Lecture 3 Revision

1. Define planning, its importance and benefits in organisations.

2. Framework of planning and types of planning.
3. The planning process.
4. Influence of environmental factors on planning & maximising
effectiveness of planning process.
5. Weaknesses of planning and reasons for not planning.
6. What is strategic management and its advantages?
7. Strategic management process and the three level of strategies.

1
 Lecture 4:
Decision Making

2
Learning Outcomes
• To explain the concept of decision making.
• To clarify types of decisions, decision making models, decision conditions
and the factor of risk propensity and decision making.
• To examine the process of decision making.
• To describe ethical decision making process.
• To elaborate on the challenges faced in context of decision making.

3
Lecture Structure
1. The nature of decision making - What is decision making?
2. Types of decision making.
3. Decision making conditions.
4. Decision Making models.
5. Process of decision making.
6. Factor of risk propensity and decision making.
7. Ethical decision making process.
8. Challenges faced by managers in making decisions.

4
1. The nature of decision making - What is
decision making?
• Refers to making a choice from available alternatives/options.
• A decision is made before and after actual choice.
• Why DM? allow org to achieve objectives; org to grow/expand
• DM is persistent; inevitable

5
2. Types of Decision Making
• What kind of decisions do managers make?
a. Programme decisions = standard decisions  recurrent events
b. Non-programme decisions = not standard decisions  unique situations
c. Strategic decisions = decisions by top managers = entire org
d. Tactical decisions = decisions by middle managers = dept
e. Operational decisions =decisions by lower management = set on indvs
and groups to ensure targets are met.

6
3. Decision Making Conditions factors =
Info, alternatives, outcomes
• Decision making can be influenced by the following conditions:
a. Certainty. = a situation in which a manager can make accurate decisions because
all outcomes arednown. ALL INFO, ALL OPTIONS, ALL OUTCOMES
b. Risk = a situation in which the decision maker can estimate the likelihood of
certain outcomes. GOOD INFO; OUTCOMES COULD BE A LOSS OR FAILURE
c. Uncertainty = a situation in which a decision maker has neither certainty nor
reasonable probability estimates available. LIMITED INFO; CANNOT ESTIMATE
OUTCOMES
d. Ambiguity = situation in which problem to be solved is unclear, alternatives are difficult
to define and information about outcomes is unavailable. WICKED DM = VAGUENESS

7
4. Decision Making Models
1. Classical (Rational model).
2. Bounded Rationality (Administrative model).
3. Intuitive model.
4. Creative model.
5. Political model.

8
4. Decision Making Models
4.1 Classical (Rational) Model IDEAL
TYPE
• Decision maker works towards solving problem.
• Decision maker gathers information, evaluate alternatives and
selects alternative that maximizes economic return.

9
4. Decision Making Models
4.2 Bounded Rationality(Administrative) Model
• Managers have a vague understanding of goal.
• Managers have limited information (bounded rationality) and limited
alternatives to the problem.
• Managers settle for satisficing & intuition decision making.
• SATISFICING = SIMPLE & GOOD ENOUGH SOLUTIONS
• INTUITION = GUT FEELINGS; EDUCATED GUESS; LEARNING FROM
YOUR PAST EXPERIENCES (SUBCONSCIOUS MENTAL PROCESSING)

10
4. Decision Making Models
4.3 Intuitive Model

• Managers make decisions based on gut feelings, experience,

knowledge, and instant thinking (practical knowledge, familiarity with
situations).

11
4. Decision Making Model
4.4 Creative Model
• Decision making is based on imagination. NEW IDEAS
• How does this model initiate competitive edge?
• BRAINSTORMING = COLLABORATION WITH OTHERS TO COME UP WITH NEW IDEAS
• WILDSTORMING = MAKING IMPOSSIBLE IDEAS  POSSIBLE
• PRE-MORTEM = DISCUSS BEFORE APLLYING NEW IDEAS
• POST-MORTEM = DISCUSS AFTER APPLYING NEW IDEAS

12
4. Decision Making Models
4.5 Political Model
• Organizations are made up of groups with diverse interests, goals,
and values.
• Diverse groups:
a. Managers and workers
b. Shareholder and management
c. Managers from different depts
Their goals, interest and value will be different? Coalition building
(common point to link them up)
• Information is ambiguous and incomplete.

