PMGT 402 Project Leadership

Mario Vasilkovs

School of Business

Agenda
PMGT 402 Summer 2010

Housekeeping Update
Assignment #1: June 16
Questions?

Mid-Term: June 30
Weeks 1-8 Material

Decision Making
Process of Decision Making PM as Decision Maker Decision Making Models Types of Decisions Decision Making Conditions
Decision Making

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Decision Making:
The Essence of the Managers Job

School of Business

Decisions
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Decision
Making a choice from two or more alternatives Involves a process, whether conscious or not

The Decision-Making Process

Identifying a problem and decision criteria and allocating weights to the criteria Developing, analyzing, and selecting an alternative that can resolve the problem Implementing the selected alternative Evaluating the decisions effectiveness
PMGT 402 Week 6 Decision Making

8 Step Decision-Making Process

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Identify a Problem I need to decide the best franchise to purchase.

Problem: existing state desired state

Identify Decision Criteria

Financial qualifications Franchisor history Start-up costs Open geographical locations Franchisor support

Allocate Weights to Criteria

Start-up costs .......................................................10 Franchisor support ................................................7 Financial qualifications .........................................8 Open geographical locations ...............................6 Franchisor history ..................................................7

Yes, its the Weighted Scoring Model

Develop Alternatives

Curves for Women Second Cup Jani-King Liberty Tax Service Curves for Women Second Cup Jani-King Liberty Tax Service Curves for Women Second Cup Jani-King Liberty Tax Service

Merle Norman Petland Chem-Dry Carpet Cleaning McDonald s Merle Norman Petland Chem-Dry Carpet Cleaning McDonald s Merle Norman Petland Chem-Dry Carpet Cleaning McDonald s

Analyze Alternatives

Matrix of Alternatives and Scores

Select an Alternative

Implement the Alternative

Chem-Dry Carpet Cleaning!

Evaluate Decision Effectiveness

Exhibit 4-1
Decision Making

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Decision-Making Process
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Step
A

1: Identify the Problem

discrepancy between an existing and desired state of affairs of Problems

A problem becomes a problem when a manager becomes aware of it There is pressure to solve the problem The manager must have the authority, information, or resources needed to solve the problem
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Characteristics

Decision-Making Process
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Cautions about Problem Identification:

Ensure problem identified, not just a symptom Problem identification is subjective Identifying problem in terms of possible solution Manager must be aware of discrepancies before problem can be identified
Variances = actual - standard

Pressure must be exerted on the manager to correct the discrepancy. Managers arent likely to characterize a discrepancy as a problem if they perceive that they dont have the authority, information, or other resources needed to act on it.
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Decision-Making Process
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Step

2: Identify Decision Criteria

Important dimensions on judging the alternatives, e.g.:

Costs likely incurred (investments required) Risks likely to be encountered (chance of failure) Positive outcomes (growth of the firm)

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Decision Making

Decision-Making Process
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Step

3: Assign Weights to Decision Criteria

Some criteria are more important than others
Have to be the same scale, e.g. 1-10, 1-3, 1-100, for each criterion Inherent subjectivity may be an issue

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Decision Making

Decision-Making Process
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Step

4: Develop Alternatives

Different courses of action to satisfy the problem No evaluation at this stage

Brainstorming is a technique
While it is an open and creative process, there are specific rules on how to conduct a successful session!

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Decision-Making Process
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Step

5: Analyze Alternatives

Assign each alternative a relative score for each criterion (dimension) Multiply the scores by the weights chosen in Step 3 Sum the results by alternative

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Decision-Making Process
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Step

6: Select an Alternative

Simplistically: highest resultant score Step 7: Implement Chosen Alternative Communicating Gaining Commitment
Participation in decision-making improves commitment

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Decision-Making Process
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Step

8: Evaluate Effectiveness

Was the problem solved?

May have to consider how to answer this question during Step 7 Implementation.

If not, why not?

What needs adjusting to solve the problem?

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PM as Decision Maker
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I'm the decider, and I decide what is best. And what's best is for Don Rumsfeld to remain as the Secretary of Defense.

President George W. Bush, Washington, D.C. April 18, 2006

http://politicalhumor.about.com/library/blbushism-decider.htm

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PM as Decision Maker
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Exhibit 4-5
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Making Decisions Examined

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Weighted

Score Model an example of Rational Decision Making

Homo Economicus

There

are others:

Bounded Rationality Intuition

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Rationality
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Consistent, value-maximizing choices with specified constraints Assumptions that decision makers:

Are perfectly rational, fully objective, and logical Have carefully defined the problem and identified all viable alternatives Have a clear and specific goal Will select the alternative that maximizes outcomes in the organizations interests rather than in their personal interests

Sounds like which Management Theory?

