Judgment in Managerial Decision Making and Managing under Uncertainty - Essay Example

Name Class Lecturer Unit Observation Review Decision making plays a very important part in management. I once observed a managerial decision at the firm I was working with. The firm was in a process of expanding and there was an increase in its business. The firm owner was faced with a situation where the demand was more than the supply. To be able to provide the deficit to the market, the owner decided to outsource labor. This involved partnering with other companies that would produce on behalf of the firm. Being a clothing firm, the owner who acted as the manager acted fast to look for outsourcing partners. He quickly evaluated the capabilities of the outsourcing partners and chose one. In this situation, the firm had to look for the best alternative between hiring more workers and outsourcing the services. The company had previously tried to work overtime in production. This involved engaging the workforce for more hours in order to meet the demands. The results had been high operating costs and poor quality in some cases. This drove the manager into looking for an alternative way in which he could meet demand. Most of the employees were feeling overworked due to increase in working hours. This could have led to demand for higher pay or sabotage. There was also threat of the major customers cancelling their contracts if they could not be supplied in time. This would have led to loss of business. In such a situation, a decision that would enable increase in production was needed fast. The decision was able to help the firm supply their products efficiently. The firm was able to retain its business and increase in efficiency. This was a major breakthrough in the firm as it was able to concentrate on what it could produce best without stretching the available resources. Analysis For the manager to make the situation to outsource, he had to undergo a process. This involves recognizing there is a problem and then acting to solve it. The decision has to be made from a number of alternatives. The final choice among the alternatives is the decision. Whether a decision is made rationally or using heuristic and biases, it has to undergo the five steps. The steps are recognizing the need, diagnosing it, searching for information, evaluating and authorizing the decision (Bazerman & Moore, 14). In this case, the manager detected a crisis. He used information from the firm to search on the outsourcing partners. This is where heuristics played part due to limited time. By evaluating, the management looks at all alternatives to the decision. In rational decision making, this process is done in an iteration. All the alternatives are deeply investigated. The final stage is where the chosen alternative is authorized. For management decision making is a way of life (Schoenfeld, 14). In the situation of the firm, the manager decision was affected by several factors. This can be classified as cognitive and environmental factors. When making a decision, human beings are in some instances bounded. Hurdles occur in decision making process which hinders its effectiveness. For a leader to make a rational decision, he must be able to come up with a decision which gibes the maximum benefits. This is assisted by having good cognitive skills and methods of processing information. In this case, the manager was faced with a major firm decision. How he handled it would have consequences on the firm performance. He had to look at all the possible solutions that would enhance production and secure the customers (Towler, 29). The main issue that affected the manager during this process was time. The product demand was rising fast and he needed to act in a swift manner. This could have influenced his decision making in several ways. When the process of decision making is affected by time, cost and information processing ability, it becomes bounded. The decision that the manger made was not rational. The limited time must have affected the ability to fully process the information. Decisions that are made with time constraints are mostly done through shortcuts. This is where the decision maker ignores some part of the information in order to come up with accurate and fast decision. This is known as heuristics (Dai, Wertenbroch & Brendl, 19). In some instances making an irrational decision due to heuristics and biases can lead to failure. But in such a situation where time is limited, there is no other method that can give accurate results. The manager had to rely on a short cut to come up with the final decision. Heuristics can also lead to better decisions depending on environment. The manager’s decision was such an instance where heuristics were able to help in coming up with a good solution. The role that is played by the heuristics cannot be undermined as it can lead to a timely and effective decision. Most of the organizations have successfully made heuristic decisions and succeeded in outcome (Maqsood, Finegan & Walker, 297). In most instances, decisions have to be made in crisis. The firm was in a production crisis, hence there was a need for quick decision. Though it’s associated with errors, it helps in making decisions in such an environment. Rationality cannot work in all environments. Though rationality is used in coming up with real life solutions, the method has some problems. The method in some cases offers