13
Decision Making Models Source: Borges, et.al (2015)

14
5. Process of Decision Making continued
1. Recognition of Decision Requirement.
2. Diagnosis & Analysis of Causes.
3. Development of Alternatives.
4. Selection of Desired Alternatives.
5. Implementation of Chosen Alternative.
6. Evaluation & Feedback.

15
5. Process of Decision Making
Source: Daft (2018)

16
1. Recognition of Decision Requirement
• Identify problem or opportunity.
• When do you decide?
• Eg: sales reps require new laptop that are > efficient

17
2. Diagnosis & Analysis of Causes
• Analyze underlying causal factors:
• Consider factors that are important in solving the problem.
• What are the criteria's required in DM?
• Eg: what type of criteria must the laptop have?
= memory & storage; display; battery life span, warranty, weight etc.
After this the manager RANKS and decides which criteria are
important
=memory & storage; battery life span, weight, etc

18
3. Development of Alternatives
• Develop possible alternative solutions to deal with the situation.
• Eg: HP Probook, Apple Macbook, DELL, ASUS etc

19
4. Selection of Desired Alternatives
• Best alternative which allows firm’s overall goals.
• select the best alternative  highest value (most efficient)

20
5. Implementation of Chosen Alternative
• The use of managerial, and persuasive abilities to ensure that the
chosen alternative is carried out.
• Get the sales reps to use the new laptop; rationalizing

21
6. Evaluation & Feedback
• Gather information to determine how well the decision was
implemented and whether goals were achieved.
• Get feedback from the sales rep regarding the performance of the
chosen laptop  if the laptops are still problematic, then find the
reasons behind them

22
Personal Decision Making Framework
Source: Daft (2018)

23
Personal Decision Making
• Behaviour (actions) of managers can influence DM:
a. Directive style = simple clear-cut solutions.
b. Analytical style = complex solution  based on a lot of data.
stats/figures (hard evidence)
c. Conceptual style = managers like broad amount of information.
quantitative and qualitative information
d. Behavioural style = managers have deep concern for others. empathy

24
6. Factor of Risk Propensity how much of risk is one
willing to take & Decision Making
• Risk propensity measures the tendency of decision makers to make risky
decisions:
a. Managers with low-risk propensity. > cautious in DM; > conservative and avoid
mistakes that result in huge losses (risk averse)
b. Managers with high-risk propensity. > aggressive, > hastier in DM = rely on
intuition to make decisions that involve big investments

25
7. Ethical Decision Making Process
Source: Borges, et.,al (2015)

26
7. Ethical Decision Making Process
Step 1 Recognise that there is an ethical problem = moral dimension/aspect
Step 2 Determine actors = accountability, who is involved
Step 3 Gather the relevant facts = evidences, sufficient; correct
Step 4 Test for the right vs wrong issues = what do you feel about the decision you are to
make?
Step 5 Test for right vs right values = conflicting ethical values = mercy vs justice; truth vs
loyalty
Step 6 Apply ethical standards/perspectives =ethical knowledge/theories = welfare, care
for others, utilitarianism
Step 7 Look for a third way = compromise
Step 8 Make decision =fear whether the decision was correct?
Step 9 Revisit and reflect decision = ethical impact of DM
27
8. Challenges Faced by Managers in terms of Making Decisions

• Overconfidence Bias: holding positive views of oneself and one’s

performance. = does not consider others’ ideas
• Anchoring Effect: fixating on initial information and ignoring subsequent
information. Fixation on estimates & stats
• Confirmation Bias: seeking out information that reaffirms past choices
while discounting contradictory information. Selective in finding info that
supports their view and disregard info that contradicts it
• Availability Bias: losing decision-making objectivity by focusing on the
most recent events base decisions on readily available info and do not pay
attention to earlier info

28
8. Challenges Faced by Managers in terms of Making Decisions

• Self-serving Bias: taking quick credit for successes and blaming

outside factors for failures. Manager takes credit for success and
blame other for failure
• Sunk cost effect & Escalation of Commitment: when a manager
continues to pour money into a failing project, hoping to turn things
around.

29
Recommendations  Innovative Decision
Making
1. Evidence-based decision (EBM) = decisions based on facts and hard data
2. Debate = break group of workers and assign them different responsibilities
3. Avoid Groupthink = AVOID = tendency of people in groups to suppress contrary
opinions
4. Do Post-mortem managers review results of decisions on a regular basis & learn
from them.

30