MANAGEMENT 3200 EXAM TWO OBJECTIVES FROM THE NOTES OUTSIDE READING 1 Teacher s Notes Review Session Notes from Lecture Moodle Notes DECISION MAKING 1 Is decision making a function of management No it s part of each one but most closely associated with planning Decision making is a key activity at all management functions must make decisions related to all functions of management not only to the planning function 2 Why do we make decisions as managers To achieve effectiveness and efficiency a means to an end Decisions are a means to an end rather than ends themselves organizational mechanisms through an attempt is made to achieve operative goals and overall organizational goals 3 What s the difference between programmed and non programmed decisions If decision maker doesn t have to think answer already given programmed non programmed means decision maker has to think follow policy Every programmed decision started off as a non programmed decision Programmed decisions specific procedures that have been developed for repetitive and routine problems Decisions are programmed to the extent that they are repetitive and routine and a specific procedure has been developed for handling them Should be 1st line management s main concern Non programmed decisions specific to management problems that are novel and unique complex and unstructured No established procedure for handling them it has not arisen in exactly that same manner before or it is complex and extremely important deserve special treatment Should be top management s main concern 4 Do managers make more programmed or non programmed decisions in general More programmed decisions As you go up the management pyramid the decisions increase Most face programmed decisions should be treated without expending unnecessary organizational resources on them Non programmed decisions must be properly identified as this is the type of decision that forms the basis for allocating billions of dollars worth of resources a year 5 What is decision making under conditions of certainty Probability is all one Managers know has perfect knowledge of all available alternatives and the outcomes associated with each There is no element of chance that intervenes between the alternative and its income The outcomes of alternatives are known with 100 probability absolute certainty Management picks the alternative with the best outcome Exception 2 6 What is decision making under conditions of risk Probability between 1 and 100 know something but not everything Difference between certainty and risk are the probability of knowing the outcome Managers assess probabilities of various outcomes based upon past experience research and other information involves a lack of complete certainty regarding the outcomes of various alternatives but an awareness of the probabilities associated with their occurrence Alternatives are known but outcomes are in doubt gamble like rolling dice Management picks the alternative with the best calculated gamble there is no sure thing here Most common 7 What is decision making under conditions of uncertainty Probability is unknown Manager has no knowledge on which to estimate the probability of various outcomes managers don t know alternatives their potential outcomes or the probability of the outcomes occurrence Occur in cases where there is no historical data available from which to infer probabilities or in instances that are so novel and complex it s impossible to make comparative judgments Most difficult most common case for this type involves the introduction of new technology 8 Which decision making condition is most common Least common Most difficult Most common Risk Least common Certainty Most difficult Uncertainty 9 What is the key to making good decisions under risk Need to have the right information Accurately determining the probabilities associated with each alternative 10 How do programmed non programmed decisions and the different decision making conditions relate Easiest to program certainty which one most resembles non program uncertainty Extremes are programed and non programmed Risk can be both programed and non programmed 11 What does the traditional economic model ECONOMIC MAN assume about decision makers 2 assumptions You re completely rational and you seek to maximize Prescriptive model what you should do not what you actually do ideal decision making state To maximize you have to consider all alternatives and all important outcomes Assumes that decisions are made under the conditions of certainty The manager has perfect knowledge of alternatives and their outcomes has a well ordered and stable set of preferences and has the necessary ability to evaluate all the consequences of all the alternatives Prescriptive model Two assumptions 1 Managers seek to maximize benefits or minimize costs Economic man 2 Managers are completely rational 3 12 Under what decision making condition do decisions get made in the traditional economic model Certainty 13 What does the behavioral model assume about decision makers Satisfice meets minimal requirements settling for the first option that meets requirements get a pretty good solution in less time with less effort more efficient Satisficing going from alternative to alternative until you find one that works Maximizing going through all alternatives and picking the best one The manager has perfect knowledge of all alternatives has perfect knowledge of all outcomes or alternatives has a well ordered and stable set of preferences and has the necessary ability to evaluate all the consequences of all the alternatives 14 What is bounded rationality model ADMINISTRATIVE MAN What three things bound one s rationality Limited mental capacity emotional state un foreseeability of future events will keep probabilities below one Descriptive model how we actually make decisions Managers are unable to grasp the full complexity of managerial decisions due to both their limited mental capacity and emotions and the uncertainty of future events Bounded by 3 1 Limited mental capacity 2 Emotions 3 Un foreseeability of future events 15 What is satisficing How does it differ from maximizing Is it irrational Satisficing pretty good alternative with less effort Rational given our limits Can satisficing lead to maximizing yes but you won t know it until you consider all Managers select the 1st alternative that meets a minimally acceptable standard called the aspiration level subjectively defined performance