Introduction to Management

Planning and Decision Making

MPA/MBA 2021-2023
Resource Person : Safiullah Mengal
 Problem Solving –Not a Problem
key to success in management and in your career is knowing
how to be an effective problem-solver
• 1 Define the problem
• 2 Look at the problem from different perspectives and generate
multiple solutions
• 3 Evaluate the ideas or possible solutions.
• 4 Implement your solution.
• 5 Re-examine your solution.
 Decision
• Decision: A choice among two or more alternatives
• Managers at all levels and in all areas of organizations make decisions. That is, they
make choices.
• For instance, top-level managers make decisions about their organization’s goals,
where to locate manufacturing facilities, or what new markets to move into.
• Middle- and lower-level managers make decisions about production schedules,
product quality problems, pay raises, and employee discipline.
• Our focus in this chapter is on how managers make decisions, but making
decisions isn’t something that just managers do.
• All organizational members make decisions that affect their jobs and the
organization they work .
Step 1: Identify a Problem
• Problem: An obstacle that makes it difficult to achieve a desired goal or
purpose
• Your team is dysfunctional, your customers are leaving, or your plans are
no longer relevant. Every decision starts with a problem, a discrepancy
between an existing and a desired condition.
• Let’s work through an example. Amanda is a sales manager whose reps
need new laptops because their old ones are outdated and inadequate for
doing their job.
• To make it simple, assume it’s not economical to add memory to the old
computers and it’s the company’s policy to purchase, not lease. Now we
have a problem—a disparity between the sales reps’ current computers
(existing condition) and their need to have more efficient ones (desired
condition). Amanda has a decision to make.
Step 2: Identify Decision Criteria
• Decision criteria: Criteria that define what’s important or relevant to
resolving a problem
• Once a manager has identified a problem, he or she must identify the
decision criteria important or relevant to resolving the problem. Every
decision maker has criteria guiding his or her decisions even if they’re
not explicitly stated. I
• In our example, Amanda decides after careful consideration that
memory and storage capabilities, display quality, battery life,
warranty, and carrying weight are the relevant criteria in her decision.
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. How? A simple way is to give the most important criterion a
weight of 10 and then assign weights to the rest using that standard.
• Of course, you could use any number as the highest weight
Step 4: Develop Alternatives
• The fourth step in the decision-making process requires the decision
maker to list viable alternatives that could resolve the problem.
• In this step, a decision maker needs to be creative, and the
alternatives are only listed—not evaluated just yet. Our sales
manager, Amanda, identifies eight laptops as possible choices
Step 5: Analyze Alternatives
• Once alternatives have been identified, a decision maker must
evaluate each one.
• How? By using the criteria established in Step 2
Step 6: Select an Alternative
• The sixth step in the decision-making process is choosing the best
alternative or the one that generated the highest total in Step 5.
• Amanda would choose the Dell Inspiron because it scored higher
than all other alternatives (249 total).
Step 7: Implement the Alternative
• In Step 7 in the decision-making process, you put the decision into
action by conveying it to those affected and getting their commitment
to it.
• We know that if the people who must implement a decision
participate in the process, they’re more likely to support it than if you
just tell them what to do.
• Another thing managers may need to do during implementation is
reassess the environment for any changes, especially if it’s a long-
term decision. Are the criteria, alternatives, and choices still the best
ones, or has the environment changed in such a way that we need to
reevaluate?
Step 8: Evaluate Decision Effectiveness
• The last step in the decision-making process involves evaluating the
outcome or result of the decision to see whether the problem was
resolved. If the evaluation shows that the problem still exists, then
the manager needs to assess what went wrong.
• Was the problem incorrectly defined? Were errors made when
evaluating alternatives? Was the right alternative selected but poorly
implemented? The answers might lead you to redo an earlier step or
might even require starting the whole process over.
 RATIONAL DECISION MAKING
• “Describes choices that are logical and consistent and maximize value.”
• Assumptions of Rationality
• A rational decision maker would be fully objective and logical.
• The problem faced would be clear and unambiguous,
• Decision maker would have a clear and specific goal and know all possible
alternatives and consequences.
• Finally, making decisions rationally would consistently lead to selecting the
alternative that maximizes the likelihood of achieving that goal.
• These assumptions apply to any decision—personal or managerial.
• However, for managerial decision making, we need to add one additional
assumption—decisions are made in the best interests of the organization.
Making Decisions: Bounded Rationality
• Bounded rationality :Decision making that’s rational, but limited
(bounded) by an individual’s ability to process information
• Satisfice : Accept solutions that are “good enough”.
• Most of the decisions are influenced by the organization’s culture,
internal politics, power considerations, and by a phenomenon called
Escalation of Commitment, an increased commitment to a previous
decision despite evidence that it may have been wrong.
Making Decisions: The Role of Intuition
• What is intuitive decision making? It’s making decisions on the basis
of experience, feelings, and accumulated judgment.
• Researchers studying managers’ use of intuitive decision making have
identified five different aspects of intuition, which are described in
next slide (Picture).
• How common is intuitive decision making? One survey found that
almost half of the executives surveyed “used intuition more often”.
Making Decisions: The Role of Evidence-Based
Management
• Evidence-Based Management (EBMgt) “The systematic use of the best
available evidence to improve management practice”
• Sales associates at the cosmetics counter at department store Bon-Ton
Stores Inc. had the highest turnover of any store sales group. Using a
data-driven decision approach, managers devised a more precise pre-
employment assessment test. Now, not only do they have lower
turnover, they actually have better hires.
