Managers as Decision

Makers
S U B T ITLE
 Topics to be Covered
• Concept of Decision making
• The Decision making process
• Decision making models
• Rational decision making model
• Bounded rationality
• Intuitive decision making
• Evidence based decision making
• Types of Decisions
• Decision making conditions
• Decision making styles
• Effective Decision making in today’s world
 Introduction
“Managers at all levels and in all areas of organizations make decisions.
That is, they make choices. For instance, top-level managers make
decisions about their organization’s goals, where to locate manufacturing
facilities, or what new markets to move into. Middle and lower-level
managers make decisions about production schedules, product quality
problems, pay raises, and employee discipline. Making decisions isn’t
something that just managers do; all organizational members make
decisions that affect their jobs and the organization they work for. But our
focus is on how managers make decisions”
Concept of Decision making
Who typically
Types Examples
• Decision making is a take?
process of choosing the Should we merge
right/best among the set of with another
alternatives which is Strategic company? Top managers
thought to fulfil the Should we pursue a
objectives of the decision new product line?
problem more How should we
satisfactorily than others. Tactical make the new Middle managers
It is a course of action product line?
which is consciously How often should I
Frontline
chosen for achieving a Operational communicate with
managers
desired result. new workers ?
 Decisions Managers Makes
PLANNING
• W H AT A R E T H E O R G A N I Z AT I O N ’ S LO N G - T E R M O B J E C T I V E S ?
• W H AT S T R AT E G I E S W I L L B E S T AC H I E V E T H O S E O B J E C T I V E S ?
• W H AT S H O U L D T H E O R G A N I Z AT I O N ’ S S H O R T - T E R M O B J E C T I V E S B E ?
• H O W D I F F I C U LT S H O U L D I N D I V I D U A L G OA L S B E ?
ORGANIZING
• H O W M A N Y E M P LOY E E S S H O U L D I H AV E R E P O R T D I R E C T LY TO M E ?
• H O W M U C H C E N T R A L I Z AT I O N S H O U L D T H E R E B E I N T H E O R G A N I Z AT I O N ?
• HOW SHOULD JOBS BE DESIGNED?
• W H E N S H O U L D T H E O R G A N I Z AT I O N I M P L E M E N T A D I F F E R E N T S T R U C T U R E ?
LEADING
• H O W D O I H A N D L E E M P LOY E E S W H O A P P E A R TO B E U N M OT I VAT E D ?
• W H AT I S T H E M O S T E F F E C T I V E L E A D E R S H I P S T Y L E I N A G I V E N S I T U AT I O N ?
• HOW WILL A SPECIFIC CHANGE AFFECT WORKER PRODUCTIVITY?
• W H E N I S T H E R I G H T T I M E TO S T I M U L AT E C O N F L I C T ?
CONTROLLING
• W H AT AC T I V I T I E S I N T H E O R G A N I Z AT I O N N E E D TO B E C O N T R O L L E D ?
• H O W S H O U L D T H O S E AC T I V I T I E S B E C O N T R O L L E D ?
• W H E N I S A P E R F O R M A N C E D E V I AT I O N S I G N I F I C A N T ?
• W H AT T Y P E O F M A N AG E M E N T I N F O R M AT I O N S Y S T E M S H O U L D T H E
O R G A N I Z AT I O N H AV E ?
 Elements of Decision making
• DE CISION MA K E R

• T HE DE CISION P R O B L EM

• T HE E NVIR O NMENT I N WHI CH T HE D E CI SI ON HA S TO B E MA D E

• T HE O B J E CT IVE OF T HE DECISION MAKER

• T HE A LT E R NATIVE CO U R S E S O F ACT I O N

• O UTCO ME E X P ECTE D F R O M VA R I O U S A LT E R NAT IVES

• FINA L CHO I CE O F T HE A LT E R NAT IVE

 Decision Making Process
STEPS EXAMPLES

1) Identifying a Problem “ My sales reps need new computers”

2) Identifying Decision Criteria Memory and storage, Display quality, Battery life, Warranty
3) Allocating Weights to the Criteria Memory and storage………….10
Battery life....................................................8
Carrying weight...........................................6
Warranty.......................................................4
Display quality.............................................3
4) Developing Alternatives Brand A
Brand B
Brand C
Brand D
5 ) Analysing Alternatives Brand A
Brand B
Brand C
Brand D
6) Selecting an Alternative Brand C

7) Implementing the Alternative Brand C

8) Evaluating Decision Effectiveness

 Analysing Alternatives
Serial Brand Memory & Battery life Weight Display Quality Criteria Weights
no. name Storage Memory & 10
1 A 10 3 10 8 Storage
2 B 8 5 7 8 Battery life 8
3 C 8 7 7 10 Weight 6
4 D 8 7 7 8 Display 4
5 E 7 8 7 8 Quality

Serial no. Brand Memory & Storage Battery life Weight Display Total
name Quality
1 A 100 24 60 32 216
2 B 80 40 42 32 194
3 C 80 56 42 40 218
4 D 80 56 42 32 210
5 E 70 64 42 32 208
 Decision Making Models
R AT IO NA L DE CI S IO N MA K I NG
B O U ND ED R AT I O NA LI TY
MODEL

• A rational decision maker would be fully • Managers make decisions

objective and logical. The problem faced rationally, but are limited
would be clear and unambiguous, and (bounded) by their ability to
the decision maker would have a clear process information. Because they
and specific goal and know all possible can’t possibly analyse all
alternatives and consequences. information on all alternatives,
managers satisfice, rather than
• Finally, making decisions rationally maximize. That is, they accept
would consistently lead to selecting the solutions that are “good enough.”
alternative that maximizes the They’re being rational within the
likelihood of achieving that goal. limits (bounds) of their ability to
process information.
 Intuitive Decision Making
It’s making decisions on the basis of experience, feelings, and accumulated
judgment.
 Evidence Based Decision Making
“Systematic use of the best available evidence to improve management practice.”

