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Managing information and Decision Making (Methods for decision making…
Managing information and Decision Making
Methods for decision making
Rationality
Derived from economic theory
Managerial decision making is assumed to be rational
Based on several assumptions that are often unrealistic
Asumes that decision makers have access to perfect information
A single, well defined goal exists
alternatives and consequences are well known
Preferences are clear
Managers make rational decisions to maximize economic benefit for the organization
Theoretical, not very realistic
Bounded Rationality
Decision making are constrained by several limitations
Eg. Time limitations, availability to good information
Good enough or satisfactory decisions
Decisions made within parameters of a simplified model that captures the essential features of a problem
Intuition (Not completely un rational)
Product of:
Previous experience
"Gut-level feeling" as a product of experience
Accumulated judgement
Managerial Problems and Decisions
Two types of problems
Structured
The types of problems that can be anticipated on a day to day basis
Easily defined
Handled by a routine approach
Procedure
Rule
Policy
Unstructured
Non programmed decisions
New or unusual problems
Group decision making
Value of collaborative decision making
Organisations with a high number of skilled workers reach decisions through rigorous debate and with several individuals weighing in
Pros and Cons
Pros
More diverse alternatives
Increase acceptance of a solution
Increases legitimacy
More complete information and knowledge
Cons
Time consuming
Minority domination
Pressure to conform
Ambiguos responsibility
Decision Making Styles and Errors
Conditions of Decision Making
Certainty
A manager can make accurate decisions because all outcomes are known.
Rooted in rationality
Easy to select best case option
Risk
A manger can estimate the likely hood of certain outcomes
more realistic than certainty
Statistics and probability are important
Uncertainty
A manager has neither certainty nor reasonable probability estimates
information extremely limited
Worst case scenario
Decision making styles
Linear
Preference for external data and facts
Processes information through rational and logical thinking
Based on rationality
Non linear
Based on intuition
Preferences for internal sources and information
Process information through internal insights, feelings and hunches
Neither is better than the other. Its about understand when each is relevant
Decision Making Errors
Look at map of decision making errors and biases.