Chapter 4 Creative Problem-Solving and Decision-Making
CHAPTER 4
CREATIVE PROBLEM-SOLVING AND
DECISION-MAKING
Chapter Outline
I.
PROBLEM-SOLVING AND DECISION-MAKING: AN OVERVIEW
A. The Relationship among Objectives, Problem-Solving, and Decision Making
B. The Relationship among the Management Functions, Decision-Making, and Problem-Solving
C. The Decision-Making Model
II. CLASSIFY AND DEFINE THE PROBLEM OR OPPORTUNITY
A. Classify the Problem
B. Select the Appropriate Level of Participation
C. Define the Problem or Opportunity
III. SET OBJECTIVES AND CRITERIA
IV. GENERATE CREATIVE ALTERNATIVES
A.
B.
C.
D.
Innovation and Creativity
Using Information and Technology to Generate Alternatives
Using Groups to Generate Creative Alternatives
Decision Trees
V. ANALYZE ALTERNATIVES AND SELECT THE MOST FEASIBLE
A. Quantitative Techniques
B. The Kepner-Tregoe Method
C. Cost-Benefit (Pros and Cons) Analysis
VI. PLAN, IMPLEMENT THE DECISION, AND CONTROL
CHANGES FROM 1/E
I. PROBLEM-SOLVING AND DECISION-MAKING: AN OVERVIEW
A. The Relationship among Objectives, Problem-Solving, and Decision-Making
Learning Outcome (LO) 1. Explain the relationship among objectives, problem solving, and decision
making.
The three terms are interrelated as follows. Managers are responsible for setting and achieving organizational
objectives. When objectives are not being met, there is a problem. When there is a problem, decisions about
what, if any, action must be taken.
When your objectives are not being met, you have a problem. A problem exists whenever objectives are not being
met. Problem solving is the process of taking corrective action in order to meet objectives. Decision-making is the
process of selecting an alternative course of action that will solve a problem. Decisions must be made when you are
faced with a problem.
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B. The Relationship among the Management Functions, Decision-Making, and Problem-Solving
LO 2. Explain the relationship among the management functions, decision-making, and problem solving.
The three terms are interrelated as follows. When managers perform the functions of planning, organizing,
leading, and controlling, they make decisions. If managers are not proficient at performing the management
functions, they will have many problems.
All managers perform the same four functions: planning, organizing, leading, and controlling. While performing
these functions, managers must make decisions.
WORK APPLICATION Example student answer
2. Give a job example of when a manager was performing a management function and made a poor
decision. Explain the management function and the problem created by the poor decision.
Bill came to work around 5 minutes late one day. The manager decided not to say anything to him, rather than to
use the controlling function. Since the manager did not saying anything, the next day Bill and Karen were both
late. They figured that the boss wouldn’t say anything to them. But, the boss did tell them both in front of the
group not be late again.
C. The Decision-Making Model
LO 3. List the six steps in the decision-making model.
The steps in the decision making model include: 1. Classifying and defining the problem or opportunity; 2.
setting objectives and criteria; 3. generating creative and innovative alternatives; 4. analyzing alternatives and
selecting the most feasible one; 5. planning and implementing the decision; and 6. controlling.
The decision making model steps include: 1. classifying and defining the problem or opportunity; 2. setting
objectives and criteria; 3. generating creative and innovative alternatives; 4. analyzing alternatives and selecting
the most feasible one; 5. planning and implementing the decision; and 6. controlling.
The six steps are covered in detail throughout the chapter.
II. CLASSIFY AND DEFINE THE PROBLEM OR OPPORTUNITY
A. Classify the Problem
LO 4. Describe the difference between programmed and nonprogrammed decisions and between the
conditions of certainty, uncertainty, and risk.
The difference between programmed and nonprogrammed decisions is in the recurrence, routine, and significance
of the decision to be made. Nonrecurring, nonroutine, significant decisions are nonprogrammed decisions.
Recurring, routine, and nonsignificant decisions are programmed decisions.
The difference in decision-making conditions is based on the degree of certainty of the decision’s outcome.
With certainty you know the outcome of alternatives; with risk you can assign probabilities to the outcomes; and
with uncertainty you do not know the outcomes of alternatives.
1.
Decision Structure: With programmed decisions, recurring or routine situations, the decision-maker should
use decision rules or organizational policies and procedures to make the decision. With nonprogrammed
decisions, significant and nonrecurring and nonroutine situations, the decision-maker should use the decisionmaking model. To be significant a decision must be expensive and/or have major consequences.
2.
Decision-Making Conditions: The three decision-making conditions are: certainty, risk, and uncertainty.
