STUDY UNIT 5: CHAPTER 14

06-Sep-2019 13:49

Group Name: The Dynamic Cooperatives

Members that participated in the activity:

The Fundamentals of Decision Making

Define decision-making and explain the role of decision-making for managers and employees.

A process of making important decisions in a business which includes, defining problems, gather information, generating alternatives and choosing a course of action.

• The role of decision making for managers and employees
  • Determining the degree of risk involved 
  • Establish possible solutions available 
  • Determine the nature of the problem
  • An effective manager relies on all six managerial competencies to make a decision.
• The following are part of the managerial competencies:
  • Communication
  • Planning and administration
  • Teamwork 
  • Strategic action 
  • Global awareness
  • Emotional intelligence
  • Self-management

The ability of Roger Eaton, CEO of KFC, to be leading integrated food services group in ASEAN region delivering consistent quality products and excellent customer focuses. He has to rely on planning and administration competency to form a management team that would choose and implement a strategy through which to achieve this vision.

Discuss the conditions of certainty, risk and uncertainty under which decisions are made.

• Certainty
  • Certainty is the condition under which individuals are fully informed about a problem, alternative solutions are obvious and the likely results of each solution are clear.
  • Once an individual identifies alternative solutions and their expected results, making the decision is relatively easy: the decision-maker simply chooses the solution with the best potential outcome.
    • Example:
    • Spar buys Easter eggs during the Easter month because the business is certain that there is going to be a demand for Easter eggs. Spar can consider looking through the previous year's Easter month sales to have an idea how much is the demand going to be. 
• Risk
  • Risk is the condition under which individuals can define a problem, specify the probability of certain events, identify alternative solutions and state the probability of each solution leading to the desired result.
  • Risks generally means that the problem and alternative solutions fall somewhere between the extremes of being relatively common and well defined. 
    • Example:
    • Burger King cannot just randomly choose a location where to build its empire. The company must look at the risk of the location before considering to buy the property. For example, the property must be in a urban area for for customers to know the location. 
• Probability- Is the percentage of times that a spesific outcome would occur if an individual were to make a particular decision a large number of times.  
  • Example:
  • Rolling a dice can give you 1 out of 6 chances for getting a certain number. 
• Objective probability- The likelihood that a specific outcome will occur, based on hard facts and numbers. 
  • Example:
  • Private security firms will use statistics such as a crime rate statistics and police reports to deduce how many recources are needed for what areas dependent on the level of crime in the area. 
• Subjective probability- The likelihood that a specific outcome will occur, based on personal judgment and beliefs. 
  • Example:
  • Farmers will use knowledge based on experience and what they were taught when deciding how to run their farms. This knowledge is usually handed down from generation to generation of farmers. 
• Uncertainty
  • Uncertainty is the condition under which an individual does not have the necessary information to assign probabilities to the outcomes of alternative solutions. 
  • Uncertainty often suggests that the problem and the alternative solutions are both ambiguous and highly unusual. 
    • Example:
      • The business owner may be uncertain to expand the franchise to other countries because the customers may not always be familiar with the business and what the business is selling. For example, South-Africa is known for "Boerewors rolls" where other countries may not be familiar with it. Therefore they will not be inclined to try it.

Describe the characteristics of routine, adaptive, and innovative decisions

• Routine decisions
  • is based on well-defined problems with alternative solutions 
  • covered by established rules or standard procedures
  • Increasingly, these routine decisions are made by computer software
    • Examples:
    • One of tasks requiring routine decisions is dealing with customer complaints. The customer service department have to routinely deal with incoming complaints and therefore they have a standard procedure of dealing with them. The complaints are read, evaluated and addressed, as a part of this procedure. 
• Adaptive decisions
  • is based on fairly unusual and uncommon problems with alternative solutions
  • is about modifying and improving upon past routine decisions and practises
  • it is necessary for continuous improvement
    • Examples:
    • A business may find that they have to change and improve their past way of dealing with the packing and shipping customers’ orders. They have realised that their current methods do not allow for dealing with it efficiently and timely. Therefore, to address the issue, they have decided to expand their warehousing unit and to hire more staff.

• Innovative decisions
  • is based on unusual and ambiguous problems and the development of unique and creative solutions.
  • the solutions also involve a series of small interrelated decisions made over a period of months or even years.
  • leading edge innovations may take years to develop and involve numerous professional specialists and teams.
  • innovative decisions usually represent a sharp break with the past, they do not usually happen in a logical, orderly sequence.
  • they are not always based on incomplete and rapidly changing information and can be made before problems are fully defined and understood.
  • to be effective, decision makers therefore must be especially careful to define right problem and recognise that earlier actions can significantly affect later decisions.
    • Examples:
      • One of the successful innovative enterprises is PaperJet.
      • This start-up company is disrupting the online document signing industry in Africa. You can complete any form in your browser with the Drag & Drop feature within seconds. The user-friendly field detection facility makes it easy to complete, sign and submit any e-signing form.

