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Chapter 4

Textbook Notes Chapter 4- Managing Decision Making and Sustainability.docx

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Dave Swanston

Chapter 4- Managing Decision Making and Sustainability - Textbook Notes • Commitments frame the context within which managers make decisions Nature of Managerial Decision Making • Bounded Rationality- Being rational and making rational decisions has its limits; we are not always rational in the way we make our decisions  Two reasons for why “rational man” did not always make most rational decisions: 1. Uncertainty about the future 2. Costs in acquiring information in the present • Bounded Emotionality/The Management of Emotion- The inclusion of emotional expression in organizations for the purposes of productivity  Opens up possibilities for other ways of organizing and rewriting organizational theory • Decision Making- The process by which managers analyze the options facing them and make decisions about specific organizational goals and courses of action Programmed and Nonprogrammed Decision Making • Programmed Decision Making- Routine, virtually automatic decision making that follows established rules or guidelines  Decisions that have been made so many times in the past that managers have been able to develop rules/guidelines to be applied when certain situations occur  Example- When office managers need to order supplies they can reply on rules such as (1) when storage shelves are ¾ empty, order more paper and (2) when ordering paper, order enough to fill the shelves • Nonprogrammed Decision Making- Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats  Causes the most problems for managers because the situation is unexpected, and managers lack information they would need to develop rules to cover it  Example- Decisions to invest in new technology Comparing Decision Making Models The Rational Model/Classical Model • Rational Decision Making Model- A prescriptive approach to decision making based on the idea that the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most suitable course of action • How decisions should be made • Optimum Decision- The best decision in light of what managers believe to be the most desirable future consequences for their organization • Assumes that managers:  Have access to all information need to make optimum decision  Can easily list their own preferences for each alternative and rank them from least to most preferred in order to make the optimum decision The Administrative Model • Administrative Model- An approach to decision making that explains why decision making is basically uncertain and risky and why managers usually make satisficing rather than optimum decisions which is based on three concepts:  Bounded Rationality o Cognitive limitations that constrain ability to interpret, process, and act on information o Describes situation in which number of alternatives and amount of information are so great that it is difficult for manager to evaluate everything before making a decision  Incomplete Information o Information is incomplete because full range of decision making alternatives is unknowable in most situations and consequences are uncertain o Uncertainty makes future outcomes unknown o Ambiguous Information- Information that can be interpreted in multiple and often conflicting ways  Satisficing o Satisficing- Searching for and choosing acceptable or satisfying ways to respond to problems and opportunities, rather than trying to make the best decisions o Managers must also reply of their intuition and judgement to make the best decision in face of uncertainty and ambiguity o Intuition- Ability to make sound decisions based on past experiences and immediate feelings about information at hand o Judgement- Ability to develop a sound opinion based on one’s evaluation of the importance of information on hand o Both intuition and judgement are flawed and can result in poor decision making Steps in the Decision Making Process 1. Recognize the Need for a Decision  Diagnose the issue is order to determine all factors underlying the problem 2. Generate Alternatives  Generate set of feasible alternative courses of action to take in response to opportunity or threat 3. Assess Alternatives  Evaluate advantages and disadvantages of each alternative  Four criteria to evaluate pros and cons of alternatives courses of action: o Practicality- Decide whether manager has capabilities and resources to implement alternative and insure alternative doesn’t threaten goals of firm o Economic Feasibility- Decide whether alternatives make sense economically and fit firm’s goals (Perform cost-benefit analysis) o Ethicality- Ensure course of action is ethical and won’t harm stakeholders o Legality- Ensure course of action is legal and won’t violate domestic and international laws of government regulations 4. Choose Among Alternatives  Rank alternatives and make a decision  Ensure that all available information is brought to bear the problem or issue at hand 5. Implement the Chosen Alternative  Implement and act on the decision through making further decisions  Top managers must let middle managers participate in decisions and give them responsibility to make follow up decisions necessary to achieve the goal 6. Learn from Feedback  Evaluate results of decisions and learn from experiences in order to prevent
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