Most management decisions are made under conditions of risk. However, upper-level managers tend to make more
uncertain decisions than lower-level managers.
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Chapter 4 Creative Problem-Solving and Decision-Making
3.
Decision-Making Model: There are two primary decision models. With the rational model, the decision-maker
attempts to use optimizing, selecting the best possible alternative. With the bounded rationality model the
decision-maker uses satisficing, selecting the first alternative that meets the minimal criteria. The decisionmaking model presented as Model 3-1 is the rational model. With satisficing, only parts, or none, of the model
would be used.
LO 5. Describe when to use the decision-making model vs. the bounded rationality model and group vs.
individual decision-making.
Use the decision-making model with group decision-making when there is a nonprogrammed decision with high
risk or uncertainty. Use the bounded rationality model with an individual decision when there is a programmed
decision with low risk or certainty. However, this is a general guide; there may be exceptions to the rule.
R&D Q 2. Why is it necessary to determine the decision structure and decision-making conditions?
These are the determinants of when and when not to use the decision-making model.
B. Select the Appropriate Level of Participation
As a rule of thumb, only the key people involved with the problem should participate. However, the current trend in
management favors increased employee participation.
R&D Q 3. What is the current trend in using groups to solve problems and make decisions?
More decisions in more organizations are being made by groups.
1.
Potential Advantages of Group Problem-Solving and Decision-Making: When group members have
something to contribute, there are five potential advantages: 1. Better- quality decisions. 2. More information,
alternatives, creativity and innovation. 3. Better understanding of the decision. 4. Greater committed to the
decision. 5. Improved morale and motivation. 6. Good training.
2.
Potential Disadvantages of Group Problem-Solving and Decision-Making: Groups need to be careful to
avoid the following disadvantages: 1. Wasted time and slower decision making .2. Satisficing. 3. Domination
and goal displacement. 4. Conformity and groupthink.
C. Define the Problem or Opportunity
1.
Distinguish Symptoms from the Cause of the Problem: To do this, list the observable and describable
occurrences (symptoms) that indicate a problem exists. Once you do this, you must determine the cause of the
problem.
III. SET OBJECTIVES AND CRITERIA
With programmed decisions, the objective and criteria are generally set. Therefore, following Steps 2-4 of the
decision-making model are not necessary. However, with nonprogrammed decisions you should follow all the steps
in the decision-making model. Therefore, the second step for the individual or group to follow in the model requires
setting objectives and developing criteria.
LO 6. State the difference between an objective and a must and want criteria.
An objective is the end result you want from making the decision. The must criteria are the requirements that an
alternative must meet to be selected as the decision. The want criteria are desirable, but are not necessary for the
alternative to be selected as the decision.
1.
Set Objectives: The objective must state what he decision should accomplish.
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2.
Set Criteria: Criteria are the standards that an alternative must met to be selected as the decision that will
accomplish the objective. Must criteria have to be met in order for the alternative to be acceptable, whereas
want criteria are desirable but not necessary for the alternative to be acceptable.
R&D Q 6. Would a maximum price to spend on a stereo of $1,000 dollars be an objective or a criteria?
This is a must criteria. The objective would be to buy a stereo.
IV. GENERATE CREATIVE ALTERNATIVES
A. Innovation and Creativity
LO 7. State the difference between creativity and innovation.
Creativity is a way of thinking that generates new ideas. Innovation is the implementation of new ideas for
products and processes.
1.
Innovation: An innovation is the implementation of a new idea.
2.
Creativity: Creativity is a way of thinking that generates new ideas.
R&D Q 7. Are creativity and innovation really important to all types of businesses? Is it important to
evaluate creativity before it becomes an innovation?
Yes, if businesses want to attract and retain customers. Customers continually seek goods and services that will
better meet their needs; and when a business is successful, competitors strive to take customers away by offering
better customer value.
3.
The Creative Process: The three stages in the creative process are: 1. preparation, 2. incubation and
illumination, and 3. evaluation.
LO 8. List and explain the three stages in the creative process.
Step 1. is preparation or familiarity with the problem. Step 2. is incubation and illumination. Incubation is taking
a break from the problem, and illumination is the point at which one gets the idea for the solution. Step 3. is
evaluation or making sure the idea will work before it becomes an innovation.
1. Preparation. The manager must become familiar with the problem.
2. Incubation and illumination. After generating alternatives, take a break; sleep on the problem. Take some
time before working on the problem again. During the incubation stage, you may gain an insight into the solution as
your subconscious works on the problem--illumination.
