Managerial Decision Making Process
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The Nature of Managerial Decision Making
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Managerial Decision Making Process
- 2. The Nature of Managerial Decision Making
- 3. The Nature of Managerial Decision Making Decision Making > The process by which managers respond to opportunities and threats by analyzing options, and making choices about goals and courses of action. > Decision making is the act of choosing one alternative from among a set of alternatives
- 5. PROGRAMMED & NONPROGRAMMED DECISION Programmed Decision > Routine, virtually automatic decision making that follows established rules or guidelines. > Same decision made many times before. > Rules or guidelines to follow based on past experience
- 6. Non-Programmed Decisions -Non-routine decision making that occurs in response to unusual, unpredictable events. -Based on: Judgment Information Intuition 6 PROGRAMMED & NONPROGRAMMED DECISION
- 7. Decision Making Conditions > Decision Making Under Certainty > Decision Making Under Risk > Decision Making Under Uncertainty 7
- 8. Decision Making Under Certainty > A state of certainty exists when a decision maker knows, with reasonable certainty, what the alternatives are and what conditions are associated with each alternative.
- 9. Decision Making Under Risk > A state of risk exists when a decision maker makes decisions under a condition in which the availability of each alternative and its potential payoffs and costs are all associated with probability estimate. 9
- 10. Decision Making Under Uncertainty > A state of uncertainty exists when a decision maker does not know all of the alternatives, the risks associated with each, or the consequences each alternative is likely to have. 10
- 11. Decision Making Models • The Classical Model • The Administrative Model
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- 22. Trust in the Lord with all your heart, And lean not on your own understanding; In all your ways acknowledge Him, And He shall direct your paths". Proverbs 3:5-6 THANK YOU And GOD BLESS! 22
Editor's Notes
- Decision Making A decision is one when there are different things you can do and you pick one of them. You make lots of decisions everyday! Some decisions are easy like....... What to eat in breakfast???? What to wear???? Some decisions are difficult like....... Choosing a career Choosing good friends Changing a job In every situation you have to make decision effective decisions, as well as recognizing when a bad decision has been made and quickly responding to mistakes, is a key ingredient in organizational effectiveness.Some experts believe that decision making is the most basic and fundamental of all managerial activities.
- Decisions in response to opportunities occurs when managers respond to ways to improve performance. Decisions in response to threats occurs when managers are impacted by adverse events to the organization. .• We have to first decide that a decision has to be made and then secondly identify a set of feasible alternatives before we select one.
- Programmed decision is one that is fairly structured or recurs with some frequency (or both). Nonprogrammed decision is one that is unstructured and occurs much less often than a programmed decision
- Example: Disciplinary action to be taken concerning a tardy employee. Many decisions regarding basic operating systems and procedures and standard organizational transactions fall into this category. McDonald’s employees are trained to make the Big Mac according to specific procedures. Starbucks, and many other organizations, use programmed decisions to purchase new supplies [coffee beans, cups and napkins].
- Example: Deciding to invest in additional production equipment to meet forecasted demand. -No rules to follow since the decision is new. Most of the decisions made by top managers involving strategy and organization design are nonprogrammed. Decisions about mergers, acquisitions and takeovers, new facilities, labor contracts and legal issues are non-programmed decisions. Intuition and experience are major factors in these decisions.
- Decisions such as these are based on past experiences, relevant information, the advice of others and one’s own judgment. Decision is ‘calculated’ on the basis of which alternative has the highest probability of working effectively.
- Most of the major decision making in today’s organizations is done under these conditions. To make effective decisions under these conditions, managers must secure as much relevant information as possible and approach the situation from a logical and rational view. Intuition, judgment and experience always play major roles in the decision-making process under these conditions.
- Classical model of decision making: a prescriptive model that tells how the decision should be made Assumes managers have access to all the information needed to reach a decision Managers can then make the optimum decision by easily ranking their own preferences among alternatives. Unfortunately, managers often do not have all (or even most) required information.
- Challenges the classical assumptions that managers have and process all the information. As a result, decision making is risky. Bounded rationality: There is a large number of alternatives and information is vast so that managers cannot consider it all.</li></ul>Decisions are limited by people’s cognitive abilities Incomplete information: most managers do not see all alternatives and decide based on incomplete information.
- Recognize need for a decision: Managers must first realize the need for which a decision must be made
- Frame the problem: managers must frame problem for which decision is to be made
- Generate alternatives: managers must develop feasible alternative courses of action If good alternatives are missed, the resulting decision is poor It is hard to develop creative alternatives, so managers need to look for new ideas Evaluate alternatives: what are the advantages and disadvantages of each alternative? Managers should specify criteria, then evaluate.
- Choose among alternatives:managers rank alternatives and decide.<br />While ranking, all information needs to be considered.
- Implement choose alternative:managers must now carry out the alternative.<br />Often a decision is made and not implemented
- Learn from feedback: managers should consider what went right and wrong with the decision and learn for the future Without feedback, managers never learn from experience and might repeat the same mistake.
- Evaluating Alternative Is it legal? Managers must first be sure that an alternative is legal both in this country and abroad for exports. Is it ethical? The alternative must be ethical and not hurt stakeholders unnecessarily. Is it economically feasible? Can our organization’s performance goals sustain this alternative? Is it practical? Does the management have the capabilities and resources to do it?