Chapter 9

Managerial Decision Making
INTRODUCTION
 The

word decision has been derived from the
Latin word "decidere" which means "cutting
off".
 Thus, decis...
DEFINITION
 In

the words of Ray A Killian, "A decision in
its simplest form is a selection of
alternatives".
 Dr. T. G ...
Managerial Decision Making
 Decision
 It
–
–
–

making is not easy

must be done amid
ever-changing factors
unclear info...
Managerial
Decision Making
 Decision

Characteristics

 Decision-making

Models

 Steps

Executives Take Making Importa...
Decisions and Decision Making
 Decision = choice made from available

alternatives
 Decision

Making = process of identi...
Categories of Decisions
 Programmed

Decisions

Situations occurred often enough to enable
decision rules to be developed...
Decisions and Decision Making
 Many

decisions that managers deal with
every day involve at least some degree of
uncertai...
Certainty, Risk, Uncertainty, Ambiguity
●

Certainty
●

●

Risk
●
●
●

●

decision has clear-cut goals
good information is...
Conditions that Affect the Possibility
of Decision Failure
Organizational
Problem
Low

Possibility of Failure

Certainty

...
Selecting a Decision Making Model
 Depends

on the manager’s personal
preference
 Whether the decision is programmed or
...
Three Decision-Making Models
 Classical Model
 Administrative Model
 Political Model

Copyright © 2005 by South-Western...
Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
13
Classical Model
Logical decision in the organization’s best economic interests

Assumptions







Decision maker oper...
Administrative
Model

Herbert A. Simon

How nonprogrammed decisions are made--uncertainty/ambiguity



Two concepts are i...
Administrative Model
How nonprogrammed decisions are made--uncertainty/ambiguity
●

Managers actually make decisions in di...
Political Model
Closely resembles the real environment
●

Closely resembles the real environment in which
most managers an...
Characteristics of Classical, Political,
and Administrative Decision Making
Models
Classical Model

Administrative Model

...
Six Steps in the Managerial
Decision-Making Process

Evaluation
and
Feedback

Implementation
of Chosen
Alternative



...
Steps in Decision Making

Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
20
Six C's of Decision Making
 1. Construct.
 2. Compile.
 3. Collect.
 4. Compare.
 5. Consider.
 6. Commit.
Copyright...
Six C's of Decision Making


Construct a clear picture of

precisely what must be decided.


Compile a list of requireme...


Compare alternatives that meet

requirements.


the

Consider the "what might go wrong"

factor with each alternative....
Diagnosis and Analysis of Causes
 Diagnosis = analyze underlying causal

factors associated with the decision situation
...
Underlying Causes - Kepner /Tregoe


What is the state of disequilibrium affecting us?



When did it occur?



Where d...
Selection of Desired Alternatives
 Risk

Propensity = willingness to undertake
risk with the opportunity of gaining an
in...
Decision Styles
 Differences

among people with respect to how
they perceive problems and make decisions

 Not
–
–
–
–

...
Personal Decision Framework

Situation:
· Programmed/nonprogrammed
· Classical, administrative,
political
· Decision steps...
Directive Style
 People

who prefer simple, clear-cut solutions
to problems
 Make decisions quickly
 May consider only ...
Analytical Style
 Complex

solutions based on as much data
as they can gather
 Carefully consider alternatives
 Base de...
Conceptual Style


Consider a broad amount of information



More socially oriented than analytical style



Like to ta...
Behavioral Style


Have a deep concern for others as individuals



Like to talk to people one-on-one



Understand the...
Participation in
Decision Making

Vroom-Jago
Model

 Helps

gauge the appropriate amount of
participation for subordinate...
Participation in
Decision Making

Vroom-Jago
Model

 Diagnostic


Questions
Decision participation depends on the
respon...
Seven Leader Diagnostic Questions








How significant is the decision?
How important is subordinate commitment?...
New Decision Approaches
for Turbulent Times
New
Decision
Approaches
for Turbulent
Times

Brainsto
rming

on
D

i

Kno
w

a...
CHARACTERISTICS OF
EFFECTIVE DECISIONS






1. Action Orientation: Decisions are action-oriented and
are directed towa...
BARRIERS IN MAKING DECISIONS
 Hasty-

Making quick decisions without having
much thought.
 Narrow - Decision making is b...
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Decision Making

