CH 03 Managerial Decision Making

MANAGEMENT
Managerial Decision
Making
CHAPTER 8
chapter8 Learning Outcomes
• Explain why decision making is an important component of good
management.
• Discuss the difference between programmed and nonprogrammed
decision and the decision characteristics of certainty and uncertainty.
• Describe the ideal, rational model of decision making and the political
model of decision making.
• Explain the process by which managers actually make decisions in the real
world.
• Identify the six steps used in managerial decision making.
• Describe four personal decision styles used by managers and explain the
biases that frequently cause managers to make bad decisions.
• Identify and explain techniques for innovative group decision making.
3
Copyright ©2010 by South-Western, a division of Cengage
Learning. All rights reserved.
How Do You Make
chapter8
Decisions?
• People make decisions everyday without
realizing their diverse decision-making styles
• Managers are referred to as decision makers
• Organizations grow and prosper based on

decisions made by managers
• Good decision making is a vital part of good

management
4
Types of Decisions and
chapter8
Problems
• A decision is a choice made from available
alternatives
• Decision making is the process of identifying
problems and opportunities and then resolving
them
• Programmed Decisions – situations that occur
often to enable rules
• Nonprogrammed – situations that are unique or
poorly defined and unstructured
5
Facing Certainty and
chapter8
Uncertainty
• Programmed and nonprogrammed decisions differ
because of uncertainty
– Certainty: the information needed is available
– Risk: the future outcome is subject to chance regardless
of the information available
– Uncertainty: information about future events are
incomplete
– Ambiguity and Conflict: the goals and/or problem are
unclear and difficult to define
• Managers attempt to obtain information about
decision alternatives
6
Conditions That Affect the
chapter8 Possibility of Decision Failure
7
chapter8 Decision-Making Models
8
chapter8 The Ideal, Rational Model
• Strive to make economically sensible decisions

• Four assumptions of the model:
1. The decision maker operates to accomplish goals
that are known and agreed on.
2. Decision maker strives for conditions of certainty. All
alternatives are calculated.
3. Criteria for evaluating alternatives are known.
4. The decision maker is rational and uses logic to
assign values. Attempt to maximize organizational
goals. 9
chapter8 Administrative Model
• Descriptive approach that recognizes human
and environmental limitations
• Focus on organizational factors that influence
decisions
• Seek to find alternatives for complex problems
instead of rational approach
1. Decision goals are vague and lack consensus.
2. Rational procedures are not always used.
3. Search for alternatives is limited because of human,
information and resource constraints.
4. Managers will settle for satisficing rather than
maximizing. 10
Bounded Rationality
chapter8
and Satisficing
•• Bounded
Bounded Rationality
Rationality –– people
people have
have limits
limits and
and
boundaries
boundaries on
on how
how rational
rational they
they can
can be
be
–– Organizations
Organizations are
arecomplex
complexsystems
systems
•• Satisficing
Satisficing –– decision
decision makers
makers choose
choose the
the first
first
solution
solution alternative
alternative that
that satisfies
satisfies minimal
minimal decision
decision
criteria
criteria
•• Intuition
Intuition –– quick
quick apprehension
apprehension ofof aa decision
decision
situation
situation based
based onon past
past experience
experience butbut without
without
conscious
conscious thought
thought
11
chapter8 Political Model
• Useful for nonprogrammed decisions
• Resembles the real environment in which
managers operate
• Four basic assumptions:
– Organizations are made up of diverse interests
– Information is ambiguous and incomplete
– Managers do not have the resources to identify all
dimensions of the problem
– Managers engage in the push and pull of debate to
decide goals and alternatives 12
chapter8 Decision-Making Steps
13
Recognition of Decision
chapter8
Requirement
• When a problem or opportunity is
presented, decisions must be made
• Problem – occurs when organizational

accomplishment is less than established
goals
• Opportunity – when managers see

potential accomplishment that exceeds
specified current goals
14
Diagnosis and Analysis
chapter8
of Causes
• Managers must understand the situation—diagnosis
• Managers ask a series of questions:
 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?
15
chapter8 Develop of Alternatives
• Generate possible alternative solutions
• For programmed decisions, feasible

alternatives are easy to identify
• Nonprogrammed decisions, however

require developing new courses of action
16
Selection of Desired
chapter8
Alternative
• Managers will choose the most promising
of several alternative courses of action
• The selection should fit the goals and

objectives
• The manager tries to select the choice

with the least amount of risk and
uncertainty
17
Implementation of Chosen
chapter8
Alternative
• Use managerial, administrative and
persuasive abilities to ensure that the
alternative is carried out
• Success depends on the managers ability

to translate alternative into action
• Implementation requires communication,

motivation, and leadership
18
Decision Alternatives with
chapter8
Different Levels of Risk
19
chapter8 Evaluation and Feedback
• How well was the alternative implemented?
• Was the alternative successful?
• Feedback is a continuous process
• Large problems may involve several

alternatives in sequence
20
Personal Decision
chapter8
Framework
How individuals personally proceed
through the decision making process
1. Directive Style
2. Analytical Style
3. Conceptual Style
4. Behavioral Style
21
Why Do Managers Make
chapter8
Bad Decisions?
1. Being influenced by initial impressions
2. Justifying past decisions
3. Seeing what you want to see
4. Perpetuating the status quo
5. Being influenced by problem framing
6. Overconfidence
22
Innovative Group
chapter8
Decision Making
→ Start with Brainstorming
→ Engage in Rigorous Debate
→ Avoid Groupthink
→ Know When to Bail
23

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MANAGEMENT

• Managers are referred to as decision makers

• Organizations grow and prosper based on

• Good decision making is a vital part of good

• Strive to make economically sensible decisions

• Problem – occurs when organizational

• Opportunity – when managers see

• Generate possible alternative solutions

• For programmed decisions, feasible

• Nonprogrammed decisions, however

• The selection should fit the goals and

• The manager tries to select the choice

• Success depends on the managers ability

• Implementation requires communication,

• How well was the alternative implemented?

• Was the alternative successful?

• Feedback is a continuous process

• Large problems may involve several

→ Engage in Rigorous Debate

→ Know When to Bail

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