Managerial Decision Making Research Paper
Decision Making in Management
These stages are important for the decision-making process to begin Annon, They include:. The orientations stage is the first stage in the process of decision making. People socialize and discuss issues. The conflict stage generally occurs after members get used to one another. Here, they tend to disagree with the thoughts and ideas of each other and as a result a lot of arguments arise. At the emergence stage people try to defend themselves and stand for their rights and for the decisions they have made. They come into one conclusion and make a choice as a group. At times, an organization is faced with tricky situations where it has no time to employ structured approaches for solutions.
It is during these times that an organization makes ad-hoc decisions. The decision making depends on the problem at hand Monahan, There are problems that can be solved using different criteria. Such problems are referred to as multi-attribute problems Monahan, Several methods can be used to solve such problems. These include mathematical approaches and informal methods Monahan, Bayesian team support is a model that is used to support decision-making with unseen information Monahan, This is one of the most common methods used to solve uncertain problems.
A high quality decision comes with a merit or a guarantee that the process that was used to come up with a choice was the best one. Decisions should be broken down into components and then working at one alternative at a time. Without a process, the process is likely to drag decisions into ones comfort zone. Each problem has to be tackled separated and in a unique manner Monahan, With a process or framework, you have the mechanism you need to warrant the quality of your own decisions.
Perhaps more importantly, you also have a common language and set of mental models that makes conversations about decisions more efficient and effective Noe, The common understanding of decision processes, criteria, and roles avoids many of the common organizational decision traps, allowing people in your organizations to spend their conversational energies on creating better alternatives and validating assumptions and ultimately warranting their own decisions Jock, Managers make decisions every day that affect their team and their organization. Before any manager makes a decision, they first need to define their goals. You need to examine if the decision is the right decision and how you can get commitment from your staff to implement the decision you have made Noe, The importance to make decisions is to enable the organization have a sound process or steps from the beginning up to the overall results of the choice.
Good leadership skills should be applied so as to attain the steps of decision making process Ray, Jock argues that successful business managers understand that the effectiveness of managerial decision making often determines the success or failure of an enterprise. If wise decisions are made in an organization then it will have success but if the decision making is dragged it can affect the organization negatively. Effective decision making is an innate skill which is acquired with experience over years Triantaphyllou, A great decision making makes use of sound logic.
The employees are usually comfortable when they have a good understanding of what and why a certain decision has been chosen. The manager should use the available resources to make the best choice. Manages are personally and sometimes legally responsible for the efforts of their decisions and so it is important to stay within the boundaries of their authorities. Managers need to make good decisions which allow the business to grow and employees to develop and have success Hal, During the decision making process, it is important that you do not inflate information to support your decision James, The manager should invite challenges from other people concerning a decision made and he or she should take it positive.
One can ask a colleague to evaluate the managerial skills so that they do not end up with the wrong decision. This colleague can give other alternatives or a different way of solving problems before coming up with the final decision. Rushed decisions that are made without taking a second thought and not well evaluated leads to a great failure Noe, In decision making process, the manager has the responsibility to make the right decision for the organization.
If the manager becomes indecisive then it will be portrayed to the employees that he cannot make a tough choice or take a stand on issues that have effect to the organization. The managers need to be concerned that taking a strong stand on problems regarding the organization will cause others to dislike them. A manager should have in mind that when employees dislike your opinion they are not rejecting you Hal, It is wise to seek advice, and it will strengthen and build on your relationship as manager in an organization. Depending on what the decision involves, you may need to learn more about your customers and your organization Noe, According to Fishbach and Dhar , a major area of goal research has focused on identifying different factors that affect goal commitment and perception of goal progress.
In my opinion the very character of these questions raise the concern that people behave not only in the way leading to achievement of their goals. All of them in one or another way try to understand why even when people know that what they prefer is entirely feasible, when faced with the actual choice they may nevertheless suspect to be tempted to do something else Trope and Fishbach, Emotions If goals are situation dependent then we desperately need the explanation of the mechanism which makes particular goals salient under specific circumstances. I believe that emotions represent such a mechanism.
