MGT 2020 Lecture 3 Decision Making PDF

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MGT 2020 (2019-2020 Spring Term)Principle of Management2. Making Decision“Management is, above all, apractice where art, science, andcraft meet”―Henry MintzbergCourse Outline1. What is decision making？We always make decisionsChoose an university Choose a major Selecting a course Find a jobDecision m...

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2. Making Decision MGT 2020 (2019-2020 Spring Term) Principle of Management

“Management is, above all, a practice where art, science, and craft meet” ―Henry Mintzberg

Learning outlines

1. What

is decision making？ ？ 2. What is decision making processes？ ？ 3. What is behind decision makingDecision making approach 4. Decision making types, conditions and styles

1. What is decision making？

We always make decisions

Choose an university

Choose a major

Selecting a course

Find a job

Decision making

A key to success in management is knowing how to be an efficient and effective decision-maker. • Decision – making a choice from two or more alternatives.

Decision making in management Planning

Organizing

• Goals: Long-term vs • How many employees are needed? short-term objectives • How to distribute • Decide strategies to resources and capital? achieve goals

Leading

• What is the most effective leadership? • How to motivate employees?

Controlling

• How should these activities are controlled? • How to implement information system to monitor management?

2. What is decision making processes？

Decision making process Identifying a problem Identifying decision criteria Allocating weights to the criteria Developing alternatives Analyzing alternatives Selecting an alternative Implementing the alternative Evaluating Decision effectiveness

Decision making process A demonstration of decision making process: When Schultz found the unprecedented growth had led to a “watering down of the Starbuck experience” •

The rapid mass-market expansion makes customer traffic

•

Starbucks had lost its “cool” factor such as focusing on coffee, emotional attachment with customers

•

No longer a focus on coffee and customer but only on making the cash!

To fix the troubled stores, the intention to restore the quality control led him to close all 7100 us stores for one evening. What is the decision making processes to solve this problem? Please discuss with your group members and design the decision-making model.

Decision making process • Step 1: Identify a Problem – Problem – an obstacle that makes it difficult to achieve a desired goal or purpose. – Example – “Water down of the Starbucks experience”

• Step 2: Identify Decision Criteria – Decision criteria are factors that are important (relevant) to resolving the problem. – Example –return on investment; standard service processes; market share; customer loyalty.

Decision making process • Step 3: Allocate Weights to the Criteria – If the relevant criteria aren’t equally important, the decision maker must weight the items in order to give them the correct priority in the decision. – Example: – return on investment (0.2); – standard service processes (0.2); – market coverage(0.2); – customer loyalty (0.4).

Decision making process • Step 4: Develop Alternatives • List viable alternatives that could resolve the problem. • Example: • Reducing the choices of products to reduce service intensity; • Recruiting more employees to improve efficiency; • Training existing employees to provide standard service; • Closing additional stores to improve service quality.

Decision making process • Step 5: Analyze Alternatives – Appraising each alternative’s strengths and weaknesses. – An alternative’s appraisal is based on its ability to resolve the issues related to the criteria and criteria weight. return on investment (0.2)

standard service (0.2)

market coverage(0.2)

customer loyalty (0.4）

Total

Reducing choices

-3

1

-2

-3

-2

Recruiting employees

1

-4

1

-2

-1.2

Training employees

-3

2

0

2

0.6

Closing stores

0

4

-2

2

1.2

Decision making process • Step 6: Select an Alternative • Choosing the best alternative – The alternative with the highest total weight is chosen.

Closing stores

return on investment (0.2)

standard service (0.2)

market coverage (0.2)

customer loyalty (0.4）

Total

0

4

-2

2

1.2

Decision making process

• Step 7: Implement the Alternative • Putting the chosen alternative into action • Conveying the decision to and gaining commitment from those who will carry out the alternative • Example- “close all 7100 U.S stores for one evening…”

Decision making process • Step 8: Evaluate Decision Effectiveness – The soundness of the decision is judged by its outcomes.

– How effectively was the problem resolved by outcomes resulting from the chosen alternatives? – If the problem was not resolved, what went wrong?

Decision making process

Discussing questions: What is your decision making process to select the session of MGT 2020 this semester? Please discuss and design the decision-making process model.

3. What is behind decision makingDecision making approach

Decision making approach Rational decision making

• Perfect information; • Objective and logical; • Value-maximizing

Bounded rationality

• Limited information; • Realistic; • Satisfaction

Intuitive decision making

• Experience, feelings, and accumulated judgment

Rational decision making • Rational Decision-Making – describes choices that are logical and consistent while maximizing value. Data

Perfect information

Model

Decision

Complete alternatives

• Assumptions of Rationality – – – –

The problem faced would be clear and unambiguous The decision maker would be fully objective and logical The decision maker would have a clear and specific goal Know all possible alternatives and consequences

Clear goals Objective Logical

Bounded Rationality • Bounded Rationality – decision-making that’s rational, but limited (bounded) by an individual’s ability to process information. • Satisfice – accepting solutions that are “good enough”, satisfactory rather than optimization. • Discussion: what factors result in bounded rationality?