Explain how goals affect decision making

• Rational model
  • It is a model that tells how the decision should be made when making routine decisions in situations involving conditions of near certainty or low risk. 
  • It prescribes a series of steps that individuals or teams should follow to increase he likelihood that their decision will be logical and sound.

These are the 7 steps:

Step 1: Define and diagnose the problem

• three skills that are part of a manager’s planning and administration competency: noticing, interpreting and incorporating
• noticing: involves identifying and monitoring numerous external and internal environmental forces
• interpreting: involves assessing the forces noticed and determining which are causes, not merely symptoms
• incorporating: involves relating those interpretations to the current or desired goals of the department or organisation

Step 2: Set goals

• after individuals have defined a problem, they can set specific goals for eliminating it
• management could set a hierarchy of goals for the various levels in the organisation, from the division manager to the operator, to solve the seeming problem and then set a hierarchy of goals to correct it

Step 3: Search for alternative solutions

• individuals or teams must look for alternative ways to achieve a goal
• when there seems to be no feasible solution for reaching a goal, there may be a need to modify the goal

Step 4: Compare and evaluate alternative solutions

• after the individuals or teams have identified alternative solutions, they must compare and evaluate them
• this step emphasises expected results and determining the relative cost of each alternative

Step 5: Choose from among alternative solutions

• decision making is commonly associated with having made a final choice

Step 6: Implement the solutions selected

• if the selected solution cannot be implemented for some reason, another one should be considered

Step 7: Follow-up and control

• individuals or teams must control implementation activities and follow up by evaluating results

Example of a Rational model:
A chicken fast food restaurant comes across the same problem multiple times, in this case overstocking of their perishable products, such as chicken and vegetables. Each time they had followed the same series of steps and realised that there is a trend in the way the customers purchase their products – there are more customers at the beginning of the month, however that number decreases as the month goes on. The solution to the problem, which is ordering more stock at the beginning of the month and then less throughout the month, may be written as a standard operating procedure.

• Bounded rationality model
  • It is a model that emphasises the limitations of rationality and explains why different individuals make different decisions when given the same information.
  • It refers to an individual tendencies to do the following:
    • satisficing
    • limited search
    • inadequate information
    • information-processing biases
• Satisficing
  • selection of an acceptable goal/alternative solution
  • three factors influence a satisfying decision: limited search, inadequate information and information-processing bias
• Limited search
  • individuals usually make only a limited search for possible goals or alternative solutions to a problem
  • considering options until they find one that seems adequate
• Inadequate information
  • recognises that individuals frequently have inadequate information about problems and that events that they cannot control will influence results of their decisions
• Information-processing biases
  • Five of the biases
  • availability bias
  • selective perception bias
  • concrete information bias
  • law of small numbers bias
  • gambler’s fallacy bias

Example of a Bound rationality model for Satisficing:
When a business chooses its supplier, it must consider the prices of the products, the quality, and overall try to get the best products, in order to be able to make a profit and at the same time to be able to keep their prices low for the customers (in particular, lower than the competitor).

Example of a Bound rationality model for Inadequate or misinterpreted information:
A business owner may decide to make a decision on how to save money on cost of their product by lowering the overall quality or quantity of said product. Coca-cola decided to reduce the size of their cans, thereby reducing the quantity of their product while keeping the price the same. That way customers will not complain about the price increase, but the company still gets to save money on the product.

• Political model
  • It is a model that describes the decision making process in terms of the particular interest and goals of powerful external and internal stakeholders
  • Power is the ability to influence or control individual, department, team or organisational decisions or goals.
  • Three factors influence political decision-making
    • stakeholders
    • choice of goals
    • alternative solutions
• Problem definition
  • external and internal stakeholders try to define problems for their own advantage
• Divergence in goals
  • this model recognises the likelihood of conflicting goals among stakeholders and that the choice of goals will be influenced strongly by the relative power of stakeholders
• Divergence in solutions
  • some goals or the means used to achieve them must be perceived as a win-lose situation
  • in such a situation, stakeholders often distort and withhold information selectively to further their own interests

Example of a Political model for Divergence in goals:
Cadbury and Oreo have combined their products in order to get Cadbury Oreo flavoured chocolate as well as Cadbury-coated Oreos. That wat they are able to popularise their brands between both of their customer bases and that leads to an increase in profit.

Differentiate between the rational, bounded rationally, and political models of decision-making.

Affection leverages a crucial decision-making process.

Goals that are set within an organisation is also seen as striving objectives that need to be achieved through deciding on definite and discreet objectives (goal).

These decisions go under circumstance of assimilating between risk and uncertainty. The circumstance that now associates with the goals can affect the organisation in one of two ways.

1. The decision-making operation is provoked by a quest for better ways to attain estimated set goals.

2. The decision-making operation is provoked by endeavouring the discovering new goals, altering current set goals or with drawing outdated goals.

In conclusion towards these goals that need to be decided on. They can progressively give employees, manager and organisation a sense of perception, directive guidance and expressive meaning within the organisation.

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