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Chapter 3
The Nature of Managerial Decision-Making

Definition of Decision Making

The process through which managers identify

and resolve problems and capitalize on

opportunities.
The process by which a course of action is
selected as the way to deal with a specific
problem.

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Nature of decision making

Some decisions are critical and can

have a major impact on personal

and organizational lives. Other
decisions are more routine but still
require that we select an
appropriate course of action.

7 steps in the Decision-Making Process

1

3
Identifying
objectives

5
Evaluating
alternatives

Generating
alternatives

Reaching decisions

Choosing
implementation
strategies

7
Monitoring and
evaluating

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Types of Decision Making

Programmed
Decisions

Non-Programmed
Decisions

Decisions made in response to

routine situations that have
occurred in the past

Decisions made in response to

situations that are unique and
unstructured.

Identifying alternative courses of

action in such situations is usually
routine

Required creativity and innovative

to elicit a list of reasonable
alternatives courses of action

e.g. Functions of customer

assistance operator.

e.g. New management tried to

restructured company

Decision-Making Conditions
Certainty

1.

Managers have accurate, measurable and reliable information about

the outcome of various alternatives under consideration.
Decision-maker knows exactly what is happening :

~
~

The nature of the problem

Possible alternatives
Result of alternatives

Risk

2.

Future conditions that are not always known

Information is available but is not enough
Condition under risk :

~
~
~

The nature of problem

Possible alternatives
Result of alternatives

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Decision-Making Conditions
Uncertainty

3.
~
~

Force unpredictable external conditions (Politics; Economy;

Social; Technology; Environment; Legal @ PESTEL)
Lack of information
Little is known about the alternatives or their outcomes.

Models of Decision-Making
RATIONAL-ECONOMIC MODEL
Prescriptive model (suggested how decision
should be made)

RATIONAL-ECONOMIC MODEL
Descriptive model (suggested how decision
are actually made)

BASIC PREMISE
Decision making will be rational, systematic
and logical

BASIC PREMISE
Human limitations make rational decision
making difficult to achieve

ASSUMPTIONS OF RATIONAL
ECONOMIC MODEL
Complete and accurate information is
available
Agreed-on objectives and list of alternative
courses of action
Decision makers work for the organizations
best interest
No ethical dilemmas arise in the decisionmaking process

ASSUMPTIONS OF RATIONAL
ECONOMIC MODEL
Bounded rationality affects decision-making
process
Experience-based intuition will affect the
decision-making process
Decision makers will accept a satisfactory
decision
Escalation of commitment may occur

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Models of Decision-Making
DRAWBACKS OF THE RATIONAL-ECONOMIC MODEL
In practice, the model may not always be a realistic depiction of

decision environments and managerial behavior.

Leaders rarely have access to perfect information
Even if perfect information was available, decision makers are

limited in their ability to comprehend and process vast amounts

of information.
Decision makers seldom have adequate knowledge about future
consequences of alternatives.
Personal factors such as fatigue, emotions, attitudes, motives of
behaviors intervene to prevent a decision maker from always
acting in a completely rational manner.
Individual culture and ethical values will influence the decision
process.

What is Group?

Two or more persons

interacting for some purpose
and who influence one
another in the process.

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Group Decision-Making

Group decision-making is
becoming more common as
organizations focus on
improving customer service
and push decision-making to
lower levels.

Pros and cons in Group DecisionMaking

Advantages
Experience and expertise of
several individuals available
More information, data, and
facts accumulated
Problems viewed from
several perspectives
Higher member satisfaction
Greater acceptance and
commitment to decisions

Disadvantages
Greater time requirements
Minority domination
- Leader may talk to
much leaving group
members
non-participative
Compromise
Concern for individual rather
than group goals
- Individuals sidetracked
to win argument in
order to achieve
personal goals
Social pressure to conform
Groupthink***

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Groupthink***
An agreement-at-any-cost mentality that results in ineffective

group decision-making.
Conformity in thought and behavior among the members of
a group, especially an unthinking acceptance of majority
opinions
Occurs when group are :
~ Highly cohesive
~ Have highly directive leaders
~ Insulated so they have no clear ways to get objective

information
~ Because they lack outside information > have little hope that a
better solution might be found than the one proposed by the
leader or other influential group members

Groupthink***
Characteristics
Illusions of invulnerability
Collective rationalization
Belief in the morality of
group-decisions
Self-censorship
Illusion of unanimity in
decision-making
Pressure on members who
express arguments

Types of Defective Decisions

Incomplete survey of
alternatives
Incomplete surveys of goals
Failure to examine risks of
preferred decisions
Poor information search
Failure to reappraise
alternatives
Failure to develop
contingency plans.

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Techniques of Group Decision-Making

Brainstorming
~ A technique used to enhance creativity that encourages group

members to generate as many more novel ideas as possible on a

given topic without evaluating them.
~ Rules of Brainstorming
i.
ii.
iii.
iv.
v.
vi.

Freewheeling is encouraged
Group members will not criticize ideas as they are being generated
Quality is encouraged
The wilder the ideas the better
Playback on previously stated ideas
No ideas are evaluated until after all alternatives are generated.

Techniques of Group Decision-Making

Nominal Group Technique (NGT)
~ A structured process designed to stimulate creative group decision-

making where agreement is lacking or the members have incomplete

knowledge concerning the nature of the problem
Delphi Technique
~ Uses experts to make predictions and forecasts about the future

events without meeting face-to-face.

Devils Advocacy Approach
~ An individual or subgroup appointed to critique a proposed course of

action and indentify problems to consider before the decision is final.

Dialectical Inquiry
~ Approaches a decision from two opposite points and structures a

debate between conflicting views.

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END OF CHAPTER 3
NOTES BY : NURFAIZAH BINTI SAHIMI