3. Evaluation. Before implementing a solution, you should evaluate the alternative to make sure the idea is
practical. With the devil’s advocate approach, group members focus on defending the solution while others try to
come up with criticisms of why the solution will not work.
B. Using Information and Technology to Generate Alternatives
Technology, especially telecommunications and computers has shown considerable potential for problem solving
and decision-making.
C. Using Groups to Generate Creative Alternatives
1.
Brainstorming: Brainstorming is the process of suggesting many possible alternatives without evaluation.
Electronic brainstorming (EBS) uses computers for the generation of alternatives.
2.
Synectics: Synectics is the process of generating novel alternatives through role-playing and fantasizing.
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Chapter 4 Creative Problem-Solving and Decision-Making
3.
Nominal Grouping: Nominal grouping is the process of generating and evaluating alternatives using a
structured voting method. This process usually involves six steps: (1) Listing. Each participant generates ideas
in writing. (2) Recording. Each member presents one idea at a time and the leader records them where everyone
can see them, going in a round-robin manner until all ideas are posted. (3) Clarification. Alternatives are
clarified through a guided discussion, and any additional ideas are listed. (4) Ranking. Each employee rankorders the top three ideas; low ranked alternatives are eliminated. (5) Discussion. Rankings are discussed for
clarification, not persuasion. During this time, participants should explain their choices and their reasons for
making them. (6) Vote. A secret vote is taken to select the alternative.
4.
Consensus Mapping: Consensus mapping is the process of developing group agreement on a solution to a
problem. If a consensus cannot be reached, the group does not make a decision.
R&D Q 9. What is the major difference between nominal grouping and consensus mapping?
The major difference is in the way that decisions are made. With nominal grouping, the decision is made by vote.
With consensus mapping, there is no vote; and if members do not agree on an alternative, there is no decision.
5.
The Delphi Technique: The Delphi technique involves using a series of confidential questionnaires to refine a
solution. The Delphi technique is commonly used for technological forecasting.
Synectics and Delphi techniques are infrequently used. When they are, they are commonly used by upper-level
managers, rather than lower-level managers, for a specific decision. Brainstorming, nominal grouping, and
consensus mapping techniques are frequently used at the department level with work groups.
D. Decision Trees
After you come up with your alternatives, and subalternatives under them, you may want to make a decision tree. A
decision tree is a diagram of alternatives. The diagram gives a visual picture of the alternatives. A decision tree
appears in the case at the end of this chapter.
V. ANALYZE ALTERNATIVES AND SELECT THE MOST FEASIBLE
LO 9. Describe the difference among quantitative, the Kepner-Tregoe, and cost-benefit analysis techniques
for analyzing and selecting an alternative.
Quantitative and Kepner-Tregoe are management science approaches; cost-benefit is not. Quantitative methods are a
subjective use of math to select the alternative with the highest value. Kepner-Tregoe uses objective math, but there
is some subjectivity in selecting and weighting criteria to select the alternative with the highest value. Cost- benefit
analysis is primarily based on subjective analysis, with some math, but alternatives do not have a final number value
to compare.
A. Quantitative Techniques
As you learned in Chapter 1, one of the five approaches to management is management science, which uses math to
aid in problem solving and decision-making. Quantitative techniques objectively use math to aid in analyzing
alternative solutions. You will learn about five quantitative techniques below and about other quantitative techniques
in Chapter 17. The intent is to make you aware of the techniques, not to make you a mathematician. If you are
interested in the actual calculations, you should take a course in quantitative analysis.
1.
Break-Even Analysis: The break-even point is the level at which there is no profit or loss.
2.
Capital Budgeting: These techniques are used to analyze alternative investments. One is the payback approach,
which allows calculation of the number of years it will take to recover the initial cash invested. The alternative
having the quickest payback is preferred. Another technique is used to calculate the average rate of return. It is
appropriate when the yearly returns differ. A more sophisticated technique, the discounted cash flow method,
takes into account the time value of money and assumes that a dollar today is worth more than a dollar in the
future.
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3.
Linear Programming: Optimum allocation of resources is determined using linear programming (LP). The
resources managers typically allocate include time, money, space, material, equipment, and employees.
4.
Queuing Theory: This technique attacks waiting line time. Queuing theory helps the company balance the cost
of employees and lost customers to maximize profits.
Probability Theory: A probability of success or failure is assigned to each risk alternative. The expected value,
which is the payoff or profit from each combination of alternatives and outcomes, is then calculated.
5.
B. The Kepner-Tregoe Method
The Kepner-Tregoe Method combines the objective quantitative approach with some subjectivity. The subjectivity
comes from determining must and want criteria and assigning value weights to them.
