lecture 6 MQM 220
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This 19 page Class Notes was uploaded by Lydia on Wednesday September 30, 2015. The Class Notes belongs to MQM 220 at Illinois State University taught by Heather Jia in Fall 2015. Since its upload, it has received 42 views. For similar materials see Business Organization and Management in Business, management at Illinois State University.
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Date Created: 09/30/15
Chapter 6 Managers as Decision Makers The Decisio nMa king Process Decision making a choice from two or more alternatives Ex You decided what to wear what to eat what to drink you decided to come to class these are all the decisions that you made You had alternatives to not get up when the alarm went off Step 1 Identify a Problem Problem an obstacle that makes it difficult to achieve a desired goal or purpose Ex where are you and where do you want to be what 5 your current state and what39s you desired state Every decision starts with a problem a discrepancy between an existing and a desired condition Example Amanda is a sales manager whose reps need new laptops Step 2 Identify Decision Criteria Decision criteria are factors that are important relevant to resolving the problem Of the desired state what are the components that are most important to you Example Amanda decides that memory and storage capabilities display quality battery life warranty and carrying weight are the relevant criteria in her decision So she39s going to be looking for computers that meet these criteria Step 3 Allocate Weights to the Criteria If the relevant criteria aren t equally important the decision maker must weigh the items in order to give them the correct priority in the decision You establish the hierarchy of those criteria Memory and storage 1 Lottery life Carrying weight Werre nty Iieplla er quality Step 4 Develop Alternatives List viable alternatives that could resolve the problem Example Amanda identifies eight laptops as possible choices Mamlofrv Batter Ca rrvilng Diaplav and Storage Life Weight Warranty Quality lIIFquot ProBook 1i 3 10 3 5 Sony VAID B T 8 7 Lenovo ldeaF aol B E 1D 10 Apple Maobook B B 7 Toshiba Satellite 3 B Sony1r MW 8 3 E 10 E Dell Inspiron 1E 3 El HP Pavilion 4 1 4 B 110 She rates them against each other and multiplies them She looks at the possible alternatives and rates them from 110 on each of their dimensions on each of these possibilities The HP ProBook and the Dell Inspiron are early leaders because they have a high score on the most important criteria 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 You take the number that it was scored and we multiply that by the weight that s given and then we add up all those scores and we get our ranking Step 6 Select an Alternative Choosing the best alternative The alternative with the highest total weight is chosen The Dell Inspiron is the one that she39s going to get So even though this HP ProBoolk had a 3 and a 5 in it because they were at the lower end of what was valuable it didn t hurt their score near as much In fact this Apple Macbook that was all 739s amp 839s their basically the same score So if you don t have a lot of emphasis on a particular decision criteria and it scores a low point it39s not going to hurt you near as bad as something you really value scoring a low point So then ultimately that optimizes your outcomes and that would be the Dell Inspiron Mammy Battery Carrying DiEpllay and Storage Life Weiiht Warranty Duality Titial HP PrpE dlc 133 34 33 33 15 331 Sony MAID 30 3393 43 33 3 1 331 Len vo leaPa 30 4D 43 43 3393 333 Apple Mammal 30 5 3 43 33 31 331 T013th Satellite 30 E4 43 33 31 333 3b rw NW 30 34 33 4 34 304 Dell Ingpir n 133 5 3 43 34 31 343 HP Pavilibn 4U 33 34 33 33 333 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 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 3 months or 6 months later you ask your sales force how did they work out for you Their great the display quality sucks and I didn t realize how much I needed that until after I got one with a crappy display Now my 339s look like 839s and my 639s look like 539s and I can39t really understand what I39m looking at sometimes Oh maybe we shouldn39t have rated the display quality quite so low so when we go to make this decision again in 2 or 3 years when you need new laptops is that one going to be your lowest ranking decision criteria No it may not be your top one but it will probably rise up and be more important than a 3 That s what we mean when we evaluate decision effectiveness we following up at the end and saying what that the right alternative and if not how can we create a better situation going forward How can we fix this in the future How can we change our decision making criteria going fonNard So you can probably guess what your questions are going to look like on the next exam by now Here39s a scenario somebody is calculating multiplying the weight times the score what step of the decision making process are they in These are the kinds of questions you39ll expect to see Decisions Managers May Make Planning 0 What are the organization39s longterm objectives 35 year time frame Do we what to be 1 in our market or do we want to gain market shares say 10 market share 0 What strategies will best achieve those objectives Do we want to take a very aggressive strategy do we want to buy our vendors our market share plus their market share 0 What should the organization39s shortterm objectives be within this year What is the most immediate time period o How difficult should individual goals be Sale people love the new laptops that ought to make them more productive better pay forthose laptops lets up their sales quotas a little bit what should we up them too Organizing o How many employees should I have report directly to me Reasonable I can expect to manage no more than 5 people who are those 5 going to be I currently manage 8 and it isn39t working how am I going to reorganize