Exam 2 Ch 7 Decision Decision Making Is a choice made from among available alternatives The process of identifying and choosing alternative courses of action Rational Decision Making Rational Describes choices that are consistent and value maximizing Expected Value Elimination by Aspects Rational Model of Decision Making also Classical Model Explains how managers should make decisions it assumes managers will make logical decisions that will be the optimum in furthering the organizations best interests 4 Stages Stage 1 Identify the problem or opportunity determining the Actual versus the Desirable or difficulties that inhibit the achievement of goals EX Customer complaints supplier break downs staff turnover competitor Problems innovations Opportunity Situations that present possibilities for exceeding existing goals EX Farsighted manager when competitor told sales person quits Diagnosis Improvements Analyzing the underlying causes How to change conditions from the present to the desirable Stage 2 Think up alternative solutions both the obvious and the creative Employees burning with bright ideas are an employer s greatest competitive resource Stage 3 Evaluate alternative and select a solution ethics feasibility and effectiveness Need to evaluate each alternative on which Is it ethical Is it feasible if time is short costs are high technology unavailable or customers resistant for example it is not Is it ultimately effective If the decision is merely good enough but not optimal in the long run reconsider Stage 4 Implement and Evaluate the solution chosen Successful Implementation Plan carefully and Be sensitive to those affected Evaluation What should you do if the action is not working o Give it more time o Change it slightly o Try another alternative o Start over Disadvantages with the Rational Model Complete Information no uncertainty Logical unemotional analysis Best decision for the organization Nonrational Decision Making managers find it difficult to make optimal decisions Explain how managers make decisions they assume that decision making is nearly always uncertain and risky making it difficult for managers to make optimal decisions They are descriptive rather than prescriptive They describe how managers actually make decisions rather than how they should 3 Nonrational Models are o Bounded Rationality the Satisficing Model Satisfactory is Good Enough Bounded Rationality Behavior that is rational within the parameters of a simplified or constrained model that captures the essential features of a problem o Satisficing o Garbage Can Model The concept suggests that the ability of decision makers to be rational is limited by numerous constraints such as complexity time and money and their cognitive capacity Satisficing Model Managers Seek alternatives until they find one that is satisfactory not optimal o Incremental Model The Least that will solve the Problem Managers take small short term steps to alleviate a problem rather than the steps that will accomplish a long term solution o Intuition Model It just Feels Right Going with your gut It is making a choice without the use of conscious thought or logical inference Intuition that stems from expertise a persons explicit and tacit knowledge about a person situation object or decision opportunity is known as Holistic Hunch Automated Experience Intuition based on feelings involuntary emotional response to those same matters Develop your intuitive skills Open up the closet To what extend do you experience intuition trust your Don t mix up your l s Practice distinguishing your instincts insights and Elicit good feedback Seek feedback on your intuitive judgments build Get a feel for your batting average Benchmark your intuitions how reliable Use imagery Use this rather than words literally visualize potential future Play devil s advocate Test out intuitive judgments raise objections Capture and validate your intuitions Create inner state to give intuitive mind feelings intuitions confidence scenarios freedom Evidence Based Management The translation of principles based on best evidence into organizational practice bringing rationality to the decision making process 7 Implementation Principles 1 Treat your organization as an unfinished prototype 2 No brag just facts 3 See yourself and your organization as outsiders do 4 Evidence Based management is not just for senior executives 5 Like everything else you still need to sell it 6 If all else fails slow the spread of bad practice evidence based misbehavior 7 The best diagnostic question What happens when people fail What makes it hard to be Evidence Based 1 There s too much evidence 2 Theres not enough good evidence 3 The evidence doesn t quite apply 4 People are tying to mislead you 5 You are trying to mislead you 6 The side effects outweigh the cure 7 Stories are more persuasive anyway Analytics or Business Analytics o The term used for sophisticated forms of business data analysis o EX Portfolio analysis and time series forecast o 3 Key attributes among analytics competitors Use of Modeling Going beyond simple descriptive statistics Predictive Modeling A data mining technique used to predict future behavior and anticipate the consequences of change Having multiple Applications not just one Support from the top Risk Propensity competitiveness Decision Making Style Willingness to gamble or to undertake risk for the possibility of gaining an increased payoff Reflects the combination of how an individual perceives and responds to information Value Orientation Reflects the extent to which a person focuses on either task and technical concerns or people and social concerns when making decisions Tolerance for Ambiguity This individual difference indicates the extent to which a person has a high need for structure or control in his or her life The Dimensions of Value Orientation and Tolerance for Ambiguity are combined they form 4 styles of Decision Making Directive Style Action Oriented Decision Makers who Focus on Facts a Low tolerance for ambiguity and are oriented toward task and technical concerns in making Analytical Careful decision makers who like lots of information Alternative Choices a High tolerance for ambiguity and are characterized by tendency to over analyze a situation and also technical concerns in making decisions Conceptual Decision Makers who rely on Intuition and Long Term Perspective a High tolerance for ambiguity and tend to focus on the people or social aspects