  1. 1. Chapter 9 Managerial Decision Making
  2. 2. INTRODUCTION  The word decision has been derived from the Latin word "decidere" which means "cutting off".  Thus, decision involves cutting off of alternatives between those that are desirable and those that are not desirable. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 2
  3. 3. DEFINITION  In the words of Ray A Killian, "A decision in its simplest form is a selection of alternatives".  Dr. T. G Glover defines decision "as a choice of calculated alternatives based on judgement".  "Decision-making is the selection based on some criteria from two or more possible alternatives". Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 3
  4. 4. Managerial Decision Making  Decision  It – – – making is not easy must be done amid ever-changing factors unclear information conflicting points of view Manager’s Challenge: Tupperware Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 4
  5. 5. Managerial Decision Making  Decision Characteristics  Decision-making Models  Steps Executives Take Making Important Decisions  Participative Decision Making  Techniques for Improving Decision Making in Today’s Organizations Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 5
  6. 6. Decisions and Decision Making  Decision = choice made from available alternatives  Decision Making = process of identifying problems and opportunities and resolving them Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 6
  7. 7. Categories of Decisions  Programmed Decisions Situations occurred often enough to enable decision rules to be developed and applied in the future – Made in response to recurring organizational problems  Nonprogrammed Decisions – in response to unique, poorly defined and largely unstructured, and have important consequences to the organization – Ethical Dilemma: The No-Show Consultant Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 7
  8. 8. Decisions and Decision Making  Many decisions that managers deal with every day involve at least some degree of uncertainty and require nonprogrammed decision making     May be difficult to make Made amid changing factors Information may be unclear May have to deal with conflicting points of view Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 8
  9. 9. Certainty, Risk, Uncertainty, Ambiguity ● Certainty ● ● Risk ● ● ● ● decision has clear-cut goals good information is available future outcomes associated with each alternative are subject to chance Uncertainty ● ● ● ● all the information the decision maker needs is fully available managers know which goals they wish to achieve information about alternatives and future events is incomplete managers may have to come up with creative approaches to alternatives Ambiguity ● ● ● ● by far the most difficult decision situation goals to be achieved or the problem to be solved is unclear alternatives are difficult to define information about outcomes is unavailable Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 9
  10. 10. Conditions that Affect the Possibility of Decision Failure Organizational Problem Low Possibility of Failure Certainty Risk Uncertainty Programmed Decisions Ambiguity Nonprogrammed Decisions Problem Solution Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 10 High
  11. 11. Selecting a Decision Making Model  Depends on the manager’s personal preference  Whether the decision is programmed or non-programmed  Extent to which the decision is characterized by risk, uncertainty, or ambiguity Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 11
  12. 12. Three Decision-Making Models  Classical Model  Administrative Model  Political Model Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 12
  13. 13. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 13
  14. 14. Classical Model Logical decision in the organization’s best economic interests Assumptions     Decision maker operates to accomplish goals that are known and agreed upon Decision maker strives for condition of certainty – gathers complete information Criteria for evaluating alternatives are known Decision maker is rational and uses logic Normative = describes how a manager should and provides guidelines for reaching an ideal decision Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 14
  15. 15. Administrative Model Herbert A. Simon How nonprogrammed decisions are made--uncertainty/ambiguity  Two concepts are instrumental in shaping the administrative model ● Bounded rationality: people have limits or boundaries on how rational they can be ● Satisficing: means that decision makers choose the first solution alternative that satisfies minimal decision criteria Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 15
  16. 16. Administrative Model How nonprogrammed decisions are made--uncertainty/ambiguity ● Managers actually make decisions in difficult situations characterized by non-programmed decisions, uncertainty, and ambiguity ● ● Decision goals often are vague, conflicting and lack consensus among managers; Rational procedures are not always used Managers’ searches for alternatives are limited Managers settle for a satisficing rather than a maximizing solution intuition, looks to past experience ● Descriptive = how managers actually make decisions--not how ● ● ● they should Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 16
  17. 17. Political Model Closely resembles the real environment ● Closely resembles the real environment in which most managers and decision makers operate ● Useful in making non-programmed decisions ● Decisions are complex ● Disagreement and conflict over problems and solutions are normal ● Coalition = informal alliance among manages who support a specific goal Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 17
  18. 18. Characteristics of Classical, Political, and Administrative Decision Making Models Classical Model Administrative Model Clear-cut problem and goals Vague problem and goals Pluralistic; conflicting goals Condition of certainty Condition of uncertainty Condition of uncertainty/ambiguity Full information about Limited information about Inconsistent viewpoints; ambiguous alternatives and their outcomes Alternatives and their outcomes information Rational choice by individual Satisficing choice for resolving Bargaining and discussion among for maximizing outcomes problem using intuition Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 18 Political Model coalition members
