McGraw-Hill

Learning Objectives
After reading this chapter, you should be able to:

 Know how to implement the six stages of management

decision making.
 Apply the criteria of quality and acceptance to a decision.
 Recognize the characteristics of management decisions:
programmability, uncertainty, risk, conflict, and decision
scope.
 Reap the advantages and avoid the disadvantages of
group decision making.
 Develop the skill of time management to allow adequate
time to make decisions.
 Know when to delegate, and do so wisely.
 Introduction
 Making decisions under conditions of risk and
uncertainty is one of the most important activities
that managers engage in.
 Generally, there is a lack of information and a
limited amount of time available to make the
decision.
 Procrastinating and not making a decision
sometimes has greater risk than making it.
 Decision Making
 The process of identifying
problems and opportunities and
resolving them.
 Management decisions can be
made by managers, teams, or
individual employees, depending
on:
 The scope of the decision, and
 The design and structure of the
organization.
 Decision Making

Problem
A discrepancy between an
existing and a desired state of
affairs
Decision criteria
Factors that are relevant in a
decision
 Characteristics of Management
Decision Making

Programmability

Decision Scope Uncertainty

Conflict Risk

Crisis
 Characteristics of Management
Decision Making (Cont)

Programmed Decisions

Programmability
Non-programmed Decisions

Certainty

Uncertainty
Uncertainty
 Characteristics of Management
Decision Making (Cont)
– occurs when the outcome of
 Risk
management decision is uncertain
 Risk has both positive and negative aspects
 Decision environment for risk vary depending upon company
culture and size
 Conflict – occurs when there are opposing goals,
scares resources, or differences in priorities
 Crisis – a situation that involves small amounts of
time to make a decision that can impact the
survival of the organization
 Characteristics of Management
Decision Making (Cont)

 Decision Scope – the effect and time horizon of a

decision
 Strategic Decisions – long term perspective of 2-5 years
and affect on the organization
 Tactical Decisions – short term perspective of 1 year or
less and focus on subunits
 Operational Decisions – shortest time perspective,
generally less than a year, often measured on a daily or
weekly basis
 Organizational Decision
making

“ the process of responding to a problem by searching

for and selecting a solution or course of action that will
create value for organisational stakeholders”.
 There are basically two kinds of decision that
managers called upon to make:

Programmed and non-programmed

Types of Problems and Decisions

 Structured problems
* Involved goals that clear.
*Are familiar(have occurred before)
*Are easily and completely defined-
information about the problem is available and
complete.

 Programmed decision
*A repetitive decision the can be handled by a
routine approach.
Problems and Decisions ( cont’d)

Unstructured problems
* Problems that are new or unusual and for which
information is ambiguous or incomplete.
* Problems that will require custom-made
solutions.
Non-programmed decisions
* Decision that are unique and nonrecurring.
* Decision that generate unique responses.
 Types of Programmed Decisions
 Policy
* a general guideline for making a decision
about a structured problem.
 Procedure
* A series of interrelated steps that a
manager can use to respond ( applying a
policy) to a structured problem.
 Rule
* an explicit statement that limits what a
manager or employee can or cannot do.
 Programmed vs. Non-
programmed Decisions
Characteristics Programmed Non-programmed
decisions decisions
Type of problem Structured Unstructured

Managerial level Lower level Upper level

Frequency Repetitive New,unusual

Information Readily available Ambiguous or

incomplete
Time frame for Short Relatively long
solution
Solution relies on Procedures,rules, and Judgment and creativity
policies
 Stages of Decision Making

Identifying Generating Selecting

and alternative Evaluating the best Implementing
diagnosing solutions alternatives alternative the decision
the problem