Intuitive decision making • Intuitive decisionmaking – Making decisions on the basis of experience, feelings, and accumulated judgment.

What Is Intuition? Experience-based decisions

Value or ethicsbased decisions

• Value, ethics, and • Past experience culture • Starbuck makes new taste of coffee • Customer is first by past experience • Employee is the treasure of firm

Subconsciousmental decisions

Cognitive-based decisions

•

Skills, knowledge, and training

• Improving innovation of products

•

•

• Automatic actions we can become aware of if we think • about them Candy has been used to drink water after meal without any considerations.

Affect-initiated decisions

Feelings or emotions When managers feel happy, they will raise the salary of workers

Decision making styles

• Discussion and Debate: • How would you evaluate and compare the roles of rationality, boundedrationality, and intuition in manager’s decision making?

4. Decision making types, conditions and styles

Types of problems and decisions Types of problems Structured problems

Unstructured problems

• Clear path to the solution • Standardized routine to handle it • Straightforward, familiar, and easily defined problems • E.g., math problem; driving a car

• Dimensions of problem are not specific or easy to infer • All steps of decision making process are not well defined • E.g., writing a book; creating a new product

Types of problems and decisions Structured problems

Programmed decisions

Unstructured problems

Non-programmed decisions

Types of problems and decisions Types of decisions Programmed decisions

Non-programmed decisions

• A repetitive decision that can be handled using a routine approach. • Procedure, rule, or policy

• A unique and nonrecurring decision that requires a custommade solution. • Judgement and creativity

Types of problems and decisions Types of programmed decisions

Types of problems and decisions An example of programmed decisions US-China Trade friction • US Policy for negotiation: reversing the trade deficit between US and China • Rule A: China should open financial filed to allow the investment of US companies. • Rule B: China should reduce the government subsidy to domestic firms • Procedure A1: In the coming years, China will…. • Procedure A2: China will allow US to open firms in China below % foreign ownership. • Procedure A3: US firms can operate in specific field xx, xxa, and xb…. • Procedure B1, B2, B3,…

Programmed Versus Non-programmed Decisions

Decision making conditions

Decision making styles

"The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking." ― Albert Einstein

Decision making styles Linear Thinking Style • the way of thinking in which we consider an idea or a process to begin from a point, follow a series of connected steps, and end at a point. • A person’s tendency to use external data/facts. • The habit of processing information through rational, logical thinking, and analytical tools. • Be good at maths, science, and technical subjects. • Example: if x = y, y = z, then concluding that x = z is an example of linear thinking.

Decision making styles • Nonlinear Thinking Style • A person’s preference for internal sources of information. • a method of processing this information with internal insights, feelings, and hunches. • Example: 'what do you feel about using our service/product?’ • ‘How a particular thing has made a difference to your life?'

Decision making styles

• Debate: Linear thinking or Nonlinear style, which one is better? • Group A: The strength of linear thinking and weakness of nonlinear thinking. • Group B: The strength of nonlinear thinking and weakness of linear thinking.

Chapter Review

Lecture review 1. Max is planning on going away to college next year and is currently trying to figure out which colleges he should apply to. He would like to major in English Literature at an accredited liberal arts college, but is also looking for a university that offers financial aid. In terms of the decision-making process, these represent Max's ________. A) problems B) alternatives C) decision criteria D) heuristics

Answer: C

Lecture review 2. It is assumed that a rational decision maker ________. A) faces unclear and ambiguous problems B) is limited by his or her ability to process information C) is unaware of all the possible alternatives and consequences D) is fully objective and logical

Answer: D

Lecture review 3. Julie is keen on joining Columbia University to pursue a masters degree in economics. However, after three months of applying and waiting for an acceptance letter, she finally decides to join NYU, which was one of her backup colleges. This is an example of ________. A) optimization B) neutralizing C) minimizing D) satisficing

Answer: D

Lecture review 4. When problems are ________, managers must rely on ______ in order to develop unique solutions. A) structured; nonprogrammed decision making B) structured; pure intuition C) unstructured; nonprogrammed decision making D) unstructured; programmed decision making

Answer: C

Lecture review 5. What is a difference between a policy and a rule? A) A policy establishes general parameters for the decision maker. B) A policy specifies what should or should not be done. C) A policy is more explicit. D) A rule typically contains an ambiguous term.

Answer: A

Lecture review 6. The ________ thinking style is characterized by a preference for internal sources of information and processing this information with internal insights, feelings, and hunches to guide decisions and actions. A) active experimentation B) nonlinear C) linear D) organic

Answer: B

Thank you very much!...