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Rationality Fundamental Assumptions

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Problem

clear, unambiguous Single, well-defined goal All alternatives, consequences known Preferences clear Preferences stable over time Decision process unconstrained by cost or time Final choice maximizes payoff

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Bounded Rationality
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Rationality limited (bounded) by imperfect, realistic conditions Offers appearance of Rationality Characteristics:
Alternatives constrained by time and or cost to develop, research Goal is satisfaction, not optimization
Satisfice
decide on and pursue a course of action satisfying the minimum requirements to achieve a goal
satisfice. (n.d.). WordNet 3.0. Retrieved February 03, 2010, from Dictionary.com website: http://dictionary.reference.com/browse/satisfice

Additional influences:
Organizational Culture Power & politics Escalation of Commitment
Throwing good money after bad

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Intuition
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Gut Feel Complementary to Rational processes 30% preferred Intuition to Rationality Characteristics: Based on experience, feelings, and accumulated judgment Ultimate in Bounded Rationality

Also works when Unbounded

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Intuition
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Managers make decisions based on their past experiences Managers make decisions based on ethical values or culture Managers make decisions based on feelings or emotions

Experience-based decisions Values- or ethicsbased decisions Intuition Subconscious mental processing Cognitive-based decisions Affect-initiated decisions

Managers use data from subconscious mind to help them make decisions

Managers make decisions based on skills, knowledge, and training

Source: Based on L.A. Burke and M.K. Miller. Taking the Mystery Out of Intuitive Decision Making. Academy of Management Executive. October 1999. pp. 9199.

Exhibit 4-7

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Types of Problems & Decisions

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Structured

Problems

Clear goals Familiar Easily and completely defined

Programmed

Decision

Repetitive Routine Standardized

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Types of Problems & Decisions

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Types

of Programmed Decisions:

Procedure
A series of interrelated steps to respond to a structured problem

A Rule
An explicit statement that limits what a manager or employee can or cannot do

A Policy
A general guideline for making a decision about a structured problem

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Types of Problems & Decisions

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Unstructured

Problems:

New or unusual Information ambiguous, incomplete

Non-programmed

Decisions:

Unique Customized solution

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Types of Problems & Decisions

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Most

problems are a blend of the two Which decision making approach most likely applicable to:
Structured Problem? Unstructured Problem?

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Decision-Making Conditions
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Certainty:

Outcome of every alternative known

Risk:

Outcomes are unknown but predictable Probability used to represent (act as a proxy for) risk Expected value analysis one way to model outcomes
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Decision-Making Conditions
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Uncertainty:
Outcome of alternatives unknown Outcomes cannot be assigned probabilities Intuition operates here, conditioned by personality:
Optimist: Maximax
Maximize maximum payoff

Pessimist: Maximin
Maximize the minimum payoff

Loss Avoidance: Minimax

Minimize the maximum regret or perceived loss

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Decision Making Styles

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Types of Decision Makers:

Directive
Use minimal information and consider few alternatives

Analytic
Make careful decisions in unique situations

Conceptual
Maintain a broad outlook and consider many alternatives in making long-term decisions

Behavioural
Avoid conflict by working well with others and being receptive to suggestions

Individual Styles: Dominant and Alternative

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Decision Making Styles

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High
Tolerance For Ambiguity

Analytic

Conceptual

Directive

Behavioural

Low Way of Thinking Rational

Exhibit 4-9
Source: S.P. Robbins and D.A. DeCenzo, Supervision Today. 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 1998), p. 166.

Intuitive

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Group Decision Making

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Advantages
Generates more complete information and knowledge Generates more diverse alternatives Increases acceptance of a solution Increases legitimacy of decision

Disadvantages
Time consuming Minority domination Pressures to conform Ambiguous responsibility

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Group Decision Making

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Groupthink

Most dangerous dynamic of group decision making

Group becomes the focus, not the decision (s)

The withholding by group members of different views in order to appear to be in agreement

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Groupthink
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Signs:

Doubts are withheld Doubts are publicly dismissed, ridiculed, ignored Silence construed as agreement
Avoiding:

Climate of open discussion Leadership solicits all opinions

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Errors and Biases

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Belief have more knowledge or skill than so Claim prediction once outcome known Take credit, blame others for failure Hindsight Overconfidence Short vs. long-term Immediate Gratification Reliance on a single fact Expectations affect perceptions Decisions confirm beliefs

Self-serving Trying to correct the past

Anchoring Effect

Sunk Costs

Decision-Making Errors and Biases

Selective Perception

Randomness Probability fits normal distribution Probability based on resemblances

Confirmation

Representation Availability

Framing Too narrow a perception

Exhibit 4-11

Heuristic relying on: most vivid, unusual, emotionally charged

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Todays PM Decision-Making
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PMBOK

2008, Appendix G, on

Styles:
Command Consultation Consensus Coin Flip (Random)
Chosen depending on:
Time Constraints Trust Quality Acceptance
Decision Making

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Todays PM Decision-Making
PMGT 402 Summer 2010
Group

Creativity:

Brainstorming:
All ideas welcome Ideas belong to the group, not the individual No evaluation, yet

Delphi Process:
Questionnaire to group Anonymous submission of ideas Feedback Repeat
Diminishing returns after the 2nd iteration
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Todays PM Decision-Making
PMGT 402 Summer 2010
Group

Creativity:

Nominal Group Technique (NGT)

Group assembles, no interaction
Hence nominal group

Individually, write down ideas Share one in turn Recorded for all to see Each idea gets some clarification Group secretly votes on ideas Group consensus is calculated
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Summary - Decision Making

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Models Styles Factors Biases

& Errors Individual vs. Group Why:

Improve your decision-making Recognize issues in others