unrealistic processes (McCaughey & Bruning, 32). This is seen where one is trying to solve a problem in a time constrained environment. Some problem instances cannot be solved rationally and taking shortcuts can provide better results. This makes use of heuristics unavoidable (Dham & Harries, 20). If the manager went through rational decision making process, a lot of time would have wasted. The customers were already complaining due to lack of timely supplies. The manager had to look for a way in which he could sample the best outsourcing companies fast. There was no ample time to carry out the test to determine the ability of the supplier. Relying on the past performance records, the manger was able to select the best performing firms. This saved a lot of time that could have been used in examining the firms. Reflection In this situation, I observed that the decision though irrational was able to give positive results. The firm was able to meet the increasing demand for its products at ease. The employees who were previously burdened with increased operations were relieved. One of the areas in which the organization benefited from the decision is efficiency. Within a short period, the firm was able to meet the demand and increase their sales. The quality control department was able to record reduced defects in the products. The decision was appreciated by everyone in the firm. Using heuristic, it was possible to come with a feasible solution to save the firm. In an event where there is limit of time, taking shortcuts in making decisions can lead to a better solution (Naqvi, Shiv & Bechara, 262). If I was in the managers’ situation, I would have increased the firm capacity to produce. This could have been achieved through increasing the number of employees and buying new equipment. The firm had enough money due to increased sales which could have purchased enough equipment to expand the industry. Expanding the firm would lead to increased firm output while minimizing problems associated with outsourcing. Outsourcing can lead to compromise of quality and delays if not well carried out (Dominguez, 47). In this case, the decision was made fast hence there was no time to analyze the outsourcing partners well. Issues can also arise later if the contract is bleached or poorly drawn (Dominguez, 64). I could have looked recruited more workers with experience. This would have enabled the firm to have more control on the produced goods. My decision will have to be affected by heuristics and biases. This is due to several external factors that will affect the final decision. The external factors that would affect my decision are the amount of resources available and time (Dham & Harries, 20). This is due to fact that the budget to buy new equipments may be large. The revenue used to buy new equipment should not affect other activities on the firm. The time limit can affect my decision. This is due to fact that I would be required to come up with a major decision in a short time frame. When the firm decides to outsource it have to face the associated problems. The outsourcing firm can ruin the firm reputation through poor quality. The decision to outsource should not be taken in a short time. This is a decision that requires meeting all the stakeholders, analyzing the outsourcing partners and coming out with the right partner (Peniwati, 937). In this case, the process was not followed and the manager came to the decision without taking rational steps. Though the decision may succeed initially, it can lead to problems due to poor vetting of the outsourcing partners (Idson et al. 160). The main problem with the firm was a lack of capacity. If the firm would have increased its capacity to manufacture, it would have been able to deal with the shortages without need to outsource. Works Cited Bazerman, Max. H. & Moore, Don. Judgment in Managerial Decision Making (7thed.). Hoboken, NJ: John Wiley & Sons, Inc, 2008. Dai, Xianchi, Wertenbroch, Klaus, & Brendl, Miguel, “The value heuristic in judgments of relative frequency.” Association Psychology Science. 19(2008): 18-19. Dham MK & Harries C. “Information search in heuristic decision making.” Applied Cognitive Psychology. 2(2009):15-27 Dominguez, Linda. R. The manager's step-by-step guide to outsourcing. New York, McGraw- Hill, 2006. Idson, L. C., Chugh, D., Bereby-Meyer, Y., Moran, S., Grosskop f, B., & Bazerman, M. “Overcoming focusing failures in competitive environments.” Journal of Behavioral Decision Making, 17(2004), 159-172. McCaughey, Dierdre, & Bruning, Sue, N. “Rationality versus reality: the challenges of evidence- based decision making for health policymakers.” Implementation Science, 10(2010):5- 39 Maqsood, Tayyab, Finegan, Andrew & Walker, Derek. “Biases and heuristics in judgment and decision making: The dark side of tacit knowledge." Issues Informing Science Information Technology,1(2004): 295-301 Naqvi, Nasir, Shiv, Baba & Bechara, Antonie, “The role of emotion in decision making: a cognitive neuroscience perspective.” Current Directions in Psychological Science, 15, (2006):260-264 Peniwati, Kirti. “Criteria for evaluating group decision making methods.” Mathematical and Computer Modelling, 46(2007):935-947. Schoenfeld, Alan. H. How we think: A theory of goal-oriented decision making and its educational applications. New York: Routledge, 2011. Towler, Michael. Rational decision making: An introduction. NewYork: Wiley, 2010. Read More