where those other 3 people are answering to 1 of those 5 that I am keeping so how am I going to restructure the organization 0 How much centralization should there be in the organization Centralization whose authorized to make decisions so do I authorize the 5 people that answerto me to make decision as long as those decisions don t impact the company financially more than 10k if they were going to make a decision that was going to cost the company more than 10k they have to come talk to me to get my approval Giving people decision making authority 0 How should jobs be designed Maybe it39s not the best use of my time to be ordering paper clips Perhaps the person who answers the phone maybe able to squeeze in a little bit of time to order a paper clip every now and then 0 When should the organization implement a different structure Remember when I talked about buying out the competitors they all have somebody to order office supplies do we need two people ordering office supplies Maybe we can consolidate into one job Leading o How do I handle employees who appearto be unmotivated How do I deal with this unmotivated employee What options do I have The carrot and stick approach there are two ways to get a horse to run faster you can hit them with a crop or stick or you can feed them a carrot which they like because it39s sweet and use affection and reward to get them to work harder Do I reward you for giving me the behavior that I want or do I punish you for giving me the behavior that I don t want 0 What is the most effective leadership style in a given situation If you ve ever managed other people some people if your boss is yelling at you you39ll do anything to avoid them yelling at you so you39ll work as hard as you can to avoid that yelling Some people perform better for the nice boss and some people will perform better for the mean boss some people want to be told what to do and some people want to be a part of the decision making process 0 How will a specific change affect worker productivity 0 When is the right time to stimulate conflict Controlling o What activities in the organization need to be controlled 0 How should those activities be controlled 0 When is a performance deviation significant 0 What type of management information system should the organization have should we use QuickBooks or should we use a software that is custom designed for us the university is struggling with this right now do we keep reggienet or do we abandon it if someone doesn t meet their sales quotas at what threshold do they start getting disciplined So if they miss their sales quota by a couple hundred dollars or if they miss it by 10kat what point do you start disciplining them or counseling them to try to improve their performance Making Decisions Rationality Rational DecisionMaking describes choices that are logical and consistent while maximizing value those 8 steps assumes that we are perfectly rational beings who look to maximize our decision making capability Assumptions of Rationality The decision maker would be fully objective and logical The problem faced would be clear and unambiguous The decision maker would have a clear and specific goal and know all possible alternatives and consequences and consistently select the alternative that maximizes achieving that goal Only useful when there is no emotion involved in decision making Making Decisions Bounded Rationality Bounded Rationality decision making that s rational but limited bounded by an individual s ability to process information it is not possible to consider every single alternative Satisfice accepting solutions that are good enoughquot don t care about optimizingwe all know that we shouldn t be eating that big mac but its quick cheap and fast Escalation of commitment an increased commitment to a previous decision despite evidence it may have been wrong keep pushing a bad decision Ex Gambling you put in 20 and you play for a little bit and you lost the it well I bet ifI put in another 20 I39ll make that 20 back and hopefully you make all 40 back maybe make a little extra I know that ifI get up someone else is going to walk up and take the money that I kept loosing Making Decisions The Role of Intuition Intuitive decision making Making decisions on the basis of experience feelings and accumulated judgment people use this a lot when making decisions What Is Intuition quot Haringem deeisi nne en x their f a w I y 5 Managers El Managers make gmeiene based 1 rieei eiene based em etl nieel ueluee er eutl mme teeli mge er enmtieme mm mm a IEmpelnieiwieebeeeell w H H lee ideeieime were 34 39 lulelluee er e hliee Affectin ated dexeieinne A r i r r quot deeieinne lntuitien r V H 39 v egni rtiveb 39 mentel p12 2 deeieiene ereff at r Hquot a f Hammers use data rem make emineemeeieue mind the deemene H591 en elgllle help them deeieihne I knewlerlge mil training Cognitivebased pick out our own 401k we don t do it because we don t feel we necessarily have the skills training or knowledge to be able to make the best decisions Affectinitiated what does my gut tell me Experiencebased well the last time I put my hand in the socket it didn t turn out so well for me so maybe next time I won39t do it Values or ethicsbased I39m not investing in this company because their cruel to animals and I think that s wrong Subconscious mental processing not touching a hot stove you don t remember how painful that was but you remember it was painful so you remember not to touch the stove You have to exactly remember how impactful that decision was but you can recall enough to avoid to do something Making Decisions The Role of EvidenceBased Management Evidencebased management EBMgt the systematic use of the best available evidence to improve management practice we use past experiences past results as the bases for making decision this is basically the antiintuition so instead of using your gut using experience you use facts figures evidence based management and you can point to the document or sited