The study of emotions in the context of decision making, which began more than twenty years ago, has received increasing attention over the past decade. There is, however, little consensus in the literature on what is actually meant by emotion or affect Pfister and Bohm, While emotion-based decision- making has been viewed as irrational and has been largely ignored in the economic literature, recent psychological research has revealed that actual preferences are dependent on the emotions experienced and anticipated by decision makers Reid and Gonzalez-Vallejo, Indeed, as Mellers and McGraw argue, when making decisions, people often anticipate how they will feel about future outcomes and use those feelings as guides to choice.
While anticipated pleasure is closely connected to choice, it differs from the utility, because anticipated pleasure depends on multiple reference points and varies systematically with beliefs about their occurrence anticipated feelings associated with surprising outcomes are stronger relative to anticipated feelings associated with expected outcomes. Inaccurate predictions can be explained by emotions experienced during the choice process. These emotions influence perceptions, memories, and even decision strategies. Other errors can be addressed to the fact that people focus on whatever is salient at the moment focusing illusion.
Mellers and McGraw conclude that using anticipated pleasure in comparison with classical utility improves the predictability of choice. At the same time they see emotions as far more complex than simple unidimensional ratings of pleasure or pain. The critique of unidimensionality of emotions and attempts to provide classifications of emotions in the context of decision making have been made by other researchers as well. For example, Pfister and Bohm site Loewenstein and Lerner who distinguish between anticipated emotions and immediate emotions.
Anticipated emotions are beliefs about one's future emotional states, while immediate emotions are emotions actually experienced when making a decision. Immediate emotions come in two variants: as incidental emotions caused by unrelated factors, or as anticipatory emotions, which are caused by the decision problem itself. According to Pfister and Bohm , there is vast evidence that these kinds of emotions frequently influence the judgments and choices people make. Pfister and Bohm themselves also offered a four-function framework of emotional mechanisms in decision making.
They believe that the functions of emotions include providing information, enabling fast decision making under time pressure , ensuring relevance direct the decision maker's attention to relevant aspects of the situation and preserving commitment in social settings. According to Weiss et al the anticipated emotional consequences play an important role in the decisions making. Weiss et al analyses the influence of emotions in the framework of MAU model and argues that anticipated regret and anticipated guilt can enter the model and change the preferences in one or another direction. For example anticipated regret refers to the sense of loss one might expect to feel after missing out on the joys of the moment.
In contrast, anticipated guilt refers to the reduced sense of self-worth that can be generated by surrendering to the temptation. Such emotional intervention can explain many deviations of human behavior from the prescriptions of MAU. At the same time Pfister and Bohm argue that understanding the role of emotions in contemporary decision making research is illustrated by the so-called influence-on metaphor, where emotions - or affect, or feelings - are portrayed as external forces influencing an otherwise non- emotional process. It is assumed that the domain of emotion is qualitatively different and functionally separate from the domain of cognition.
Decision making is then seen as an essentially cognitive process, which does not necessarily entail emotions. Emotions may have an influence on decision making, but decision making per se might as well proceed without emotion. However latest research, based on the evidence from neuropsychological studies, shows that without emotional involvement, decision making might not even be possible or might be far from optimal. Also at the level of brain structure and functioning, a clear-cut topological distinction between cognition and emotion might not be feasible Reid and Gonzalez-Vallejo, In fact the attribute values of many choice alternatives are not explicitly quantified.
What are the mechanisms determining our preferences for the color of a car, the location of a job, or the physical attractiveness of a potential dating partner? They believe that the emotional appraisals can be classified as appropriate and hence rational and inappropriate or irrational. If people fear what objectively is to be feared, and strive for the things which actually make them happy, then these emotions might be called rational. The evidence demonstrates, unfortunately, that people are not exceptionally good in making appropriate judgments about what makes them happy. Emotions therefore should not be viewed as threats to rationality. The rationality of decision making might actually depend on people's capacity to form appropriate emotions.
A very important conclusion one can make from the above discussion is about the inevitable interplay between rationality and emotions in the process of decision making. Stanovich, argue for a broad theory of rationality, which will also emphasize the interplay between epistemic and practical rationality. For example, it is relatively uncontroversial that it is rational to have derived goals.
One might desire to acquire an education not because one has an intrinsic desire for education, but because one desires to be a lawyer and getting an education leads to the fulfillment of that goal. Certain goals are positively evaluated because attaining them leads to the satisfaction of a wide variety of other desires. In contrast, there are some goals which satisfaction does not lead to the satisfaction of any other desires.
