Published on February 24, 2008
Learning Objectives Slide 1 of 3: Learning Objectives Slide 1 of 3 Describe the situations in which managerial decisions are called for. Discuss the basic classifications for managerial decisions. Describe the nature of strategic decision making as well as the strategic decision-making matrix approach for strategic selection. Learning Objectives Slide 2 of 3: Learning Objectives Slide 2 of 3 Identify the differences between the growth-share matrix and the industry attractiveness/ business strength matrix approaches for evaluating business portfolios. Describe the nature of operational decision making. Discuss the basic elements that add structure to the decision-making process. Learning Objectives Slide 3 of 3: Learning Objectives Slide 3 of 3 Discuss the differences between decision making under certainty, risk, and uncertainty. Describe the solution approaches that would be taken for risk and uncertainty situations. Discuss the basics of breakdown analysis, linear programming, and PERT analysis. Managerial Decision Situations: Managerial Decision Situations Managers are faced with decisions when a problem occurs or when an opportunity arises. Problem A situation in which some aspect of organizational performance is less than desirable. Opportunity A situation that has the potential to provide additional beneficial outcomes. Classification of Decision Situations: Classification of Decision Situations Programmed decisions Decisions made in response to routine situations that have occurred in the past. Nonprogrammed decisions Decisions made in response to situations that are unique, unstructured, or poorly defined. Responses to Decision Situations: Responses to Decision Situations Strategy Selection: Strategy Selection The Strategic Decision-Making Matrix A two-dimensional grid used to select the best strategic alternative in light of multiple organizational objectives. Evaluation of Portfolios: Evaluation of Portfolios Business Portfolio Matrix A two-dimensional grid that compares the strategic positions of each of the organization’s businesses. Most frequently used matrices: Growth-share matrix. Industry attractiveness/business strength matrix. Boston Consulting Group (BCG) Matrix: Boston Consulting Group (BCG) Matrix Business portfolio matrix that uses market growth rate and relative market share as the indicators of the firm’s strategic position. Market growth rate A measure of the annual growth percentage of the market in which the business operates. Relative market share The firm’s market share divided by the market share of its largest competitor. BCG Matrix: BCG Matrix BCG Matrix: Stars and Cash Cows: BCG Matrix: Stars and Cash Cows Stars: Businesses that fall into the high market growth/high market share cell of the BCG matrix. Offer attractive profit and growth opportunities. Cash Cows: Businesses that fall into the low market growth/high market share cell of a BCG matrix. Generate substantial cash surpluses. Generally yesterday’s stars that have matured. BCG Matrix: Dogs and Question Marks: BCG Matrix: Dogs and Question Marks Dogs: Businesses that fall into the low market growth/low market share cell of a BCG matrix. Typically generate low profits, and in some cases may even lose money. Question Marks: Businesses that fall into the high market growth/low market share cell of a BCG matrix. Businesses that look attractive from an industry standpoint, however, their low market share makes their profit potential uncertain. GE Matrix: GE Matrix Business portfolio matrix that uses several factors to assess industry attractiveness and business strength. Operational Decision Making: Operational Decision Making Operational decision making relates to decision situations that cover much shorter time spans. These decisions are typically made at lower levels within the organization, but that need not always be the case. Applying Structure To The Decision-Making Process slide 1 of 2: Applying Structure To The Decision-Making Process slide 1 of 2 Alternative Courses of Action Strategies that might be implemented in a decision-making situation. States of Nature Conditions over which the decision maker has little or no control. Payoffs The outcomes of decision situations. Applying Structure To The Decision-Making Process slide 2 of 2: Applying Structure To The Decision-Making Process slide 2 of 2 Payoff Table A matrix that organizes the alternative courses of action, states of nature, and payoffs for a decision situation. Techniques that Enhance Quality in Decision Making: Techniques that Enhance Quality in Decision Making The manner in which the information in the payoff table is analyzed is a function of the decision-making environment. Types of decision-making: Decision-making under certainty Decision-making under risk Decision-making under uncertainty Decision Making Under Certainty: Decision Making Under Certainty Decision making under certainty In decision making under certainty, the decision maker knows with certainty what conditions will subsequently occur and affect the decision outcomes. Decision Making Under Risk: Decision Making Under Risk Decision making under risk In decision making under risk, the probabilities are used to obtain expected values of outcomes for each decision alternative. Expected Value: The product of a payoff and its probability of occurrence. Expected Monetary Value (EMV): The sum of each expected value for an alternative. Decision Tree: A branching diagram that illustrates the alternatives and states of nature for a decision situation. Decision-Making Under Uncertainty: Decision-Making Under Uncertainty In some cases a decision maker cannot assess the probability of occurrence for the various states of nature. When no probabilities are available, the situation is referred to as decision making under uncertainty. Quantitative Decision-Making Aids: Quantitative Decision-Making Aids Breakeven Analysis Linear Programming PERT (Program Evaluation and Review Technique) Breakeven Analysis: Breakeven Analysis A graphic display of the relationship between volume of output and revenue and costs. Linear Programming: Linear Programming A quantitative analysis that helps managers decide how to allocate limited resources among competing users in a manner that optimizes some objective. Computer programs are available to perform linear programming analysis. PERT (Program Evaluation and Review Technique): PERT (Program Evaluation and Review Technique) A network approach for scheduling project activities. In the PERT approach, four preliminary steps must be performed before the project analysis can begin: Activity identification, precedence identification, activity time estimation, and network construction. Implications for Leaders: Decision Making Tools slide 1 2 : Implications for Leaders: Decision Making Tools slide 1 2 Be able to recognize quickly problems and opportunities that call for a decision. Be able to recognize the different timeframes and scopes of strategic decisions versus operational decisions. Be equipped with all the tools and techniques that can aid in making strategic decisions. Implications for Leaders: Decision Making Tools slide 2 of 2 : Implications for Leaders: Decision Making Tools slide 2 of 2 Be familiar with the framework for operational decision making as well as the structural components for displaying operational decisions. Be able to recognize the different decision-making environments in which operational decisions will be made. Have an awareness and understanding of the various quantitative tools that can aid in making the operational decisions.