Management Theory Decision making is choosing one alternative from a set of alternatives. The decision making process includes recognizing and defining the nature of a decision situation, identifying alternatives, choosing the best alternative and putting it into practice. Types of Decisions A programmed decisions is one that is fairly structured an recurs with some frequency. A non programmed decision is relatively unstructured and occurs much less often. Decision Making Conditions Decision making under certainty the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each one. Decision making under risk the availability of each alternative and its potential payoffs and costs are all associated with probability estimates. Decision making under uncertainty decision maker does not know all the alternatives and risks associated with each alternative or the consequences each is likely to have. Rational Perspectives on Decision Making A The Classical Mode the classical decision model is a perspective approach that tells managers how they should make decisions. B Rational Decision Making Rational decision making keeps the decision maker focused on facts and logic and helps guard against inappropriate assumptions or pitfalls. 1. Recognizing and Defining the Situation The first step in rational decision making is recognizing that a decision is necessary. To do this, the problem must be defined clearly and fully. 2. Identifying Alternatives Identifying alternative courses of action which may be effective. 3. Evaluating Alternatives Each alternative should be evaluated according to its feasibility, satisfactoriness and affordable consequences. 4. Selecting an Alternative The crux of decision making; evaluated alternatives are organized based on their feasibility, satisfactoriness and affordable consequences and the decision maker either chooses one or optimizes. 5. Implementing the Chosen Alternative Putting the chosen solution into action often the most difficult step of decision making. 6. Following Up and Evaluating the Results One must be sure that the alternative serves the original purposes if it hasn't, corrective measures must be taken. Behavioral Aspects of Decision Making A The Administrative Model describes how decisions are often made based on assumptions that managers have incomplete and imperfect information, are constrained by bounded rationality and tend to satisfice when making decisions. 1. Bounded rationality suggests that values and unconscious reflexes, skills, habits, and by less than complete knowledge/information. 2. Satisficing suggest that decision makers do not examine all alternatives; searching only until they find one that meets a minimum standard of sufficiency. B Political Factors in Decision Making A coalition is an informed alliance of groups or individuals that form to achieve a common goal. C Intuition and Escalation of Commitment 1. Intuition an innate belief about something without conscious deliberation. 2. Escalation of Commitment decision makers who become so committed that they stay with the decision even when it is proven wrong. D Risk Propensity and Decision Making The extent to which a manager is willing to gamble when making decisions. E Ethics and Decision Making Personal beliefs about what is right and wrong. Group Decision Making in Organizations Forms of group decision making: 1. Interactive Groups most common, exist when an existing or newly formed group is asked to make a decision. 2. Delphi Groups used for consensus of expert opinion. The Delphi procedure solicits input from a panel of experts who contribute individually. Their opinions are combined and averaged, the results are fed to experts, and the process continues until a solution is reached. 3. Nominal Groups uses an informed group of participants to write down as many alternatives as they can think of. These ideas are listed on a board in round robin fashion and then discuss. Then the members vote to determine the best alternative. There are many advantages and disadvantages of group decision, one advantage is that more ideas are generated and a better solution is met. The biggest drawback of group decision making is the need for additional time and resources. 1. Sometimes one individual dominates the decision making process to the point where other members cannot contribute. 2. Groupthink when the group's desire to meet consensus and be cohesive overwhelms its ability to reach the best possible solution. Managers must be aware of the pros and cons of group decision making. Also the group should analyze all solutions critically and allow divergent viewpoints to be presented. It also is a good idea to ask one member to play the role of devils advocate. Pareto Analysis – A management tool which can be used at different stages of problem solving. It organizes problems, prioritizing them based on significance. Decision Making Matrix Customer Impact Cost Time Factor: 10 4 7 Problem 1 10 (100) # # Problem 2 7 (70) # # Problem 3 7 (70) # # Problem 4 3 (30) # # Nine Block Worksheet Relative Importance to Organization Problem List Relative Ease of Solving High * Easy Medium * Medium Low * Hard The Role of Theory and History in Management A – The importance of theory and history. 1. Why theory? Theory provides a simple conceptual framework for organizing knowledge and providing a blueprint for action to help guide organizations towards their goals. 2. Why history? Contributions from past industrialists have molded our culture and managers can benefit from awareness of these contributors. B – The historical context of management. 1. Understanding Social Forces – The norms and values that characterize a culture. Early social forces allowed workers to be treated poorly; however, more recent social forces have provided far more acceptable working conditions for Canadian workers. Social forces have influenced management theory in areas such as motivation and leadership. 2. Understanding Economic Forces – The ideas behind the concept of market economy such as private ownership of property, economic freedom, competitive markets, and a limited role of government. These forces affect the way managers think with respect to environmental analysis, strategic planning, and organizational design. 3. Understanding Political Forces – Forces such as governmental regulations play a significant role in how organizations choose to manage themselves. Political forces have influenced management theory in the areas of environmental analysis, planning, control, organization design, and employee rights. C – Precursors to Management Theory 1. Management in Antiquity – While the practice of management can be traced back to 3000 BC, it was not given serious attention until the 1800s, when large organizations emerged. 2. Early Management Pioneers a. Robert Owen was one of the first managers to show respect and dignity to workers in his factory. He implemented better working conditions, raised the minimum age for child labor, reduced hours, and supplied meals. b. Charles Babbage applied mathematic principles to find ways to make the most efficient use of facilities and materials. Advocate of profit sharing. c. Andrew Ure was one of the world’s first professors to teach management principles at Anderson College in Glasgow. The Classical Management Perspective A – Scientific Management Focuses on ways to improve the performance of individual workers. 1. Frederick W. Taylor saw workers soldiering (deliberately working beneath their potential) and designed a four step method to overcome this problem. It begins with breaking down the job into its smallest pieces and then selecting the most qualified employees to do the job. The employees are then trained to do this job and supervisors monitor them to assure that they are following the methods prescribed. Finally they continue in this fashion, only using employees who get the job done. 2. The Gilbreths, a husband and wife team, also helped to find more efficient ways for workers to produce output. Frank Gilbreth made his most important contribution into the field of bricklaying. He changed an eighteen step process into a five step one, increasing productivity by 200%. 3. Henry Gantt introduced the Gantt chart, which is a way to schedule work. This type of chart is still used today. 4. Harrington Emerson was an advocate of specialized management roles in organizations. At a commission hearing to investigate proposed rate increases by railroad companies in the US, he claimed that the companies could save 1 millions dollars a day by using scientific management. B – Administrative Management Focuses on managing the total organization. 1. Henri Fayol was the first to identify the four management functions and developed guidelines for managers to follow. These guidelines form the 14 principles for effective management. 2. Lyndall Urwick is best known for integrating scientific management with administrative management. 3. Max Weber outlined the concept of bureaucracy based on a rational set of guidelines for structuring organizations in the most efficient manner. His work is the foundation of contemporary organization theory.