source that you drew from to make that decision Structured Problems and Programmed Decisions Structured Problems straightforward familiar and easily defined problems Ex What do you do if you39re hungry Programmed decision a repetitive decision that can be handled by a routine approach Ex You eat something Procedure a series of sequential steps used to respond to a well structured problem Ex Step by step instruction of what to do in case of a known or expected happening on the wall is the emergency guide you39ll notice that there are different tasks that are alternating in color If you flip up one of those pages it39ll tell you quotIf this occurs this is what you doquot that39s a procedure If you work at a fast food restaurant there39s an order in which you put on the condiments Subway for example open up bread the first thing that goes on is the meat then cheese then ask if they want it toasted following with the veggies what type of dressing and oil amp vinegar and spices but they have this order and it doesn t deviate unless the customer deviates it a different way but it39s that same order every single time Rule an explicit statement that tells managers what can or cannot be done Ex Just like you have rules at home you have rules in the work place Policy a guideline for making decisions Ex It39s broader than a rule or procedure A policy would be a dress code or dress policy General guideline Unstructured Problems and Nonprogrammed Decisions Unstructured Problems problems that are new or unusual and for which information is ambiguous or incomplete Ex Often time not necessarily something we predict or know or have experienced the same situation previously They come up infrequently New or unusual and which you don t really have a clear cut idea on what the correct path is Nonprogrammed decisions unique and nonrecurring and involve custom made solutions Ex Thinking outside the box or coming up with a new alternative The 8 different ways to go global and making that decision on which of those 8 options are we going to adopt when we enter the Asian global market Deciding on whether or not to acquire another business Deciding to put a dislike button on Facebook You have a lot more uncertainty a usually a lot more at stake usually involves higher levels in the organization to come up with those options Programmed Versus Nonprogrammed Decisions Characteristic Frag rammed Decisiens Nenpregrammed Decils39iens Tvpe ef preblern Structured Unstructured Managerial level Lewer levels Upper levels Frequenev Repetitive reutine New unusual Inferrnatien Fieaclilv available Ambigueus er ineemplete Seals Clear speeifie Vague Time frame fer Ebert Flelativelv leng selutien Selutien relies an F reeeclures rules pelieies Juclgrnent anal creativity DecisionMaking Conditions Certainty a situation in which a manager can make accurate decisions because all outcomes are known Ex So I know ifI fire Jeffrey here do I have someone to take over in his place If I do then how does that deal with my comfort level of letting Jeffery go IfI knowI have some that can do his job what39s that do to his job security He39s gone Or what if we just hired the person that39s supposed to be taking over for Jeffery and quite sure if they39re up for the task yet Maybe it39ll work out maybe it won39t I might give a little bit more thought to that decision Risk a situation in which the decision maker is able to estimate the likelihood of certain outcomes Ex Jeffery may say quotYou know what that an asinine reason to fire me and I39m going to suequot and he39d be right that39s pretty stupid reason to fire someone So I need to have some level of certainty that jerry here is a little door mat he39s not going to sue He39s going to take whatever comes to him and complain and wine about it but he39s not go find an attorney and through my workings with him ill get to know that But you can only push a man so far He might have been a nice little door mat but when I threatened his job he grows a back bone and decides to sue So I have to access the risk of this decision Uncertainty a situation in which a decision maker has neither certainty nor reasonable probability estimates available Ex Will it solve the problem or not DecisionMaking Style neither one of these thinking39s is right or wrong Linear Thinking Style a person s tendency to use external datafacts the habit of processing information through rational logical thinking Ex Fancy way of using a pattern step thinking in a line type thinking Nonlinear Thinking Style a person s preference for internal sources of information a method of processing this information with internal insights feelings and hunches Ex Trust their gut trust their instincts trust another source that they39ve talked to DecisionMaking Biases and Errors Heuristics using rules of thumbquot to simplify decision making Ex Well I need to make sure that grace and Erin who are typically good friends and that39s by the fact that sit next to each other every day Its further evidence by the fact that grace picked up Erin39s name tent and put it next to here when Erin wasn39t even here yet What happens when you have friends sitting next to each other The talk to each other As a professor I need to make sure that friends don t sit next to each other how do I accomplish that Alphabetical order assigned seating Because the odds that friends are going to have their last name together are pretty slim Or that eenie meenie miney mo thing Book mark that has printed on it quotHOW WOULD A 4TH GRADER SOLVE THIS PROBLEMquot and the idea was that the simplest answer is usually the right answer Overconfidence Bias holding unrealistically positive views of oneself and one s performance Ex being so confident in your own abilities that you39re dismissive of making other experts or people that might be trying to guide you in a different direction Men are more subjected to this Immediate Gratification Bias choosing alternatives that offer immediate rewards and avoid immediate costs