< Return to Video

Decision Making in Management

  • 0:00 - 0:03
    [MUSIC PLAYING]
  • 0:03 - 0:08
  • 0:08 - 0:10
    PROFESSOR: Good
    decision-making is a vital part
  • 0:10 - 0:12
    of good management because
    decisions determine
  • 0:12 - 0:15
    how the organization solves
    problems, allocates resources,
  • 0:15 - 0:17
    and accomplishes its goals.
  • 0:17 - 0:20
    This course describes
    decision-making in detail.
  • 0:20 - 0:22
    We'll look at several
    decision-making models
  • 0:22 - 0:24
    and the steps managers
    should take when
  • 0:24 - 0:26
    making important decisions.
  • 0:26 - 0:29
    The course also explores
    some of the biases
  • 0:29 - 0:31
    that managers use to
    make bad decisions
  • 0:31 - 0:33
    and examines some
    specific techniques
  • 0:33 - 0:39
    for innovative decision-making
    in a fast-changing environment.
  • 0:39 - 0:44
    A decision is a choice made
    from available alternatives.
  • 0:44 - 0:46
    Decision-making is the
    process of identifying
  • 0:46 - 0:50
    problems and opportunities
    and then resolving them.
  • 0:50 - 0:52
    Management decisions
    typically fall
  • 0:52 - 0:55
    into one of two categories--
    programmed and nonprogrammed.
  • 0:55 - 0:57
    Let's take a look.
  • 0:57 - 1:00
    Programmed decisions
    are made in response
  • 1:00 - 1:03
    to a situation that has occurred
    often enough to enable managers
  • 1:03 - 1:08
    to develop decision rules that
    can be applied in the future.
  • 1:08 - 1:10
    Programmed decisions
    are made in response
  • 1:10 - 1:12
    to recurring
    organizational problems.
  • 1:12 - 1:15
    The decision to reorder paper
    and other office supplies
  • 1:15 - 1:18
    when inventories drop
    to a certain level
  • 1:18 - 1:19
    is a programmed decision.
  • 1:19 - 1:22
    Other programmed decisions
    concern the types of skills
  • 1:22 - 1:24
    required to fill certain jobs--
  • 1:24 - 1:27
    the reorder point for
    manufacturing inventory
  • 1:27 - 1:30
    and selection of freight routes
    and other product deliveries.
  • 1:30 - 1:32
    Once managers formulate
    decision rules,
  • 1:32 - 1:34
    subordinates and others
    can make the decision,
  • 1:34 - 1:39
    thus freeing managers
    for other tasks.
  • 1:39 - 1:42
    Managers in every industry
    face nonprogrammed decisions
  • 1:42 - 1:43
    every day.
  • 1:43 - 1:46
    Many nonprogrammed decisions are
    related to strategic planning
  • 1:46 - 1:49
    because uncertainty is great,
    and decisions are complex.
  • 1:49 - 1:52
    Decisions to develop a
    new product or service,
  • 1:52 - 1:55
    acquire a company, create a new
    division, build a new factory,
  • 1:55 - 1:58
    enter a new geographical market,
    or relocate a headquarters
  • 1:58 - 2:03
    to another cities are all
    nonprogrammed decisions.
  • 2:03 - 2:07
    One primary difference between
    programmed and nonprogrammed
  • 2:07 - 2:10
    decisions relates to the
    degree of uncertainty, risk,
  • 2:10 - 2:13
    or ambiguity that managers deal
    with in making the decision.
  • 2:13 - 2:16
    In a perfect world, management
    would have all the information
  • 2:16 - 2:18
    necessary for making decisions.
  • 2:18 - 2:21
    In reality, however, some
    things are unknowable.
  • 2:21 - 2:24
    Thus, some decisions will
    fail to solve the problem
  • 2:24 - 2:26
    or attain the desired outcome.
  • 2:26 - 2:28
    Managers try to
    obtain information
  • 2:28 - 2:30
    about decision
    alternatives that will
  • 2:30 - 2:33
    reduce decision uncertainty.
  • 2:33 - 2:36
    Every decision situation
    can be organized on a scale
  • 2:36 - 2:38
    according to the
    availability of information
  • 2:38 - 2:40
    and the possibility of failure.
  • 2:40 - 2:44
    The four positions on the
    scale are certainty, risk,
  • 2:44 - 2:46
    uncertainty, and ambiguity.
