothing else will do.
- 17. MANA3335 Limitstorationaldecisionmaking • In theory, maximize decisions by choosing the optimal solution. • This doesn’t always happen. • Limited resources, attention, memory, and expertise • Flaws of Rational Decision Making Model • Assumes that people understand what the decision to be made is • Assumes that people know all their available choices • Assumes the people have no perceptual biases • Assumes that people want to make optimal decisions 17
- 18. MANA3335 Boundedrationalitymodel • Making a “good-enough” decision • Recognizes limits on ability to process information • Decision makers knowingly limit their options • Choose the best alternative without conducting an exhaustive search for alternatives • Satisficing may occur which refers to accepting the first alternative that meets minimum criteria 18
- 19. MANA3335 Intuitivedecisionmaking • Within a given situation, experts making decisions scan the environment for cues to recognize patterns. • Once a pattern is recognized, they can plan a potential course of action based on their prior experience. 19
- 20. MANA3335 Creativedecisionmaking 20 Step 1 Problem Recognition Step 2 Immersion Step 3 Incubation Step 4 Illumination Step 5 Verification & Application
- 21. MANA3335 Choosingadecisionmakingmethod 21 Model Use This Model When: Rational Information on alternatives can be gathered and quantified. The decision is important. You are trying to maximize your outcome. Bounded Rationality The minimum criteria are clear. You do not have or you are not willing to invest much time to making the decision. You are not trying to maximize your outcome. Intuitive Goals are unclear. There is time pressure and analysis paralysis would be costly. You have experience with the problem. Creative Solutions to the problem are not clear. New solutions need to be generated. You have time to immerse yourself in the issues.
- 22. MANA3335 Exam1 22 Topics: – Management (Ch1) – Organizational Environments and Cultures (Ch3) – Organizational Strategy (Ch6) – Planning and Decision Making (Ch5) • 100 points • 50 multiple choice questions (2 points each) – Bring a light blue, GENERAL PURPOSE NCS ANSWER SHEET form no. 4521 – Arrive on time • Will cover ALL lecture content as well as content in assigned reading