Ch 4: Decision Making and Problem Solving

Chapter Check-In
• Breaking down the decision-making process
• Recognizing the factors that influence managerial decisions
• Identifying individual problem-solving styles
• Becoming familiar with quantitative tools that assist decision
makers
The Decision making process:
Decision making and problem solving are ongoing processes of evaluating
situations or problems, considering alternatives, making choices, and
following them up with the necessary actions.
The entire decision-making process is dependent upon the right information
being available to the right people at the right times.
The decision-making process involves the following steps:
1. Define the problem.
2. Identify limiting factors.
3. Develop potential alternatives.
4. Analyze the alternatives.
5. Select the best alternative.
6. Implement the decision.
7. Establish a control and evaluation system.
Define the problem:
The decision-making process begins when a manager identifies the real problem.
The accurate definition of the problem affects all the steps that follow; if the
problem is inaccurately defined, every step in the decision making process will be
based on an incorrect starting point.
The most obviously troubling situations found in an organization can usually be
identified as symptoms of underlying problems. A successful manager doesn’t just
attack symptoms; he works to uncover the factors that cause these symptoms.

Symptoms Underlying Problem

Low profits and/or declining sales Poor market research

High costs Poor design process; poorly trained

employees
Low morale Lack of communication between
management and subordinates
High employee turnover Rate of pay too low; job design not
suitable
High rate of absenteeism Employees believe that they are not
valued
Identify limiting factors
All managers want to make the best decisions. To do so, managers need to
have the ideal resources — information, time, personnel, equipment, and
supplies — and identify any limiting factors.

Develop Potential alternatives

A manager should think through and investigate several alternative solutions
to a single problem before making a quick decision.
Develop potential alternatives methods

Nominal
Brainstorm Delphi
group
ing technique
technique
-Brainstorming method: One of the best known methods for developing
alternatives is through brainstorming, where a group works together to
generate ideas and alternative solutions. Brainstorming usually requires 30
minutes to an hour. The following specific rules should be followed during
brainstorming sessions:
• Concentrate on the problem at hand. This rule keeps the discussion very
specific and avoids the group’s tendency to address the events leading up
to the current problem.
• Entertain all ideas. In fact, the more ideas that come up, the better. In
other words, there are no bad ideas. Encouragement of the group to
freely offer all thoughts on the subject is important. Participants should be
encouraged to present ideas no matter how ridiculous they seem, because
such ideas may spark a creative thought on the part of someone else.
• Refrain from allowing members to evaluate others’ ideas on the spot. All
judgments should be deferred until all thoughts
-Nominal group technique: This method involves the use of a highly
structured meeting, complete with an agenda, and restricts discussion or
interpersonal communication during the decision-making process. This
technique is useful because it ensures that every group member has equal
input in the decision-making process. It also avoids some of the pitfalls, such
as pressure to conform, group dominance, hostility, and conflict, that can
plague a more interactive, spontaneous, unstructured forum such as
brainstorming.
-Delphi technique: With this technique, participants never meet, but a
group leader uses written questionnaires(survey) to conduct the decision
making.
No matter what technique is used, group decision making has clear
advantages and disadvantages when compared with individual decision
making.
The following are among the advantages:
• Groups provide a broader perspective.
• Employees are more likely to be satisfied and to support the final
decision.
• Opportunities for discussion help to answer questions and reduce
uncertainties for the decision makers.
These points are among the disadvantages:
• This method can be more time-consuming than one individual making
the decision on his own.
• The decision reached could be a compromise rather than the optimal
solution.
• Individuals become guilty of groupthink — the tendency of members of a
group to conform to the prevailing opinions of the group.
• Groups may have difficulty performing tasks because the group, rather
than a single individual, makes the decision, resulting in confusion when
it comes time to implement and evaluate the decision.
Analyze the alternatives
The purpose of this step is to decide the relative merits of each idea.
Managers must identify the advantages and disadvantages of each
alternative solution before making a final decision.
Evaluating the alternatives can be done in numerous ways. Here are a few
possibilities:
• Determine the pros and cons of each alternative.
• Perform a cost-benefit analysis for each alternative.
• Weight each factor important in the decision, ranking each alternative
relative to its ability to meet each factor, and then multiply by a
probability factor to provide a final value for each alternative.
Regardless of the method used, a manager needs to evaluate each alternative
in terms of its
• Feasibility — Can it be done?
• Effectiveness — How well does it resolve the problem situation?
• Consequences — What will be its costs (financial and nonfinancial) to the
organization?
Select the best alternative
After a manager has analyzed all the alternatives, she must decide on the best one. The
best alternative is the one that produces the most advantages and the fewest
serious disadvantages.
Implement the decision
Managers are paid to make decisions, but they are also paid to get results from these
decisions. Positive results must follow decisions.
Establish a control and evaluation system
It is the process of monitoring and evaluating the decision that have been
implemented. If a manager’s plan hasn’t resolved the problem, he needs to figure
out what went wrong. A manager may accomplish this by asking the following
questions:
• Was the wrong alternative selected? If so, one of the other alternatives generated
in the decision-making process may be a wiser choice.
• Was the correct alternative selected, but implemented improperly? If so, a manager
should focus attention solely on the implementation step to ensure that the chosen
alternative is implemented successfully.
• Was the original problem identified incorrectly? If so, the decision-making process
needs to begin again, starting with a revised identification step.
• Has the implemented alternative been given enough time to be successful? If not, a
manager should give the process more time and re-evaluate at a later date.
Conditions That Influence Decision Making
-Certainty: Decisions are made under the condition of certainty when the
manager has perfect knowledge of all the information needed to make a
decision. This condition is ideal for problem solving. The challenge is
simply to study the alternatives and choose the best solution.
-Risk: In a risk environment, the manager lacks complete information. This
condition is more difficult. A manager may understand the problem and
the alternatives, but has no guarantee how each solution will work. Risk is
a fairly common decision condition for managers.
-Uncertainty: When information is so poor that managers can’t even assign
probabilities to the likely outcomes of alternatives, the manager is making
a decision in an uncertain environment. This condition is the most difficult
for a manager.
Personal Decision-Making Styles
The most important influence on managerial decision making is a manager’s
personal attributes or his or her own decision-making approach. The three
most common decision models are as follows:
• Rational/logical: The rational/logical decision model focuses on facts and
reasoning. Reliance is on the steps and decision tools, such as payback
analysis, decision tree, and research — all are described later in this
chapter.
• Intuitive: The managers who use this approach avoid statistical analysis
and logical processes. These managers are “gut” decision makers who rely
on their feelings about a situation and his managerial experience.
• Predisposed: Decision makers using this approach do not search out all
possible alternatives. Rather, they identify and evaluate alternatives only
until an acceptable decision is found.
Quantitative Tools to Assist in Decision Making
Quantitative techniques help a manager improve the overall quality of
decision making. These techniques are most commonly used in the
rational/ logical decision model, but they can apply in any of the other
models as well. Among the most common techniques are decision trees,
payback analysis, and simulations.
-Decision trees: A decision tree shows a complete picture of a potential
decision and allows a manager to graph alternative decision paths.
Decision trees are a useful way to analyze hiring, marketing, investments,
equipment purchases, pricing, and similar decisions that involve a
progression of smaller decisions.
-Payback analysis: Many individuals use payback analysis when they decide
whether they should continue their education. They determine how much
courses will cost, how much salary they will earn as a result of each course
completed and perhaps, degree earned, and how long it will take to
recoup the investment. If the benefits outweigh the costs, the payback is
worthwhile.