  • 2:46 - 2:50
    Whereas programmed decisions can
    be made in situations involving
  • 2:50 - 2:53
    certainty, many situations that
    managers deal with every day
  • 2:53 - 2:55
    involve at least some
    degree of uncertainty
  • 2:55 - 3:00
    and require nonprogrammed
    decision-making.
  • 3:00 - 3:02
    Certainty means that all
    the information the decision
  • 3:02 - 3:04
    maker needs is fully available.
  • 3:04 - 3:07
    Managers have information
    on operating conditions,
  • 3:07 - 3:10
    resource costs, and
    constraints, and each course
  • 3:10 - 3:12
    of action and possible outcome.
  • 3:12 - 3:15
    Risk means that a decision
    has clear-cut goals
  • 3:15 - 3:17
    and good information
    is available,
  • 3:17 - 3:20
    but future outcomes associated
    with each alternative
  • 3:20 - 3:22
    are subject to some
    chance of loss or failure.
  • 3:22 - 3:25
    However, enough information
    is available to estimate
  • 3:25 - 3:30
    the probability of a successful
    outcome versus failure.
  • 3:30 - 3:32
    Uncertainty means
    that managers know
  • 3:32 - 3:34
    which goals they
    wish to achieve,
  • 3:34 - 3:36
    but information about
    alternatives and future events
  • 3:36 - 3:37
    is incomplete.
  • 3:37 - 3:41
    Factors that may affect a
    decision, such as price, product
  • 3:41 - 3:43
    costs, volumes, or
    future interest rates
  • 3:43 - 3:45
    are difficult to
    analyze and predict.
  • 3:45 - 3:47
    Managers may have
    to make assumptions
  • 3:47 - 3:50
    from which to
    forge the decision,
  • 3:50 - 3:54
    even though it might be wrong if
    the assumptions are incorrect.
  • 3:54 - 3:58
    Ambiguity is by far the most
    difficult decision situation.
  • 3:58 - 4:00
    Ambiguity means that
    the goals to be achieved
  • 4:00 - 4:02
    or the problem to be
    solved are unclear.
  • 4:02 - 4:05
    Alternatives are
    difficult to define,
  • 4:05 - 4:07
    and information about
    outcomes is unavailable.
  • 4:07 - 4:10
    Ambiguity is what students would
    feel if an instructor created
  • 4:10 - 4:13
    student groups and told each
    group to complete a project
  • 4:13 - 4:16
    but gave the groups no topic,
    direction, or guidelines
  • 4:16 - 4:17
    whatsoever.
  • 4:17 - 4:20
    In some situations, managers
    involved in a decision
  • 4:20 - 4:22
    create ambiguity
    because they see things
  • 4:22 - 4:25
    differently and disagree
    about what they want.
  • 4:25 - 4:26
    Managers in
    different departments
  • 4:26 - 4:29
    often have different
    priorities and goals
  • 4:29 - 4:31
    for a decision, which can
    then lead to conflicts
  • 4:31 - 4:35
    over decision alternatives.
  • 4:35 - 4:37
    So, as you can see,
    good decision-making
  • 4:37 - 4:39
    is a vital part of
    good management.
  • 4:39 - 4:41
    But decision-making
    is not always easy.
  • 4:41 - 4:44
  • 4:44 - 4:46
    The six steps
    typically associated
  • 4:46 - 4:49
    with effective decision-making
    are recognition of the decision
  • 4:49 - 4:52
    requirement,
    diagnosis and analysis
  • 4:52 - 4:54
    of causes, development
    of alternatives,
  • 4:54 - 4:57
    selection of a
    desired alternative,
  • 4:57 - 4:59
    implementation of
    selected alternative,
  • 4:59 - 5:02
    and evaluation and feedback.
  • 5:02 - 5:05
    A problem occurs when an
    organizational accomplishment
  • 5:05 - 5:07
    is less than established goals.
  • 5:07 - 5:12
    Some aspect of performance
    is unsatisfactory.
  • 5:12 - 5:14
    An opportunity
    exists when managers
  • 5:14 - 5:15
    see potential
    accomplishment that exceeds
  • 5:15 - 5:17
    specified current goals.
  • 5:17 - 5:20
    Managers see the possibility
    of enhancing performance
  • 5:20 - 5:22
    beyond current levels.
