9e daft chapter_8_managerial_decision_making

Managerial Decision
Making
CHAPTER 8

chapter8
Copyright ©2010 by South-Western, a division of Cengage
Learning. All rights reserved.
3
• Explain why decision making is an important component of good
management.
• Discuss the difference between programmed and nonprogrammed
decision and the decision characteristics of certainty and uncertainty.
• Describe the ideal, rational model of decision making and the political
model of decision making.
• Explain the process by which managers actually make decisions in the real
world.
• Identify the six steps used in managerial decision making.
• Describe four personal decision styles used by managers and explain the
biases that frequently cause managers to make bad decisions.
• Identify and explain techniques for innovative group decision making.
Learning Outcomes

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How Do You Make
Decisions?
• People make decisions everyday without
realizing their diverse decision-making styles
• Managers are referred to as decision makers
• Organizations grow and prosper based on
decisions made by managers
• Good decision making is a vital part of good
management

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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
• Programmed Decisions – situations that occur
often to enable rules
• Nonprogrammed – situations that are unique or
poorly defined and unstructured

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Facing Certainty and
Uncertainty
• Programmed and nonprogrammed decisions differ
because of uncertainty
– Certainty: the information needed is available
– Risk: the future outcome is subject to chance regardless
of the information available
– Uncertainty: information about future events are
incomplete
– Ambiguity and Conflict: the goals and/or problem are
unclear and difficult to define
• Managers attempt to obtain information about
decision alternatives

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Conditions That Affect the
Possibility of Decision Failure

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Decision-Making Models

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The Ideal, Rational Model
• Strive to make economically sensible decisions
• Four assumptions of the model:
1. The decision maker operates to accomplish goals
that are known and agreed on.
2. Decision maker strives for conditions of certainty.
All alternatives are calculated.
3. Criteria for evaluating alternatives are known.
4. The decision maker is rational and uses logic to
assign values. Attempt to maximize organizational
goals.

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10
Administrative Model
• Descriptive approach that recognizes human
and environmental limitations
• Focus on organizational factors that influence
decisions
• Seek to find alternatives for complex problems
instead of rational approach
1.Decision goals are vague and lack consensus.
2.Rational procedures are not always used.
3.Search for alternatives is limited because of human,
information and resource constraints.
4.Managers will settle for satisficing rather than
maximizing.

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Bounded Rationality
and Satisficing
• Bounded Rationality – people have limits and
boundaries on how rational they can be
– Organizations are complex systems
• Satisficing – decision makers choose the first
solution alternative that satisfies minimal decision
criteria
• Intuition – quick apprehension of a decision
situation based on past experience but without
conscious thought
• Bounded Rationality – people have limits and
boundaries on how rational they can be
– Organizations are complex systems
• Satisficing – decision makers choose the first
solution alternative that satisfies minimal decision
criteria
• Intuition – quick apprehension of a decision
situation based on past experience but without
conscious thought

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Political Model
• Useful for nonprogrammed decisions
• Resembles the real environment in which
managers operate
• Four basic assumptions:
– Organizations are made up of diverse interests
– Information is ambiguous and incomplete
– Managers do not have the resources to identify all
dimensions of the problem
– Managers engage in the push and pull of debate to
decide goals and alternatives

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Decision-Making Steps

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Recognition of Decision
Requirement
• When a problem or opportunity is
presented, decisions must be made
• Problem – occurs when organizational
accomplishment is less than established
goals
• Opportunity – when managers see
potential accomplishment that exceeds
specified current goals

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Diagnosis and Analysis
of Causes
• Managers must understand the situation—diagnosis
• Managers ask a series of questions:
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?

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Develop of Alternatives
• Generate possible alternative solutions
• For programmed decisions, feasible
alternatives are easy to identify
• Nonprogrammed decisions, however
require developing new courses of action

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Selection of Desired
Alternative
• Managers will choose the most promising
of several alternative courses of action
• The selection should fit the goals and
objectives
• The manager tries to select the choice
with the least amount of risk and
uncertainty

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Implementation of Chosen
Alternative
• Use managerial, administrative and
persuasive abilities to ensure that the
alternative is carried out
• Success depends on the managers ability
to translate alternative into action
• Implementation requires communication,
motivation, and leadership

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Decision Alternatives with
Different Levels of Risk

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Evaluation and Feedback
• How well was the alternative implemented?
• Was the alternative successful?
• Feedback is a continuous process
• Large problems may involve several
alternatives in sequence

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Personal Decision
Framework
How individuals personally proceed
through the decision making process
1. Directive Style
2. Analytical Style
3. Conceptual Style
4. Behavioral Style

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Why Do Managers Make
Bad Decisions?
1.Being influenced by initial impressions
2.Justifying past decisions
3.Seeing what you want to see
4.Perpetuating the status quo
5.Being influenced by problem framing
6.Overconfidence

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Innovative Group
Decision Making
→ Start with Brainstorming
→ Engage in Rigorous Debate
→ Avoid Groupthink
→ Know When to Bail

9e daft chapter_8_managerial_decision_making

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