C3—Problem Solving & Decision Making

Problem - discrepancy between ideal and actual conditions.

Decision - choice among alternatives.

Decision Making

  • Can be seen as the heart of management

  • A distinguishing characteristic of a manager’s job is the authority to make decisions.


Nonprogrammed Decision

  • A decision that is difficult because of its complexity and the fact that the person faces it infrequently.

  • Significant problems affect an important aspect of an organization.

  • All strategic decisions are nonprogrammed.

  • Formulating policies to help managers know what to do when faced with a problem.

Programmed Decision

  • A decision that is repetitive, or routine, and made according to a specific procedure.

  • Top-level management does not concern itself with nonroutine decisions

  • Middle managers generally make both routine and nonroutine decisions.

  • First-level managers make more routine decisions


Greatest Management Decision Ever Made

  • Walt Disney listened to his wife and named his cartoon mouse Mickey instead of Mortimer. Entertainment was never the same after Mickey and Minnie debuted in “Steamboat Willie” in 1928.

  • Bill Gates, in 1981, decided to license MS/ DOS to IBM; IBM did not require control of the license for all non-IBM PCs. The decision laid the foundation for Microsoft’s huge success and a downturn in IBM’s prestige and prominence.

  • Robert Woodruff was president of CocaCola during World War II when he committed to selling Coke to members of the armed services for a nickel a bottle, starting around 1941. The decision led to enormous customer loyalty, and returning soldiers influenced family members and friends to buy Coca-Cola.


Steps in Problem Solving and Decision Making

Identify and Diagnose the Problem

  • Identify a gap between desired and actual conditions

  • Sometimes a problem is imposed on a manager

  • He or she must search actively for a worthwhile problem or opportunity

  • The ability to think critically helps a person get at the real problem

Develop Alternative Solutions

  • Generate alternative solutions

  • All kinds of possibilities are explored, even some that seem unrealistic

  • Keep digging until they find the best solution

  • Often the problem solver will find a creative alternative solution

  • At times, a standard solution will work adequately

Evaluate Alternative Solutions

  • Comparing the relative value of the alternatives

  • Performing a cost and savings analysis of each alternative

  • Possible outcome of an alternative should be part of the analysis

Choose 1 Alternative Solution

  • Make a decision

  • A major factor is the goal the decision should achieve.

  • The goals sought for in making the decision are also referred to as the decision criteria

  • Ambiguity remains in most decisions

Implement the Decision

  • Converting a decision into action

  • A decision is seldom good if people resist its implementation

  • Represents execution, putting plans into action

Evaluate and Control

  • Investigate how effectively the chosen alternative solved the problem

  • Evaluating and controlling your decisions will help you improve your decision-making skills.


Bounded Rationality in Decision Making

  • Decision making is usually not entirely rational.

  1. Bounded Rationality: means that people’s finite (somewhat limited) mental abilities, combined with external influences over which they have little or no control, prevent them from making entirely rational decisions

  2. Neuroeconomics: behavioral economics emphasizes that people are not entirely rational decision makers.

  3. Satisficing decision: a decision that meets the minimum standards of satisfaction.

  4. Heuristics: a rule of thumb used in decision making. Helps the decision maker cope with masses of information, but oversimplification can lead to inaccurate or irrational decision making.


Factors Influencing Decision Making

Intuition

  • An experience-based way of knowing or reasoning in which weighing and balancing evidence are done unconsciously and automatically.

  • Intuition can be based mostly on experience or mostly on feeling


Personality and Cognitive Intelligence

  • A particularly relevant personality dimension is a person’s propensity for taking risks.

  • A cautious, conservative person typically opts for a low-risk solution

  • An extremely cautious person may avoid making major decisions for fear of being wrong

  • Decisiveness

    • The extent to which a person makes up his or her mind promptly and prudently.

  • Perfectionism

    • People who seek the perfect solution to a problem are usually indecisive because they hesitate to accept the fact that a particular alternative is good enough.