In the extreme there may exist goals that are in conflict with other goals. Fulfilling such a goal would actually impede the fulfillment of other goals. At the same time according to Trope and Fishbach everyday life observations and a considerable amount of research suggest that immediate temptations often prevent people from acting according to their long-term goals.
People often fail to maintain a healthy diet, or seek constructive solutions of interpersonal conflicts. People may learn that certain temptations are difficult to overcome on-line and that it is necessary to bolster the value of their long-term goals in advance and even irreversibly precommit themselves to achieving these goals. Why people are encouraged to strive for their goals, but not to derive pleasure from the process of attaining these goals? It is interesting that common wisdom connects rationality with striving for the future goals, while emotions are made responsible for momentary pleasures one faces, enjoys or fights throughout her life. Under contextual influence people can be either inclined to behave rationally or to succumb to temptation, thus making trade-offs between pleasures due in the future and those available immediately.
In fact I believe such division will provide higher predictive power of the decision models due to the better understanding of real-life human behavior. As I show below some attempts to include the similar elements in the decision models have been made by the researchers in the field of self-control and self- motivation. The researchers distinguish between perceived short-term and long- term outcomes of activities. Basically, short-term outcomes are immediate but not long lasting.
In contrast, long-term outcomes are remote but long lasting. Situations in which short-term outcomes are in opposition to long-term outcomes pose a self-control dilemma. The solution of such dilemma depends heavily on the strength of goal commitment. Goal commitment is viewed as a continuous variable, and an action toward a certain goal is seen as increasing the commitment to actions that favor the same goal. Goals in general are broadly defined to include long-term objectives as well as salient short-term temptations Trope and Fishbach, Fishbach and Dhar, The most close to PRU term which could be found in the literature is also related to the work of Kahneman and defined as the moment-utility, which refers to the valence good or bad and to the intensity mild to extreme of current affective or hedonic experience Interestingly Kahnemann also believes that the moment-utility is the building block for a construct of objective happiness.
Objective happiness is a concept, which can be characterised by measures of the affective state of individuals at particular moments in time. Clearly, a life that is meaningful, satisfying and cheerful should rank higher on the scale of well-being than a life that is equally meaningful and satisfying, but sad or tense. Some practical suggestions are given below. The ultimate data for the judgment are, of course, subjective experiences Kahnemann, While the model is rooted in classical MAU, it also represents an attempt to explain deviations with the help of goal-based model. As an example I am using the decisions people make on everyday basis.
I consider a case of a young decision maker — a college student — who decides between going to the college or skipping the class and staying at home other possible choice options can include for example healthy vs unhealthy eating or exercising vs watching TV 6. The model is intentionally simplified in order to make it more straightforward and more illustrative.
I suggest that initially she prefers going to the college to staying at home tomorrow. So we can assume that the DM is satisfying two goals by going to the college: education and relations with her parents. What about staying at home? According to the above calculations the DM is definite about her choice. In order to control for inconsistency the decision maker can be given several other questions which could imitate changing environmental factors. The major emphasis is made on the structure and relative importance of different goals for the DM.
In other words if the DM, contrary to her own preferences, skips the class next day, her behavior will be seen exclusively as violation of rationality axioms. In my opinion in such argumentation the very goal setting process is left behind the scope of the model. In fact the parameters which were addressed earlier as short-term outcomes or temptations as well as momentary salience, bring us to the idea that some factors of immediate temporarily nature can intervene into the model and potentially change the choice outcome. Instead of seeing such interventions as impeding the decision making process, I offer to analyze them as factors challenging DMs goal commitment and even the very set of goals the DM follows.
In order to understand the changes in preferences one should ask the DM a conceptually different set of questions: namely the questions concerned with the satisfaction the DM derives from the activity itself. Returning to the example, the DM can hypothetically assume that the process-related utility PRU she derives from going to the college is actually negative the class is dull, getting to and fro takes too much time, etc. As we see from the picture 1, the utility of going to the college still overweighs the utility of staying at home.
