MANAGERIAL DECISION MAKING

Lecture overview
 Types of decisions and problems
 Decision-making models
 Decision-making steps
 Personal decision framework
 Increasing participation in decision making
 Improving decision making breadth and creativity

Types of decisions and problems

 Decision
 A choice made from available alternatives.
 Decision making
 The process of identifying problems and opportunities
and then resolving them.

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Types of decisions and problems
 Programmed decision
 A decision made in response to a situation that has
occurred often enough to enable decision rules to be
developed and applied in future.
 e.g. Decision to reorder paper and office supplies.

Types of decisions and problems

 Non-programmed decision
 A decision made in response to a situation that is
unique, is poorly defined and largely unstructured, and
has important consequences for the organisation.
 e.g. NBC searching for a sitcom to replace Friends.

Types of problems, types of decisions, and

level in the organisation
Ill-Structured Top

Non-programmed
Decisions
Type
Of
Level
problem
in
firm

Programmed
Decisions

Well-Structured Lower

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Types of decisions and problems
Certainty, risk, uncertainty and ambiguity

 Certainty
 All the information the decision maker needs is fully
available.

 Risk
 A decision has clear-cut goals, and good information
is available, but the future outcomes associated with
each alternative are subject to change.

Types of decisions and problems

Certainty, risk, uncertainty and ambiguity

 Uncertainty
 Managers know what goal they wish to achieve, but
information about alternatives and future events is
incomplete.

 Ambiguity
 The goals to be achieved or the problems to be solved
are unclear, alternatives are difficult to define, and
information about outcomes is unavailable.

3 views on how managers make decisions

Rationality

Bounded
rationality

Intuition

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Decision-making models
 Classical model:
 Based on the assumption that managers should
make logical decision that will be in the
organisation’s best economic interests:
 Goals are known and agreed upon. Problems are precisely
formulated and defined.
 Conditions of certainty.
 Criteria for evaluating alternatives are known (select
alternative that maximises economic return).
 The decision maker is rational and uses logic.

Decision-making models
 Administrative model:
 Describes how managers actually make decisions in
situation characterised by
non-programmed decisions, uncertainty
and ambiguity.
 Bounded rationality (March and Simon)
 People have limited time and cognitive ability.

 Satisficing
 Choose the first alternative solution that satisfies minimal
decision criteria regardless of better solutions.
 Intuition

What is intuition?

Intuition
Subconscious process of
making decisions

Previous Accumulated
Experience Judgment
“Gut-Level
Feeling”

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Decision-making models
 Political model:
 Conditions uncertain, limited information,
disagreement among managers about what goals to
pursue or course of action to take.
 Coalition: An informal alliance among managers who
support a specific goal.

Decision-making models

Decision-making steps
1 Recognition of decision requirement
2 Diagnosis and analysis of causes
3 Development of alternatives
4 Selection of desired alternative
5 Implementation of chosen alternative
6 Evaluation and feedback

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 Decision-making steps

Six steps in the managerial decision-making process

The decision-making process

My team need new
Identification
Of a
computers….
Problem

Price Screen type

Identification Weight Reliability
Of Decision Screen size Warranties
Criteria

•Reliability 10
•Screen size 8
•Warranties 5
Allocation
•Weight 5
Of Weights
•Price 4
To Criteria
•Screen type 3

Cont’d

© Copyright 2003 Pearson Education Australia

17

Development
Of Alternatives
Fujitsu Acer NEC
Toshiba HP Dell
Compaq Sharp

Analysis
of Compaq -Reliability -Screen size Fujitsu
Alternatives -Warranties -Screen type
NEC -Weight -Price
Toshiba
The decision making process

Acer Sharp
HP Dell

Selection
of an …..The Fujitsu
Alternative is the best.

Implementation Evaluation of
of the Decision Effectiveness
Alternative

© Copyright 2003 Pearson Education Australia

18

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 Personal decision framework
 Decision style
 Differences among people with respect to how they
perceive problems and make decisions.
 Directive style.
 Analytical style.
 Conceptual style.
 Behavioural style.

Decision-making styles
High
Tolerance for Ambiguity

Analytic Conceptual

Directive Behavioural

Low

Rational Way of Thinking Intuitive

Increasing participation in
decision making
Vroom-Jago model
 Leader participation styles
 Five levels of subordinate participation in decision
making
 How to determine which is the most appropriate?
 Evaluate with the decision tree using the following
questions on …

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Increasing participation in
decision making
 Diagnostic questions
 Quality requirement (QR)
 Commitment requirement (CR)
 Leader’s information (LI)
 Problem structure (PS)
 Commitment probability (CP)
 Goal congruence (GC)
 Subordinate conflict (SC)
 Subordinate information (SI)

Increasing participation in
decision making

Increasing participation in
decision making
Advantages of groups Disadvantages of groups
• Broader perspective • Time-consuming
for problem definition • Compromise decisions
and analysis may satisfy no one
• More knowledge, facts • Groupthink: group
and alternatives norms may reduce
• Discussion clarifies dissent and opinion
ambiguity and diversity
reduces uncertainty • No clear focus for
• Participation increases decision responsibility
member
satisfaction/support

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Improving decision making
breadth and creativity
 Brainstorming:
 Technique in which group members present
spontaneous suggestions for problem solution,
regardless of their likelihood of implementation, in
order to promote freer, more creative thinking within
the group.

Improving decision making

breadth and creativity
New decision approaches for turbulent times:
 Start with brainstorming
 Learn, don’t punish
 Eliminate the ‘blame’ culture
 Know when to bail out
 Practise the ‘five whys’
 Engage in rigorous debate