Evaluating
the decision
Step 1 – Identify and Define the Problem

Focuses on information gathering, information

processing, and deliberation.
Decision objectives should be established.
Common mistakes in defining problems:
 Defining the problem too broadly or too
narrowly.
 Focusing on symptoms instead of causes.
 Choosing the wrong problem.
 Typical problems
that require decisions
 A high level of employee turnover.
 A reduction in firm profits.
 Unacceptable levels of “shrinkage” in a store.
 Lower than planned quality of finished goods.
 An unexpected increase in workplace injuries.
 The invention of a new technology that can
increase the productivity of the workforce.
Step 2 – Generating Alternative Solutions

Potential solutions are formulated and

more information is gathered, data are
analyzed , the advantages and
disadvantages of alternative solutions are
identified
Approaches for evaluating alternatives:
Stakeholder analysis.
Cost-benefit analysis.

18
 Step 3-Evaluating Alternatives

 Criteria for evaluating alternatives:

 Benefits (Profits).
 Costs.
 Timeliness.
 Acceptability.
 Ethical soundness.
 Common mistakes:
 Selecting a particular solution too quickly.
 Choosing a convenient alternative that may have
damaging side effects or may not be as good as other
alternatives.
 Evaluating Alternatives (continued)

 A practical way to apply decision criteria is

to consider:
 Decision quality – aspect of decision
making based on such facts as costs,
revenues, and product design specifications.
 Decision acceptance – aspect of decision
making based on people’s feelings.
 Step 4-Approaches to selecting
the best alternative
 Optimizing – selecting the best
alternative from among
multiple criteria.

 Satisficing – selecting the first alternative

solution that meets a minimum
criterion.
 Step 5-Key factors for
successful implementation
 Providing resources (staff, budgets, office space) that
will be needed for the activities that are required for
successful implementation.
 Exercising leadership to persuade others to move the
implementation forward.
 Developing communication and information
systems that enable management to know if the
decision alternative is meeting its planned objectives.
 Recognition and rewards for individuals and teams
that are successful with implementation.
 Step 6- Evaluating the
decision’s effectiveness

 The soundness of the decision is judged by its

outcomes.
* How effectively was the problem resolved by
outcomes resulting from the chosen
alternatives?
* if the problem was not resolve, what went
wrong?
The decision making process-Example
Identification of a problem
Identification of Decision Criteria
Allocation of weights to criteria
Development of alternatives
Analyzing of alternatives
Selection of alternatives
Implementation of alternatives
Evaluation of decision alternatives
“My sales Reps need new computers!”
Memory and Storage, Display Quality,
Better Life,Warranty, Carrying weight
Memory and Storage-10, Display
Quality -8, Better Life -6,Warranty -4,
Carrying weight-3
Toshiba, HP, Soni Vaio, Qosmio,
Gateway, Apple iBook, Lenovo, Dell
Toshiba, HP, Soni Vaio, Qosmio, Gateway,
Apple iBook, Lenovo, Dell
Toshiba, HP, Soni Vaio, Qosmio,
Gateway, Apple iBook, Lenovo, Dell
“ Toshiba!”
Common decision-Making errors
and Biases
Overconfidence
Immediate
Hindsight Gratification

Self-serving Anchoring
Decision-Making Effect
Sunk costs Errors & Biases
Selective
Perception
Randomness
Confirmation
representation
framing
Availability
 Characteristics of an Effective
Decision-Making
 It focuses on what is important
 It is logical and consistent.
 It acknowledges both subjective and objective
thinking and blends analytical with intuitive
thinking.
 It requires only as much information and analysis
as is necessary to resolve a particular dilemma.
 It encourages and guides the gathering of relevant
information and informed opinion.
 It is straightforward,reliable, easy to use, and
flexible.
A General-
Decision
Making
Model
A General Decision-Making model

 Improving the Flow of Knowledge

– The flow of constructive tacit knowledge
between coworkers is a priority.
– Knowing what you know, what you don’t
know, and how to find what you know
yields better and more timely decisions.
(Cont’d)