However the difference is already narrowed. The smaller the difference — the easier it is for the DM to show the pattern of preference reversal. If we can construct some hypothetical situation where PRU of going to the college will decrease even more rain outside, broken umbrella, overcrowded public transport, etc. The higher the initial PRU of college the DM enjoys the class, the topic is interesting , the smaller is the chance of preference reversal even when the environmental factors have the opposite influence. At the same time the importance of the concept of process-related utility is not limited to making this knowledge explicit for the DM. One of the major conclusions is that such combinations can be most dangerous since they are unstable and under the influence of circumstances DM can be easily tempted by more pleasant but less long-lasting options.
On the other hand even if the DM possesses strong commitment to her goals high GRU , later she can be disappointed by the outcome wrong goal and feel regret towards missed momentary pleasures of life low PRU. In general the above discussion leads to the conclusion that process-related utility can be seen as an essential component of the utility contract and should be taken into account both in descriptive models and in normative analysis. Final remarks As Gilboa points out the decision theory appears to be at a crossroad, in more sense than one. Over half a century after the defining and, for many years of definitive works, the field seems to be asking very basic questions regarding its goal and purpose, its main questions and their answers, as well as its methods of research.
This happens for several reasons: partly, it is the natural development of a successful discipline, but to a large extent it is the result of empirical and experimental failures of the classical theory. In terms of goals and purposes, decision theory can be seen either as is a descriptive field aiming to help understanding economic phenomena, or as a normative enterprise whose goal is to help individual decision makers pursue their own goals. Gilboa notes that subjective expected utility maximization may be a good starting point for all these and other goals, but the fine-tuning of the theory depends on the application one has in mind.
Due to the lack of communication between these disciplines, each has developed their own version of the concept that has strengths in the context of use, but also exhibits many weaknesses when considered outside of that context. Both fields contributed considerably to our understanding of human choice, but many issues are still to be resolved. At the same time as Dyer et al point out, the behavioral convergence is far more important than mathematical convergence. Currently the question is not whether we should pay more attention to the behavioral realities of decision making, but rather how we can best account for those realities in decision analyses Dyer et al, In words of Slovic describing and explaining failures of invariance requires choice models of far greater complexity than traditional models.
One approach according to Gilboa is to incorporate such failures into the descriptive theories, to make the latter more accurate. This is, to a large extent, the road taken by behavioral economics. In the same vein I believe that if humans are to be considered rational or intentionally rational , then the very notion of rationality needs modification. To match the reality it should be viewed from a wider and more complex perspective. Further if humans are maximizers, then only under the limiting influence of the environment.
Researchers believe e. Hill, that the choice made at a particular time is context-specific. In a different context, the choice may be different. Costs of finding, sorting and processing information should be included in any model attempting to explain or predict human behavior with the negative sign9. If it has been included, then the notion of bounded rationality becomes more understandable. In fact classical maximization under the situational constraints is not only impossible descriptively, but also undesirable prescriptively. As Slovic notes, it is now generally recognized that utility maximization provides only limited insight into the process by which decisions are made.
According to the MAUT, in order to make a choice people do or should use the sum of products of subjective utilities, probabilities and weights of attributes related to the alternative. It is very important to see all these parameters as subjective and subject to changes under influence of the environment. But the same can be argued about subjective values we assign to the particular outcomes in utility theory. Why should they be stable over time? While classical utility theory takes preferences for granted, contemporary research more and more concentrates on the idea of preference construction, which in its turn fits very well into the goal based approach in the decision making.
It seems quite natural to see the process of decision making as being aimed at achieving some specific goals. In this approach the alternatives are considered from the perspective of their contribution to the particular goals. In fact alternative-based approach and goal- based approach are very similar in many aspects: in both cases decision makers consider the alternatives by assigning them specific values. This unwillingness to look inside the black box of human psycho leads to the theory of fixed preferences and axioms of transitivity and invariance. In goal-based approach the attempt is made to understand why people assign higher utilities to some attributes and lower to the other.
The process itself is based on narratives or internal dialog — which the decision maker conducts in order to justify his decision. The framing of the problem can serve as a starting point for such a dialog, but further this dialog unfolds the way decision maker wants or better get used to see Betsch, for the discussion of decision strategies. We all have very specific ways of organizing such internal discussions. This particular way of narrating can bring us to considering one or another set of goals related to the current choice. New information, even the one which is considered irrelevant in classical theory, can influence utility of the alternative, since it will produce new narrative which can lead to the reassessment of the goals by the decision maker.