  19. 19. Six Steps in the Managerial Decision-Making Process  Evaluation and Feedback Implementation of Chosen Alternative     Recognition of Decision Requirement DecisionMaking Process Selection of Desired Alternative   Diagnosis and Analysis of Causes Development of Alternatives  Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 19
  20. 20. Steps in Decision Making Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 20
  21. 21. Six C's of Decision Making  1. Construct.  2. Compile.  3. Collect.  4. Compare.  5. Consider.  6. Commit. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 21
  22. 22. Six C's of Decision Making  Construct a clear picture of precisely what must be decided.  Compile a list of requirements that must be met.  Collect information on alternatives that meet the requirements. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 22
  23. 23.  Compare alternatives that meet requirements.  the Consider the "what might go wrong" factor with each alternative.  Commit to a decision and follow through with it. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 23
  24. 24. Diagnosis and Analysis of Causes  Diagnosis = analyze underlying causal factors associated with the decision situation  Managers make a mistake if they jump into generating alternatives without first exploring the cause of the problem more deeply Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 24
  25. 25. Underlying Causes - Kepner /Tregoe  What is the state of disequilibrium affecting us?  When did it occur?  Where did it occur?  How did it occur?  To whom did it occur?  What is the urgency of the problem?  What is the interconnectedness of events?  What result came from which activity? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 25
  26. 26. Selection of Desired Alternatives  Risk Propensity = willingness to undertake risk with the opportunity of gaining an increased payoff  Implementation = using managerial, administrative, and persuasive abilities to translate the chosen alternative into action Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 26
  27. 27. Decision Styles  Differences among people with respect to how they perceive problems and make decisions  Not – – – – all managers make decisions the same Directive style Analytical style Conceptual style Behavioral style Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 27
  28. 28. Personal Decision Framework Situation: · Programmed/nonprogrammed · Classical, administrative, political · Decision steps Personal Decision Style: ·Directive ·Analytical ·Conceptual ·Behavioral Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 28 Decision Choice: ·Best Solution to Problem
  29. 29. Directive Style  People who prefer simple, clear-cut solutions to problems  Make decisions quickly  May consider only one or two alternatives  Efficient and rational  Prefer rules or procedures Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 29
  30. 30. Analytical Style  Complex solutions based on as much data as they can gather  Carefully consider alternatives  Base decision on objective, rational data from management control systems and other sources  Search for best possible decision based on information available Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 30
  31. 31. Conceptual Style  Consider a broad amount of information  More socially oriented than analytical style  Like to talk to others about the problem and possible solutions  Consider many broad alternatives  Relay on information from people and systems  Solve problems creatively Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 31
  32. 32. Behavioral Style  Have a deep concern for others as individuals  Like to talk to people one-on-one  Understand their feelings about the problem and the effect of a given decision upon them  Concerned with the personal development of others  May make decisions to help others achieve their goals Experiential Exercise: What’s Your Personal Decision Style? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 32
  33. 33. Participation in Decision Making Vroom-Jago Model  Helps gauge the appropriate amount of participation for subordinates in process ● Leader Participation Styles  Five levels of subordinate participation in decision making ranging from highly autocratic to highly democratic Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 33
  34. 34. Participation in Decision Making Vroom-Jago Model  Diagnostic  Questions Decision participation depends on the responses to seven diagnostic questions about ● ● ● the problem the required level of decision quality the importance of having subordinates commit to the decision Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 34
  35. 35. Seven Leader Diagnostic Questions        How significant is the decision? How important is subordinate commitment? What is the level of the leader’s expertise? If the leader were to make the decision alone at what level would subordinates be committed to the decision? What level is the subordinate’s support for the team or organization’s objectives? What is the member’s level of knowledge or expertise relative to the problem? How skilled or committed are group members to working together? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 35
  36. 36. New Decision Approaches for Turbulent Times New Decision Approaches for Turbulent Times Brainsto rming on D i Kno w ate n, ar Le ’t g En e ag i go nR r ou b De s th ctice Pra Pu ni sh Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 36 h ive W eF W he n to Bail ys
  37. 37. CHARACTERISTICS OF EFFECTIVE DECISIONS    1. Action Orientation: Decisions are action-oriented and are directed towards relevant and controllable aspects of the environment. Decisions should ultimately find their utility in implementation. 2. Goal Direction: Decision making should be goal-directed to enable the organization to meet its objectives. 3 Effective in Implementation: Decision making should take into account all the possible factors not only in terms of external context but also in internal context so that a decision can be implemented properly. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 37
  38. 38. BARRIERS IN MAKING DECISIONS  Hasty- Making quick decisions without having much thought.  Narrow - Decision making is based on very limited information.  Scattered - Our thoughts in making decisions are disconnected or disorganized.  Fuzzy - Sometimes, the lack of clarity on important aspects of a decision causes us to overlook certain important considerations. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 38

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