Managerial Decision Making

Decisions and Decision Making

 Decision - choice made from available
alternatives

 Decision Making - process of identifying

problems and opportunities and resolving them

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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

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 Certainty, Risk, Uncertainty,
Ambiguity
● Certainty
● all the information the decision maker needs is fully available
● Risk
● decision has clear-cut goals
● good information is available
● future outcomes associated with each alternative are subject to chance
● Uncertainty
● 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

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 Conditions that Affect the Possibility of
Decision Failure
Exhibit 9.1

Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
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 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

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#Time and human relationship in
decision making

Time :
 Manager’s decision is always based on past
performances present circumstances and
future expectations

Human relationship:
 While making the decision managers must
be conscious that the other people’s decision
may create conflict or interact with their
own decision
#Problem and opportunity
finding

Problem
 A problem arises when actual state of affairs differs from a
desired state of affairs

Problem finding process

 A deviation from past experience
 A deviation from a set plan
 Consumers psychology
 The performance of the competitors

Opportunity
 Situation that occurs when circumstances offer an organization
the chance to exceed stated goals and objectives
Managers must learn to identify
and solve the problem

Setting priorities:
• Learn to establish priorities
• Determine how quickly, intensively and collaboratively deal with the
problem

Is the problem easy to deal with:

• Avoid the problems that requires small amount of manager’s attention
and correcting that is relatively speedy and inexpensive
• Effective managers reserve formal decision making techniques for
problems that truly require them

Might the problem resolve itself:

Is the problem actual responsibility of manager

• Pass as few decisions as possible to those higher up in the organization
• Pass as many as possible to those lower down in the organization
#Nature of managerial decision
making

Programmed decisions:
 Solutions to routine problems determined by rule, procedure
and policies
 Programmed decisions are used for routine work

Non - programmed decisions:

 Involve unusual, unstructured, novel or exceptional
problems of non-recurring nature
 Generally all decisions are made in the environment of at least
some uncertainty.
 The degree varies from certainty to uncertainty
 Certain risk involved in decision
Certainty:
 Accurate , measurable and reliable information about the
outcome of various alternatives

Risk :
 Decision making condition in which the managers know the
probability a given alternative will lead to a desired goal or
outcome

Uncertainty :
 Unpredictable external conditions or lack of information and
assurance of accuracy and reliability
#The rational model of decision
making
 A four-step process that helps managers weigh alternatives
and choose the alternative with the best chance

 Rational, systematic and intelligent approach

Stage –1 Investigate the
situation

Define the problem:

 Defining the problem in terms of the organizational objectives that are being
blocked, helps to avoid confusing symptoms with problems
 Relevance of the problem with the objectives and organization culture

Diagnose the cause:

 Factors affecting the organization
 Internal problems
 External problems
 Human relation problems

Identify the decision objectives:

 Decide what would constitute an effective solution
 Most problems consist of several elements and manager is unlikely to find one
solution that can work for all of them
Stage-2 Develop alternatives

Brainstorming
 Decision making and problem solving technique in which individuals or
group members try to improve creativity by spontaneously proposing
alternatives without concern for reality or tradition
 Technique to improve the problem solving by finding new and unusual
solutions by multiplication of ideas

 Rules
 No ideas are ever criticized
 The quantity of idea production is stressed
 The improvement of ideas by other is encouraged
Stage-3 Evaluate the
alternatives and select the best
one available
 Find out advantages and disadvantages of all
alternatives
 Select the most feasible alternative
 Is the alternative a satisfactory solution
 What are the consequences for the rest of the
organization
Stage-4 implement and monitor
the decision

 Implementing a decision involves more than giving

appropriate orders
 Resources must be acquired and allocated properly
 Budgets and schedule for the action
 Progress report
Six Steps in the Managerial Decision Making Process
Exhibit 9.3

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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

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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?

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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

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 New Decision Approaches
for Turbulent Times

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