 Knowledge Management (KM): A Tool for

Improving the Quality of Decisions
– Developing a system to improve the creation and
sharing of knowledge critical for decision making.
– Tacit knowledge: personal, intuitive, and
undocumented private information.
– Explicit knowledge: readily sharable public
information in verbal, textual, visual, or numerical
form.
 Making Decisions: The Rational
Model
 Certainty
 The implication that the outcome of every possible
alternative is known
 Uncertainty
 A condition
under which there is not full knowledge of
the problem and reasonable probabilities for alternative
outcomes cannot be determined.
 Risk
 The probability that a particular outcome will result from
a given decision
4–30
Rational (Logical) Decision Model
Steps
Scanning the situation—identifying a signal that a
decision should be made.
Receipt of authoritative communications from
superiors.
Cases referred for decision by subordinates.
Cases originating from the manager.
Classify the decision as routine, apply the
appropriate decision rule; as nonprogrammed, begin
comprehensive problem solving.
Monitor and follow-up as necessary.
Assumptions of Rationality
 Assumptions of the Rational
Decision Making Process
 The problem is clear and unambiguous.

 There is a single, well-defined goal that all parties

agree to.

 Full information is available about criteria.

 All the alternatives and their consequences are

known.
 Assumptions of the Rational
Decision Making Process (continued)
 The decision preferences are clear.

 The decision preferences are constant and stable

over time.

 There are no time and cost constraints affecting

the decision.

 The decision solution will maximize the economic

payoff.
 Individual Models of Decision-Making
Cognitive style
Underlying personality dispositions toward the treatment of
information, selection of alternatives, and evaluation of
consequences.
Systematic decision makers
people who approach a problem by structuring it in terms of some
formal method.
Intuitive decision makers
people who approach a problem with multiple methods in an
unstructured manner, using trail and error to find a solution.
Organizational models of decision making
Models of decision making that take into account the structural and
political characteristics of an organization.
Factors That Limit Rational
Decision Making

Organization Politics

Emotions and Personal

Preferences

Illusion of Control
Organizational Models of Decision-Making

Bureaucratic models of decision making

where decisions are shaped by the organization’s standard
operating procedures(SOPs).

Political models of decision making

where decisions result from competition and bargaining
among the organization’s interest groups and key leaders.

“Garbage can” model

where states that organizations are not rational and that
decisions are solutions that become attached to problems for
accidental reasons.
 Nonrational Decision
Making Models
Satisficing Model
 Bounded rationality – the ability of a manager to be
perfectly rational is limited by factors such as cognitive
capacity and time constraints
 Therefore, decision makers apply heuristics , or decision
rules, that quickly eliminate alternatives
 By using the heuristic known as satisficing, a manager
seeks out the first decision alternative that appears to be
satisfactory
 Satisficing is an accurate model many management
decisions.
 Nonrational Decision
Making Models (continued)
Garbage Can Model

 This model suggests that managers have a set of

preestablished solutions to problems located in
“garbage cans.”
 The garbage can model is likely to be used when
decision makers are undisciplined and have no clear
immediate goals.
 The decision making process lacks structure
 This can lead to serious difficulties
 Advantages and Disadvantages of
Group Decision Making
Advantages Disadvantages
 Increased acceptance  Social pressure
 Greater pool of  Minority domination
knowledge  Logrolling
 Different perspectives  Goal displacement
 Greater  “Groupthink”
comprehension
 Training ground
Managing Group Decision Making

Leadership Style

Devil’s Advocate Role

Stimulating Creativity
 Leader Decision Making Styles

 Decide and persuade

 Discover facts and decide
 Consult and decide
 Consult with group and decide
 Group decision
 Decision Making Techniques to
Stimulate Group Creativity

Consensus Mapping
Brainstorming
(Storyboarding)

Delphi Nominal Group

Technique Technique
(NGT)
 Techniques for improving decision making

 Brainstorming – idea generation for decision

making.
 Nominal group technique (NGT)- problem
outlined, presentation of solution in written form,
discussion over written solutions, and final decision.
 Delphi technique- decision made on the basis of
questionnaire filled by the respondents.
 Consensus mapping- decision made on the basis
of the report presented by the representative of each
group after
 Skills for decision making process

 Time management skills

 To make good decisions, managers
need time to understand the problem
and develop creative solutions.

