Chapter 6 Managerial Decision Making © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Decisions and Problems A decision is a choice made from available alternatives. Decision making is the process of identifying problems and opportunities and then resolving them. ‹#› © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Programmed and Nonprogrammed Decisions Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future. Nonprogrammed decisions are made in response to situations that are unique, are poorly defined and largely unstructured, and have important consequences for the organization. ‹#› © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Facing Uncertainty and Ambiguity (1 of 2) Certainty: All the information the decision maker needs is fully available. Risk: A decision has clear-cut goals and good information is available, but future outcomes associated with each alternative are subject to some chance of loss or failure. Uncertainty: Managers know which goals they wish to achieve, but information about alternatives and future events is incomplete. ‹#› © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Facing Uncertainty and Ambiguity (2 of 2) Ambiguity: The goal to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable. Wicked decisions: associated with conflicts over goals and decision alternatives, rapidly changing circumstances, fuzzy information, unclear links among decision elements, and the inability to evaluate whether a proposed solution will work ‹#› © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6.1 Conditions That Affect the Possibility of Decision Failure ‹#› © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Ideal, Rational Model of Decision Making The classical model of decision making is based on rational economic assumptions and managers’ beliefs about what ideal decision making should be. Normative means that it defines how a decision maker should make decisions. ‹#› © 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Administrative Model (1 of 2) The administrative model is considered to be descriptive meaning that it describes how managers actually make decisions in complex situations. Bounded rationality means that people have limits, or boundaries, on ...

1. Chapter 6
Managerial Decision Making
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Types of Decisions and Problems
A decision is a choice made from available alternatives.
Decision making is the process of identifying problems and
opportunities and then resolving them.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Programmed and Nonprogrammed Decisions
Programmed decisions involve situations that have occurred
often enough to enable decision rules to be developed and
applied in the future.
Nonprogrammed decisions are made in response to situations
that are unique, are poorly defined and largely unstructured, and
have important consequences for the organization.
‹#›

2. © 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Facing Uncertainty and Ambiguity (1 of 2)
Certainty: All the information the decision maker needs is fully
available.
Risk: A decision has clear-cut goals and good information is
available, but future outcomes associated with each alternative
are subject to some chance of loss or failure.
Uncertainty: Managers know which goals they wish to achieve,
but information about alternatives and future events is
incomplete.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Facing Uncertainty and Ambiguity (2 of 2)
Ambiguity: The goal to be achieved or the problem to be solved
is unclear, alternatives are difficult to define, and information
about outcomes is unavailable.
Wicked decisions: associated with conflicts over goals and
decision alternatives, rapidly changing circumstances, fuzzy
information, unclear links among decision elements, and the
inability to evaluate whether a proposed solution will work
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
6.1 Conditions That Affect the Possibility of Decision Failure

3. ‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
The Ideal, Rational Model of Decision Making
The classical model of decision making is based on rational
economic assumptions and managers’ beliefs about what ideal
decision making should be.
Normative means that it defines how a decision maker should
make decisions.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
The Administrative Model (1 of 2)
The administrative model is considered to be descriptive
meaning that it describes how managers actually make decisions
in complex situations.
Bounded rationality means that 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.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
The Administrative Model (2 of 2)

4. Intuition represents a quick apprehension of a decision situation
based on past experience but without conscious thought.
Quasirationality means combining intuitive and analytical
thought.
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
The Political Model
Useful for making nonprogrammed decisions when conditions
are uncertain, information is limited, and there are manager
conflicts about what goals to pursue or what course of action to
take
A coalition is an informal alliance among managers who support
a specific goal.
Coalition building is the process of forming alliances among
managers.
Closely resembles the real environment
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
6.2 Characteristics of Major Decision-Making Models
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.

5. 6.3 Six Steps in the Managerial Decision-Making Process
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Decision-Making Steps: Recognition of Requirement
A problem occurs when organizational accomplishment is less
than established goals.
An opportunity exists when managers see a potential
accomplishment that exceeds specified current goals.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Decision-Making Steps: Diagnosis and Analysis
Diagnosis is the step in which managers analyze underlying
causal factors associated with the decision situation.
The 5 Whys is a question-asking method used to explore the
root cause underlying a particular problem.
The first why generally produces a superficial explanation and
each subsequent why probes deeper into the causes of the
problem and potential solutions.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Decision-Making Steps: Development of Alternatives

6. For a programmed decision, feasible alternatives are easy to
identify.
Nonprogrammed decisions require developing new courses of
action that will meet the company’s needs.
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Decision-Making Steps: Selection of the Desired Alternative
The best alternative solution is the one that best fits the overall
goals and values of the organization and achieves the desired
results using the fewest resources.
Risk propensity is the willingness to undertake risk with the
opportunity of gaining an increased payoff.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
6.4 Decision Alternatives with Different Levels of Risk
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Decision-Making Steps: Implementation
The implementation stage involves the use of managerial,
administrative, and persuasive abilities to ensure that the
chosen alternative is carried out.

7. ‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Decision-Making Steps: Evaluation and Feedback
Decision makers gather information that tells them how well the
decision was implemented and whether it was effective in
achieving its goals.
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Personal Decision Framework (1 of 2)
Decision styles refer to significant differences in the ways in
which individual managers may approach problems and make
decisions concerning them.
The directive style is used by people who prefer simple, clear-
cut solutions to problems.
Managers with an analytical style like to consider complex
solutions based on as much data as they can gather.
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Personal Decision Framework (2 of 2)
People who tend toward a conceptual style like to consider a
broad amount of information but are more socially oriented than

8. those with an analytical style and like to talk to others about the
problem and possible alternatives for solving it.
The behavioral style is often adopted by managers who have a
deep concern for others as individuals and involves one-on-one
discussions.
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
6.5 Personal Decision Framework
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Why Do Managers Make Bad Decisions? (1 of 2)
Being influenced by initial impressions
Anchoring bias occurs when we allow initial impressions,
statistics, and estimates to act as anchors to our subsequent
thoughts and judgments.
Justifying past decisions
Sunk cost effect refers to managers who often stick with a
decision because they’ve invested a lot of resources in it, even
though they’d be better off cutting their losses and moving on.
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.

9. Why Do Managers Make Bad Decisions? (2 of 2)
Seeing what you want to see
Confirmation bias: when a manager puts too much value on
evidence that is consistent with a favored belief or viewpoint
and discounts evidence that contradicts it
Perpetuating the status quo
Being influenced by emotions
Being overconfident
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Innovative Decision Making (1 of 3)
Brainstorming uses a face-to-face interactive group to
spontaneously suggest as many ideas as possible for solving a
problem.
Electronic brainstorming brings people together in an
interactive group over a computer network.
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© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Innovative Decision Making (2 of 3)
Use hard evidence
Evidence-based decision making means a commitment to make
more informed and intelligent decisions based on the best
available facts and evidence
Engage in rigorous debate
Avoid groupthink (the tendency of people in groups to suppress
contrary opinions)

10. ‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.
Innovative Decision Making (3 of 3)
Know when to bail
Escalating commitment: Managers and organizations often
continue to invest time and money in a solution even when there
is strong evidence that it is not appropriate.
Do a postmortem
After-action review: a disciplined procedure whereby managers
invest time in reviewing the results of decisions on a regular
basis and learn from them
‹#›
© 2020 Cengage Learning®. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole
or in part.