  • 5:22 - 5:24
    Awareness of a
    problem or opportunity
  • 5:24 - 5:27
    is the first step in the
    decision-making sequence,
  • 5:27 - 5:30
    and it requires surveillance
    of the internal and external
  • 5:30 - 5:35
    environment for issues that
    merit executive attention.
  • 5:35 - 5:37
    Some information in
    this process comes
  • 5:37 - 5:40
    from periodic financial
    reports, performance reports,
  • 5:40 - 5:43
    and other sources that are
    designed to discover problems
  • 5:43 - 5:44
    before they are too serious.
  • 5:44 - 5:47
    Managers also take advantage
    of informal sources.
  • 5:47 - 5:50
    They talk with other
    managers, gather opinions
  • 5:50 - 5:52
    on how things are
    going, and seek advice
  • 5:52 - 5:53
    on which problems
    should be tackled
  • 5:53 - 5:57
    and which
    opportunities embraced.
  • 5:57 - 6:00
    Once a problem or opportunity
    comes to a manager's attention,
  • 6:00 - 6:03
    the understanding of the
    situation should be refined.
  • 6:03 - 6:05
    Diagnosis is the step in
    the decision-making process
  • 6:05 - 6:09
    in which managers analyze
    underlying causal factors
  • 6:09 - 6:13
    associated with the
    decision situation.
  • 6:13 - 6:16
    Many times, the real problem
    lies hidden behind the problem
  • 6:16 - 6:18
    that managers think exists.
  • 6:18 - 6:20
    By looking at a situation
    from different angles,
  • 6:20 - 6:22
    managers can identify
    the true problem.
  • 6:22 - 6:25
    In addition, they often
    discover opportunities
  • 6:25 - 6:26
    they didn't realize were there.
  • 6:26 - 6:28
    Managers should ask
    a series of questions
  • 6:28 - 6:30
    to specify underlying causes.
  • 6:30 - 6:32
    They include the
    following-- what
  • 6:32 - 6:35
    is the state of
    disequilibrium affecting us?
  • 6:35 - 6:36
    When did it occur?
  • 6:36 - 6:38
    Where did it occur?
  • 6:38 - 6:39
    How did it occur?
  • 6:39 - 6:41
    To whom did it occur?
  • 6:41 - 6:43
    What is the urgency
    of the problem?
  • 6:43 - 6:45
    What's the interconnectedness
    of the events?
  • 6:45 - 6:50
    And what result came
    from which activity?
  • 6:50 - 6:52
    Some experts recommend
    continually asking
  • 6:52 - 6:55
    why to get to the
    root of a problem.
  • 6:55 - 6:57
    A technique is sometimes
    called "the 5 Whys."
  • 6:57 - 6:59
    It's a question-asking
    method used
  • 6:59 - 7:03
    to explore the root cause
    underlying a particular problem.
  • 7:03 - 7:06
    The first why generally produces
    a superficial explanation
  • 7:06 - 7:09
    for the problem, and each
    subsequent why probes deeper
  • 7:09 - 7:14
    into the causes of the problem
    and potential solutions.
  • 7:14 - 7:17
    The next stage is to generate
    possible alternative solutions
  • 7:17 - 7:19
    that will respond to the
    needs of the situation
  • 7:19 - 7:23
    and correct the
    underlying causes.
  • 7:23 - 7:25
    Decision alternatives
    can be thought
  • 7:25 - 7:26
    of as tools for
    reducing the difference
  • 7:26 - 7:30
    between the organization's
    current and desired performance.
  • 7:30 - 7:32
    Smart managers tap
    into the knowledge
  • 7:32 - 7:33
    of people throughout
    the organization
  • 7:33 - 7:36
    and sometimes even outside
    the organization for decision
  • 7:36 - 7:38
    alternatives.
  • 7:38 - 7:41
    Once feasible alternatives are
    developed, one must be selected.
  • 7:41 - 7:43
    In this stage,
    managers try to select
  • 7:43 - 7:47
    the most promising of several
    alternative courses of action.
  • 7:47 - 7:49
    The best alternative
    solution is the one
  • 7:49 - 7:52
    that best fits the overall goals
    and values of the organization
  • 7:52 - 7:58
    and achieves the desired results
    using the fewest resources.
  • 7:58 - 8:00
    Managers want to select
    the choice with the least
  • 8:00 - 8:02
    amount of risk and uncertainty.
  • 8:02 - 8:05
    Because some risk is inherent
    with most nonprogrammed
  • 8:05 - 8:08
    decisions, managers try to
    gauge the prospects for success.