 Delegation skills
 Managers who know how to delegate
are able to accomplish more than
those who feel the need to be involved
in every decision, no matter how trivial.
 Effective Time
Management Practices
 Plan a list of things that need to be done today.
 Plan weekly, monthly, and annual schedules of
activities.
 Schedule difficult and challenging activities when
you are at your highest level of energy and
alertness.
 Set deadlines.
 Effective Time
Management Practices (continued)
 Answer phone messages and e-mail
in batches during a lull in your
work schedule.
 Have a place to work uninterrupted.
 Do something productive during non-productive
activities.
 Effective Delegation
 Determine what you want
done.
 Match the desired task with
the most appropriate
employee.
 Communicate clearly when
assigning the task.
 Ask questions to make sure the
task is fully understood.
 Set clear guidelines.
 Effective Delegation (continued)

 Keep communication channels open.

 Allow employees to do the task the way they
feel comfortable doing it.
 Trust employees’ capabilities.
 Check on the progress of the assignment.
 Hold the employee responsible for the work.
 Recognize what the employee has done, and
show appropriate appreciation.
 Applications of Management
Perspectives—For the Manager
 Procrastination is a major barrier to effective
decision making.

 Managers need to establish clear priorities by:

 Determining which activities produce the greatest value.
 Setting dates for completion of these activities.

 Setting priorities forces managers to make

decisions and helps control procrastination.
 Applications of Management
Perspectives—For Managing Teams

 Overly relying on team meetings is a barrier

to making effective team decisions.

 A team should be able to manage its

workflow if:
 Subgroups or individual team members are
assigned tasks; and
 They are given responsibility for decision making
associated with these tasks.
 Applications of Management
Perspectives—For Individuals
 When you feel fearful, angry, anxious, or
frustrated:
 You are not likely to think clearly and focus on the
problem.
 It is not a good time to make a decision.

 It is better to postpone the decision until after you

have coped with the source of the stress and are in
a more comfortable emotional state.
Challenges for Decision Makers

 Decision Making
– The process of identifying and choosing alternative
courses of action to meet the demands of a situation.
 Trends in Decision Making
– The pace of decision making is accelerating:
managers report making more decisions and having
less time to make them.
• Complex streams of decisions
• Sources of decision complexity
• Perceptual and behavioral decision traps
(Cont’d)

 Dealing with Complex Streams of

Decisions
– Multiple criteria to be satisfied by a decision.
– Intangibles that often determine decision
alternatives.
– Risk and uncertainty about decision alternatives.
– Long-term implications of the effects of the choice
of a particular alternative.
– Interdisciplinary input increases the number of
persons to be consulted before a decision is made.
(Cont’d)
– Pooled decision making increases the
number of persons playing a part in the
decision process.
– Value judgments by differing
participants in the process create
disagreement over whether a decision is right
or wrong, good or bad, and ethical or
unethical.
– Unintended consequences occur because
the results of purposeful actions cannot always
be predicted.
 Managers and Decision-Making
Classical model of management
Traditional description of management that focused
on its formal functions of planning, organizing,
coordinating, deciding and controlling.

Behavioral models
Descriptions of management based on behavioral
scientists observations of what managers actually
do in their jobs.
Guideline for making decision more effective

 Categorical interpretation- the problem should be

defined properly.
 Application of limiting factor- limiting factor should
be taken into account in order to analyze the external S &
W.
 Adequate information- more quantity of reliable
information leads to effective decision making.
 Considering other views- various views at the same
point are taken into account for quality decision.
 Timeliness- decision should be ,made at proper time to
meet the competitive advantages.