Step 1: Compare each alternative to the must criteria. Step 2: Rank each want criterion on a scale of 1 to 10. Step 3:
Assign a value of 1 to 10 (10 being the highest). Step 4: Calculate the weighted score (WS) for each alternative. Step
5: Select the alternative with the highest total weighted score
C. Cost-Benefit (Pros and Cons) Analysis
There are times when the benefit received for the cost is uncertain, making management science approaches
unusable. Cost-benefit analysis is a technique for comparing the cost and benefit of each alternative course of action
using subjective intuition and judgment along with math. With the pros and cons analysis, you identify the
advantages, which can be considered the benefits, and disadvantages, which can be considered the cost, of each
alternative.
WORK APPLICATION Example student answer
10. Give an example decision in which it would be appropriate for managers where you work or have
worked to us the Kepner-Tregoe method and the cost-benefit analysis techniques.
The office continually upgrades the computers every few years. When managers make the next decision they
could use the Kepner-Tregoe Method. My manager uses the cost-benefit analysis when she assigns us work. She
mentally judges our strengths and weaknesses and delegates accordingly.
R&D Q 10. Why are generating and analyzing alternatives separate steps in the decision-making model?
Generating and evaluating alternatives at the same time tends to lead to satisficing--the individual or group stops
the process once an acceptable solution is found rather than continuing and optimizing.
VI. PLAN, IMPLEMENT THE DECISION, AND CONTROL
1.
Plan: After making a decision, you develop a plan of action with a schedule for implementation.
2.
Implement the Plan: After a decision has been made and plans developed, the plans must be implemented.
3.
Control: Control methods should be developed while planning. Checkpoints should be established to determine
whether the alternative chosen is solving the problem. If it is not, corrective action may be needed.
When managers are not willing to admit that they made a bad decision and change, they are in the process
known as escalation of commitment. When you make a poor decision, you should admit the mistake and try to
rectify it by going back over the steps in the decision-making model.
LEARNING OUTCOMES AND ANSWERS
These learning outcomes are included in the test bank in the concept section.
1. Explain the relationship among objectives, problem solving, and decision-making.
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Chapter 4 Creative Problem-Solving and Decision-Making
The three terms are interrelated as follows. Managers are responsible for setting and achieving organizational
objectives. When objectives are not being met, there is a problem. When there is a problem, decisions about what,
if any, action must be taken.
2. Explain the relationship among the management functions, decision-making, and problem solving
The three terms are interrelated as follows. When managers perform the functions of planning, organizing,
leading, and controlling, they make decisions. If managers are not proficient at performing the management
functions, they will have many problems.
3. List the six steps in the decision making model.
The steps in the decision making model include: 1. Classifying and defining the problem or opportunity; 2.
setting objectives and criteria; 3. generating creative and innovative alternatives; 4. analyzing alternatives and
selecting the most feasible one; 5. planning and implementing the decision; 6. controlling.
4. Describe the difference between programmed and nonprogrammed decisions and between the conditions
of certainty, uncertainty, and risk.
The difference between programmed and nonprogrammed decisions is in the recurrence, routine, and
significance of the decision to be made. Nonrecurring, nonroutine, significant decisions are nonprogrammed
decisions. Recurring, routine, and nonsignificant decisions are programmed decisions.
The difference in decision-making conditions is based on the degree of certainty of the decision’s outcome.
With certainty you know the outcome of alternatives; with risk you can assign probabilities to the outcomes, and
with uncertainty you do not know the outcomes of alternatives.
5. Describe when to use the decision-making model versus. the bounded rationality model and group versus
individual decision-making.
Use the decision making model with group decision-making when there is a nonprogrammed decision with high
risk or uncertainty. Use the bounded rationality model with an individual decision when there is a programmed
decision with low risk or certainty. However, this is a general guide; there may be exceptions to the rule.
6. State the difference between an objective and a must and want criteria.
An objective is the end result you want from making the decision. The must criteria are the requirements that an
alternative must meet to be acceptable. The want criteria are desirable; but are not necessary for the alternative to
be selected as the decision.
7. State the difference between creativity and innovation.
Creativity is a way of thinking that generates new ideas. Innovation is the implementation of new ideas for
products and processes.
8. List and explain the three stages in the creative process.
Step 1 is preparation or familiarity with the problem. Step 2 is incubation and illumination. Incubation is taking a
break from the problem, and illumination is the point at which one gets the idea for the solution. Step 3 is
evaluation or making sure the idea will work before it becomes an innovation.
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