 EBMgt…..
• EBMgt is quite relevant to managerial decision making. The four essential
elements of EBMgt are:
• (1) the decision maker’s expertise and judgment;
• (2) external evidence that’s been evaluated by the decision maker;
• (3) opinions, preferences, and values of those who have a stake in the
decision; and
• (4) relevant organizational (internal) factors such as context, circumstances,
and organizational members. The strength or influence of each of these
elements on a decision will vary with each decision
 Types of Decisions and Decision-Making
Conditions
Structured and Programmed Decisions
• Types of Decisions: Depending on the nature of the problem, a manager can use one of two different types of
decisions.
• Structured Problems: Straightforward, familiar, and easily defined problems.
• Some problems are straightforward. The decision maker’s goal is clear, the problem is familiar, and information
about the problem is easily defined and complete.
• Examples might include when a customer returns a purchase to a store, when a supplier is late with an
important delivery, a news team’s response to a fast-breaking event, or a college’s handling of a student
wanting to drop a class. Such situations are called structured problems because they’re straightforward,
familiar, and easily defined
• Programmed Decision: A repetitive decision that can be handled by a routine approach. For instance, a server
spills a drink on a customer’s coat. The customer is upset and the manager needs to do something. Because
it’s not an unusual occurrence, there’s probably some standardized routine for handling it. For example, the
manager offers to have the coat cleaned at the restaurant’s expense. This is what we call a programmed
decision, a repetitive decision that can be handled by a routine approach. Because the problem is structured,
the manager doesn’t have to go to the trouble and expense of going through an involved decision process.
• The spilled drink on the customer’s coat doesn’t require the restaurant manager
to identify and weight decision criteria or to develop a long list of possible
solutions. Instead, the manager relies on one of three types of programmed
decisions: procedure, rule, or policy.
• A procedure is a series of sequential steps a manager uses to respond to a
structured problem. The only difficulty is identifying the problem. Once it’s clear,
so is the procedure. For instance, a purchasing manager receives a request from a
warehouse manager for 15 tablets for the inventory clerks. The purchasing
manager knows how to make this decision by following the established
purchasing procedure.
• A rule is an explicit statement that tells a manager what can or cannot be done.
Rules are frequently used because they’re simple to follow and ensure
consistency. For example, rules about lateness and absenteeism permit
supervisors to make disciplinary decisions rapidly and fairly.
• The third type of programmed decisions is a policy, a guideline for making a
decision. In contrast to a rule, a policy establishes general parameters for the
decision maker rather than specifically stating what should or should not be
done. Policies typically contain an ambiguous term that leaves interpretation
up to the decision maker.
• Here are some sample policy statements:
• • The customer always comes first and should always be satisfied.
• • We promote from within, whenever possible.
• • Employee wages shall be competitive within community standards.
• Notice that the terms satisfied, whenever possible, and competitive require
interpretation. For instance, the policy of paying competitive wages doesn’t
tell a company’s human resources manager the exact amount he or she should
pay, but it does guide them in making the decision.
Unstructured Problems and Non-programmed
Decisions
• “unstructured problems” Problems that are new or unusual and for
which information is ambiguous or incomplete.
• Whether to build a new manufacturing facility in China is an example
of an unstructured problem. So, too, is the problem facing restaurant
managers in Portland who must decide how to modify their
businesses to comply with the new law. When problems are
unstructured, managers must rely on nonprogrammed decision
making in order to develop unique solutions.
• Nonprogrammed decisions are unique and nonrecurring and involve
custom-made solutions.
 Decision-Making Conditions
• Certainty The ideal situation for making decisions is one of certainty,
a situation where a manager can make accurate decisions because
the outcome of every alternative is known. For example, when
Wyoming’s state treasurer decides where to deposit excess state
funds, he knows exactly the interest rate offered by each bank and
the amount that will be earned on the funds. He is certain about the
outcomes of each alternative. As you might expect, most managerial
decisions aren’t like this.
• Risk A far more common situation is one of risk, conditions in which
the decision maker is able to estimate the likelihood of certain
outcomes. Under risk, managers have historical data from past
personal experiences or secondary information that lets them assign
probabilities to different alternatives.
• Uncertainty What happens if you face a decision where you’re not certain
about the outcomes and can’t even make reasonable probability
estimates? We call this condition uncertainty.
• Managers face decision-making situations of uncertainty. Under these
conditions, the choice of alternatives is influenced by the limited amount
of available information and by the psychological orientation of the
decision maker. An optimistic manager will follow a maximax choice
(maximizing the maximum possible payoff); a pessimist will follow a
maximin choice (maximizing the minimum possible payoff); and a
manager who desires to minimize his maximum “regret” will opt for a
minimax choice.
 Decision-Making Styles
• Suppose you’re a new manager. How will you make decisions? Recent
research done with four distinct groups of people says the way a person
approaches decision making is likely affected by his or her thinking style.Your
thinking style reflects two things: (1) the source of information you tend to
use (external data and facts OR internal sources such as feelings and intuition),
and (2) whether you process that information in a linear way (rational, logical,
analytical) OR a nonlinear way (intuitive, creative, insightful). These four
dimensions are collapsed into two styles.
• The first, linear thinking style, is characterized by a person’s preference for
using external data and facts and processing this information through rational,
logical thinking to guide decisions and actions.
• The second, nonlinear thinking style, is characterized by a preference for
internal sources of information (feelings and intuition) and processing this
information with internal insights, feelings, and hunches to guide decisions
and actions.