Ex Making that decision that gives you want you want the quickest or easiest Trying to figure out what professor is easier and not so much work What the path of least resistance What do I want with as little trouble and as little hassle as possible Anchoring Effect fixating on initial information and ignoring subsequent information Ex Where you can have initial information that placed into your mind and it biases you or influences you on all future decision making Like the movie Inception and like what we did on Tuesday I planted an idea in your head that the population of that country was pretty much around the number that I gave you even though it was randomly chosen How can you influence others so that way the answer is in your favor First you make a suggestion and then you okay then you make a suggestion that way there in control but originally it was your idea It sets people39s expectations Anytime you throughout an expectation of a quantity of something people will naturally gravitate towards that number and wont deviate from it Selective Perception Bias selecting organizing and interpreting events based on the decision maker s biased perceptions Ex People have a tendency to pay attention to things that are on their radar anyway If you are a fan of a sports team like Ohio State and someone walks in with an Ohio state tshirt or the Michigan39s shirt who would be the arch rivals of Ohio state you would pay attention But pretty much any other school wouldn39t even raise to your level of recognitionus being distracted by shiny sparkly things so anytime you can get someone to selectively identify or notice something you can sway their decision making Confirmation Bias seeking out information that reaffirms past choices while discounting contradictory information what you listen to observe or take in Ex If you make a decision you will look for evidence to confirm your beliefs and you will dismiss evidence that is in violation of the beliefs You seek out people or information or data that supports your argument and if you find information that is disproving of your argument or disproving of your decision you will dismiss it It allows us to gravitate towards the decision that allows us to save face Framing Bias selecting and highlighting certain aspects of a situation while ignoring other aspectsis how you sell your argument Ex You want to go to a party that you know your parents don t want you to go to you know there39s going to be drinking or other things that your parents wouldn t want you to be doing But you talked about quotyou know these parents they have a nice house which is down the street and I39ll be home by 11pmquot you39re talking about all of the positive things for your parents say yes but you wouldn39t necessarily focus on the fact that the parents won39t be home part of the discussion This is a classic sales technique you emphasize the wonderful things about your product but then you know that it has this fatal flaw or these issues that the customers have with it but you either bury that information or you don t share it at all Availability Bias losing decisionmaking objectivity by focusing on the most recent events Ex This idea where you make decisions based on and it39s often times called residency effect something happened to you recently that would impact your ability to make decisions Like a street that you39ve driven down every day when you come to class and you39ve sped down it every day but yesterday there was a cop there and so you slowed down Are you going to follow the behavior every other day and speed down it again or are you going to remember that yesterday there was a cop there and I better slow down You39re going to remember that cop was there right Even though all the other days there was never a parked cop what just happened to you recently is going to impact or influence you decision making Representation Bias drawing analogies and seeing identical situations when none exist Ex My grandmother had 8 children with the pattern girl boy She never had a ninth but if you had to guess what that baby would be A girl because she follows the pattern with the other 8 But the child has a 50 chance to be a girl and a 50 chance to be a boy We get lazy we get comfortable and we expect that pattern will repeat Randomness Bias creating unfounded meaning out of random events Ex Kin to superstition raining all day and I had to be in and outdoors all day I carried my umbrella with me religiously and 3 times on that day I had just gotten indoors or in my car and then the rain would come down At the end of the day you realize that every single time you went outside you managed to avoid the rain so you then go out and buy a lottery ticket b it looks like it39s your lucky Some random thing happens and you associate the twocreating unfounded meaning out of random events Sunk Costs Errors forgetting that current actions cannot influence past events and relate only to future consequences Ex No matter what you do it is just gone it39s this idea where you make decision based on trying to recoup something that you can never recoup SelfServing Bias taking quick credit for successes and blaming outside factors for failures Ex The good decisions we make means we39re smart we did the right things the decisions that don t work out well for us it wasn t our fault we did everything we could Hindsight Bias mistakenly believing that an event could have been predicted once the actual outcome is known afterthefact Ex Everyone can look back at a problem or decision and say I should have done that Where we knew exactly what would happen in the future to affect our decision making in the past Common DecisionMa king Biases ssrsnm dsnss Hindsight llmmsdisils Emif satininl Sslifssnriirlg n quotH hummile E sst 7 39 in 1 I I ill 5 1 quot J 139 Sunk G ts DEEIEIDWMEMHE Visctnrs F39smsphnn I quot Elr39rsrs and Eii39ssss 39 Flandmnsss Representation ll li391lrisiIslhiriilllii39yr
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