The four essential elements of EBMgt are the decision maker’s expertise and judgment; external
evidence that’s been evaluated by the decision maker; opinions, preferences, and values of those
who have a stake in the decision; and relevant organizational (internal) factors such as context,
circumstances, and organizational members. The strength or influence of each of these elements on a
decision will vary with each decision. Sometimes, the decision maker’s intuition (judgment) might
be given greater emphasis in the decision; other times it might be the opinions of stakeholders; and
at other times, it might be ethical considerations (organizational context). The key for managers is to
recognize and understand the mindful, conscious choice as to which element(s) are most important
and should be emphasized in making a decision.
 Types of Decisions
STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS. Some problems are
straightforward. The decision maker’s goal is clear, the problem is familiar, and information
about the problem is easily defined and complete. The manager
relies on one of three types of programmed decisions: Procedure, Rule, or Policy.
➢ Procedure is a series of sequential steps a manager uses to respond to a structured problem. The
only difficulty is identifying the problem. Once it’s clear, so is the procedure. For instance, An HR
manager receives a request from a Production Manger to send few of the managers in Project
Management Training. The HR manager knows how the procedure has to be followed.
➢ A rule is an explicit statement that tells a manager what can or cannot be done. Rules are
frequently used because they’re simple to follow and ensure consistency. For example, rules about
lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and fairly.
 Types of Decisions
The third type of programmed decisions is a Policy, which is a guideline for
making a decision. In contrast to a rule, a policy establishes general
parameters for the decision maker rather than specifically stating what
should or should not be done. Policies typically contain an ambiguous term
that leaves interpretation up to the decision maker. Here are some sample
policy statements:
➢ The customer always comes first and should always be satisfied.
➢ We promote from within, whenever possible.
➢ Employee wages shall be competitive within community standards
 Types of Decisions
UNSTRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS: Many organizational situations
involve unstructured problems, which are problems that are new or unusual and for which
information is ambiguous or incomplete. When problems are unstructured, managers must rely on
nonprogrammed decision making in order to develop unique solutions. These decisions require
judgement, evaluation and insight to solve the problem. Unstructured means “decision processes that
have not been encountered in quite the same form and for which no predetermined and explicit set of
ordered responses exists in the organization”. (Mintzberg, et al., 1976, 246) These decisions are seen
as novel, important and non routine. There is no well understood procedure for making them. An
example of an unstructured decision that management may face could be deciding if the company
should enter into a new market or would it be more beneficial for them to stay in just their current
market.
 Types of Decisions
➢ Routine and strategic decisions
➢ Organisational and Personal decisions
➢ Individual and Group decisions
 Decision Making Conditions
❖ Certainty-The ideal situation for making decisions is one of certainty, which is a situation where a
manager can make accurate decisions because the outcome of every alternative is known.
❖ Risk- A far more common situation is one of risk, conditions in which the decision maker is able to
estimate the likelihood of certain outcomes. Under risk, managers have historical data from past
personal experiences or secondary information that lets them assign probabilities to different
alternatives.
❖ Uncertainty- Managers do face decision-making situations of uncertainty. Under these conditions,
the choice of alternative is influenced by the limited amount of available information and by the
psychological orientation of the decision maker. An optimistic manager will follow a maximax
choice (maximizing the maximum possible payoff); a pessimist will follow a maximin choice
(maximizing the minimum possible payoff); and a manager who desires to minimize his maximum
“regret” will opt for a minimax choice.
 Decision Making Styles

The first, linear thinking style, is characterized by a person’s preference for

using external data and facts and processing this information through rational,
logical thinking to guide decisions and actions. The second, nonlinear thinking
style, is characterized by a preference for internal sources of information (feelings
and intuition) and processing this information with internal insights, feelings, and
hunches to guide decisions and actions.
 Effective Decision Making in Today’s World
❖ Understand cultural differences: Managers everywhere want to make good decisions. However, is there
only one “best” way worldwide to make decisions? Or does the “best way depend on the values, beliefs,
attitudes, and behavioral patterns of the people involved
❖ Use an effective decision-making process. Experts say an effective decision-making process has these six
characteristics: (1) It focuses on what’s important; (2) It’s logical and consistent; (3) It acknowledges both
subjective and objective thinking and blends analytical with intuitive thinking; (4) It requires only as much
information and analysis as is necessary to resolve a particular dilemma; (5) It encourages and guides the
gathering of relevant information and informed opinion; and (6) It’s straightforward, reliable, easy to use,
and flexible.”
❖ Build an organization that can spot the unexpected and quickly adapt to the changed Environment:
They’re not tricked by their success.
 Effective Decision Making in Today’s World
They defer to the experts on the front line. Frontline workers—those who interact day in and day out with
customers, products, suppliers, and so forth—have first hand knowledge of what can and cannot
be done, what will and will not work. Get their input. Let them make decisions.
They let unexpected circumstances provide the solution
They embrace complexity. Because business iscomplex, these organizations recognize that it “takes complexity to
sense complexity.” Rather than simplifying data, which we instinctively try to do when faced with complexity,
these organizations aim for deeper understanding of the situation. They
ask “why” and keep asking why as they probe more deeply into the causes of the
problem and possible solutions. (5) Finally, they anticipate, but also recognize their
limits.
Making decisions in today’s fast-moving world isn’t easy. Successful managers need
good decision-making skills to plan, organize, lead, and control