We presumably concentrate on a very limited number — 2 or 3 — and assess the importance of the choice outcome in achieving each of these goals. Goals in this model are considered independent and in each particular moment the decision maker has a particular hierarchy of these goals. Since we admit that the choice of goals heavily depends on situational factors, the understanding of the decision making process will be incomplete without understanding of the mechanisms which draw attention to the particular goals. In other words one needs to trace the link between the environmental influence and individual response. I argue that such a mechanism provided by emotions, which should inform us about relevant factors in environment and help taking decisions under changing circumstances.
At the same time the function of emotions is not limited to the stated above. The ultimate goal in a profitability analysis is to use comparable information to identify products, customers or locations that are underperforming, to help make decisions that will increase the overall profitability of the company. It is important to set minimum performance criteria for each of the key profitability measures. Financial services organization determine where to focus and how to execute by gaining meaningful in sight from a depth of complex financial and operational data.
A profitability analysis can be effective tool for identifying or confirming a distressed company's underlying problems. Industries that prosper have a strong customer focus in their decisions. Management accountants are giving increased attention to customer-profitability analysis, which is the reporting and analysis of customer revenues and customer costs. Horngren, Foster and Datar explain the two elements of customer profitability customer revenues and customer costs.
Two variables explain revenue differences across customers: the volume of products purchased and the magnitude of price discounting. Price discounts may be due to multiple factors, including the volume of product purchased higher-volume customers receive higher discounts and whether having the customer brings marketing benefits name recognition that helps promote other sales. Discounts could also be due to poor negotiating by a salesperson or the dysfunctional effect of an incentive plan that is based only on revenues. Managers find customer profitability analysis useful for several reasons. First, it frequently highlights how vital a small set of customers is to total profitability, managers need to ensure that the interests of these customers receive high priority.
Second, when a customer is ranked in the "loss category," managers can focus on ways to make this customer more profitable in the future. Cost analysis employs various techniques which include break even analysis, comparative cost analysis, capital expenditure analysis, and budgeting techniques. The cost analysis technique to be used depends on the nature of the problem at hand and the professional judgment of the Journal of Asian Research Consortium 67 managerial accountant. Conducting detailed cost analysis to ensure high degree of accuracy demands more time, energy and money for compiling and supplying cost information. In selecting cost analysis approaches and techniques, therefore, consideration of cost-benefit trade off becomes necessary.
A general conclusion which could be made from the existing literature is that Cost analysis is crucial in various decisions and plays an important role in managerial decision making. Barnett, W. Profitability Analysis by Market Segments, J. Bonoma, T. Marketing performance assessment. Brealey, Richard A. New York: McGraw-Hill, 5. Charles T. Horngren, George Foster, and Srikant M. Clement L. Stanford , Cost minimization and control as a function of cost Accounting.
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Prentice-Hall, England Cliffr, Nj Patrick M. Dunne; Harry I. Wolk, Jul. Paul Crossman , The function of the Cost Accountant in cost control, pp. Peter M. Nobel, Thomas S. Riggs, James L. McGraw-Hill, New York, 2nd edition, Robert K. Jaedicke and Alexander A. Robichek , Cost-volume-profit Analysis under conditions of uncertainty, pp. Schnoebelen S a ,Integrating an advanced cost management system into operating systems part I. Journal of cost management, Vol 7, Winter, p Journal of cost management, Vol 7, Spring, p Journal of cost management, Vol 7, Summer, p Thompson, M.Every one Essays on running cross country these strategies shares the distinction of being appropriate in the early life A2 history coursework mark scheme a product. His Apa research paper format title page introduced psychologists to the economic literature on choice and reviewed some contemporary experimental studies Slovic, Ap bio essay 2003 #1 Decision researchers use a Essays on running cross country of quantitative and qualitative methods Managerial decision making research paper examine how A2 coursework english literature aqa make decisions. In the second part I What are the most popular hairstyles among black kids? to analyze classical premises, but this time in the form of critique from behavioral science. A manager thus makes these decisions exclusively as an individual and not as an organization.