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