  • Optimism versus pessimism is another relevant personality dimension.

  • Cognitive (or traditional) intelligence

    • types of intelligence such as imagination, adaptability, and practical intelligence.

  • Intelligent and well-educated people are more likely to identify problems and make sound decisions than are those who have less intelligence and education.

  • “Analysis paralysis”


Emotional Intelligence

  • How effective you are in managing your feelings and reading other people can affect the quality of your decision making.

  • Emotional intelligence

    • refers to qualities such as understanding one’s own feelings, empathy for others, and the regulation of emotions to enhance living.

  • Self-awareness

    • understand your own emotions; to know their strengths and limitations and have high self-esteem

  • Self-management

    • ability to control one’s emotions and act with honesty and integrity; prevent a person from throwing temper tantrums when activities do not go as planned.

  • Social awareness

    • having empathy for others and having intuition about organizational problems

  • Relationship management

    • the interpersonal skills of clear and convincing communication, the ability to disarm conflicts, and the ability to build strong personal bonds.


Quality and Accessibility of Information

  • An effective decision usually requires high-quality, valid information.

  • Able to base decisions upon solid data

  • A frequent accessibility problem is to rely on information from the Internet because it is easy to access

  • Anchoring

    • In the decision-making process, placing too much value on the first information received and ignoring later information.


Political Considerations

  • Many decisions are based on political considerations such as favoritism, alliances, or the desire of the decision maker to stay in favor with people who wield power

  • The decision maker may select data that support the position of an influential person whom he or she is trying to please.

  • Revenge is both a political and an emotional factor in decision making.

  • A person with professional integrity arrives at what he or she thinks is the best decision and then makes a diligent attempt to convince management

  • The person with integrity is aware of not alienating people in power, yet supports what he or she thinks is the best decision


Degree of Certainty

  • Degree of certainty is divided into three categories: certainty, risk, and uncertainty.

  • Certainty exists when the facts are well known and the outcome can be predicted accurately.

  • Condition of risk exists when a decision must be made based on incomplete, but accurate, factual information.

  • Uncertainty refers to a situation where the probabilities of various outcomes are not known, and the future is highly unpredictable


Crisis and Conflict

  • Decision makers who are adversely affected by crisis perceive it to be a stressful event

  • Under crisis, some managers do not bother dealing with differences of opinion because they are under so much pressure.

  • Conflict relates to crisis because both can be an emotional experience


Values of the Decision Maker

  • All decisions are based on values

  • A manager who places a high value on the personal welfare of employees tries to avoid alternatives that create hardship for workers and implements decisions in ways that lessen turmoil.


Procrastination

  • Procrastinate

    • To delay in taking action without a valid reason.

  • Results in indecisiveness and inaction and is a major cause of self-defeating behavior.

  • Procrastination is a deeply ingrained behavior pattern


Decision-Making Styles

  • A manager’s typical pattern of making decisions.

  • Decision styles differ in two fundamental ways: how information is used and how options are created.

  • Decisive

    • Value action, speed, efficiency, and consistency.

    • Once a plan is in place they stick with it and move on to the next decision.

  • Flexible

    • Focuses on speed, yet adaptability is emphasized.

    • Gather just enough data to choose a line of attack and quickly change course if needed.

  • Hierarchic

    • Analyze a great deal of information and seek input from others.

    • They expect a decision to be final and relatively permanent.

  • Integrative

    • Uses input from many sources and makes decisions involving multiple courses of action.

    • The decision may be modified in the future as circumstances change.


Group Decisions

  • process of several people contributing to a final decision


Advantages of Group Decision Making

  • The quality of the decision might be higher.

  • Major errors are likely to be avoided.

  • Helpful in gaining acceptance and commitment.

  • Help people overcome blocks in their thinking


Disadvantages of Group Decision Making

  • Consumes considerable time and may result in compromises that do not really solve the problem.

  • Groupthink

    • A psychological drive for consensus at any cost