Management Decision Making You should be able to o Discuss the Classical Rational and Administrative models of decision making o Define bounded rationality o Describe the biases that affect managers decisions A choice of among all alternatives Classical Rational Model o How a decision maker should make decisions normative o Consider all alternatives and the potential results of each alternatives o Logically calculates the economic return of each alternative o Selects the alternative with the maximum economic return maximizes Bounded Rationality o People have limited time and cognitive ability to process information for decision making o As a result people are cognitively lazy The Bat and Ball Problem o A bat and a ball together cost a total of 1 10 o The bat cost 1 00 more than the ball o How much does the ball cost o Ball 10 cents Bat 1 10 o Total 1 20 o Ball 5 cents Bat 1 05 o Total 1 10 They download and act based on simple sticky models of reality o Use cognitive shortcuts and heuristics rules of thumb to make decisions Herbert A Simon behavioral economics Administrative Model Administrative Model o How a decision maker actually makes decisions descriptive Considers limited alternatives Uses simplified decision rules rules of thumb heuristics Selects the first alternative that satisfies minimum decision criteria satisfices Biasing Factors in Decisions o Person fails to sufficiently adjust from initial positions anchoring or first o People favor information that confirms their beliefs or expectations o An event is believed to be more likely went one can recall an example of it o Persons make riskier decisions in situations that are framed as a loss vs a impression conformation buyers availability bias gain framing o Managers continue to invest resources in failing projects to justify their past decisions escalation of commitment Management Foundations of Management Understanding Learning Objectives o You should be able to Define management and the four functions of management Discuss the concepts of effectiveness and efficiency Describe the various perspectives or schools of management and the principles that grew out of each Discuss the values that disrobe different national cultures Definition of Management o The attainment of organizational goals in and effective and efficient manner through planning organizing leading and controlling organizational resources o Effectiveness the degree to which the organization achieves a stated goal o Efficiency Productivity the amount of resources used to achieve an Assembly lines are the most efficient way to manufacture organizational goal The Functions of Management something o Planning o Organizing o Leading o Controlling Define goals for future organizational performance and deciding on tasks and resources to attain them Assigning tasks grouping tasks into department and allocating resources to the department The use of influence to motivate employees to achieve the organization s goals Monitoring employees activities keeping the organization on track towards its goals and making corrections as needed Management Perspectives o Classical o Humanistic Administrative Principles Bureaucratic Organization Scientific Management Human Relations Behavioral Sciences Human Resources o Quantitative Management Science o Comparative International Management Beliefs about People o Theory X Classical Fundamental Attribution Error adequate effort People dislike work and will avoid it if possible People must me coerced and directed to get them to put forth o People tend to over estimate the influence of internal factors and underestimate the influence of external factors on the behavior of others o Theory Y Humanistic People do not inherently dislike work People will accept and seek responsibility Administrative Principles o Henri Fayol 1841 1925 o Originated outside of the U S o Focused on upper management o Defined the job of a manager management functions o Developed principles to operate an organization Fayol s Principles of Management o Unity of command Each subordinate receives orders from only one superior o Division of work o Authority Greater efficiency results when managers and workers specialize Managers have the right to require employees to get things done Both formal and personal authority are necessary to gain obedience o Centralization Managers retain final responsibility Authority must match responsibility Scientific Management Frederick W Taylor 1856 1915 Focused on the factory floor Concerned with the one best way to do a job Assumed that people are rational motivated by self interest Saw the firm as having fixed resources the pie o Tool design o Time and motion study o Training o Goal setting o Incentives o Greater output per person o Frank and Lillian Gilbreth Cheaper by the Dozen Frank brick laying o Scientific Management in Political Arena Henri Noll Bend down pick up brick Rather have all bricks on a platform to raise higher with height of the wall Motions before 18 after 5 Bricks hour before 175 after 350 Pig ironer 12 500 tons a day Taught how to boost productivity and incentives 12 500 to 48 000 tons a day Fredrick brought in front of Congress because they felt it was abusing workers Congress went to see if Noll was still alive and he was o Assumptions of Scientific Management thriving One Best Way tennis players illumination room Rationality emotions bank wiring Fixed Resources Pie o Hawthorne Studies Conclusions No obvious one best way Groups enforced low productivity norms on members Big Tom Hanks Overall impression Happy workers are more productive Resulted from the Hawthorne studies Conclusions were based on poorly controlled studies Believed that increasing job satisfaction would yield higher performance Higher job satisfaction leads to higher job performance o Turnover has nothing to do with productivity customer satisfaction is not a measure of satisfaction o Company events and assets in the 30s were basically mandatory and anything else would be seen as disloyalty o SAS is voluntary so employees don t feel controlled Human Relations Happiness doesn t lead to greater productivity Behavioral Science o Resulted from dissatisfaction with human relations o Applied social science principles to organizations o Employed well controlled studies o Job performance job rewards job satisfaction Quantitative Management Science o Resulted from techniques developed in WWII o Views managers as decision makers o Employs