  • 8:08 - 8:11
    They might rely on their
    intuition and experience
  • 8:11 - 8:13
    to estimate whether a
    given course of action
  • 8:13 - 8:15
    is likely to succeed.
  • 8:15 - 8:17
    Basing choices on
    overall goals and values
  • 8:17 - 8:20
    can also guide the
    selection of alternatives.
  • 8:20 - 8:22
    Choosing among
    alternatives also depends
  • 8:22 - 8:25
    on a manager's personality
    factors and willingness
  • 8:25 - 8:28
    to accept risk and uncertainty.
  • 8:28 - 8:30
    Risk propensity
    is the willingness
  • 8:30 - 8:32
    to undertake risk
    with the opportunity
  • 8:32 - 8:35
    of gaining an increased payoff.
  • 8:35 - 8:37
    The level of risk a manager
    is willing to accept
  • 8:37 - 8:40
    will influence the analysis
    of the costs and benefits
  • 8:40 - 8:41
    to be derived from any decision.
  • 8:41 - 8:44
  • 8:44 - 8:46
    Now, implementation
    is all about the use
  • 8:46 - 8:49
    of managerial, administrative,
    and persuasive abilities
  • 8:49 - 8:53
    to ensure that the chosen
    alternative is carried out.
  • 8:53 - 8:56
    The ultimate success
    of a chosen alternative
  • 8:56 - 8:59
    depends on whether it can
    be translated into action.
  • 8:59 - 9:01
    Sometimes an alternative
    never becomes reality
  • 9:01 - 9:04
    because managers lack the
    resources or energy needed
  • 9:04 - 9:06
    to make things
    happen, or they've
  • 9:06 - 9:09
    failed to involve people and
    achieve buy-in for the decision.
  • 9:09 - 9:12
    Successful implementation
    may require discussion,
  • 9:12 - 9:14
    trust building, and
    active engagement
  • 9:14 - 9:17
    with people affected
    by the decision.
  • 9:17 - 9:19
    Communication, motivation,
    and leadership skills
  • 9:19 - 9:22
    must be used to see that
    the decision is carried out.
  • 9:22 - 9:25
    When employees see that managers
    follow up on their decisions
  • 9:25 - 9:28
    by tracking
    implementation success,
  • 9:28 - 9:31
    they are more committed
    to positive action.
  • 9:31 - 9:34
    In the evaluation stage
    of the decision process,
  • 9:34 - 9:38
    our last phase, decision
    makers gather information
  • 9:38 - 9:40
    that tells them how well
    the decision was implemented
  • 9:40 - 9:45
    and whether it was effective
    in achieving its goals.
  • 9:45 - 9:48
    Feedback helps managers
    make better decisions.
  • 9:48 - 9:50
    Decision-making is
    an ongoing process.
  • 9:50 - 9:52
    It's not completed when a
    manager or board of directors
  • 9:52 - 9:54
    makes a decision.
  • 9:54 - 9:56
    Feedback provides
    decision makers
  • 9:56 - 9:59
    with information that can
    perpetuate a new decision cycle.
  • 9:59 - 10:01
    The decision may
    fail, thus generating
  • 10:01 - 10:04
    a new analysis of a problem,
    evaluation of alternatives,
  • 10:04 - 10:06
    and selection of an alternative.
  • 10:06 - 10:10
    Many big problems are solved
    by trying several alternatives
  • 10:10 - 10:13
    in sequence, each providing
    modest improvement.
  • 10:13 - 10:15
    Feedback is part
    of the monitoring
  • 10:15 - 10:20
    that assesses whether a new
    decision needs to be made.
  • 10:20 - 10:23
    The decision-making process
    typically involves these six
  • 10:23 - 10:25
    steps that we've talked about--
  • 10:25 - 10:27
    recognizing the
    need for a decision,
  • 10:27 - 10:31
    diagnosing causes,
    developing alternatives,
  • 10:31 - 10:34
    selecting an alternative,
    implementing that alternative,
  • 10:34 - 10:36
    and evaluating
    decision effectiveness.
  • 10:36 - 10:39
  • 10:39 - 10:42
    [UPBEAT MUSIC]
  • 10:42 - 10:52
Title:
Decision Making in Management
Description:

more » « less
Video Language:
English
Duration:
10:52

English subtitles

Revisions