Chapter

MANAGERIAL
DECISION MAKING
PREPARED BY : AZEYAN AWEE

PowerPoint Presentation by Wessex Press, Inc.

© 2016 Wessex Press, Inc. All rights reserved.

© 2016 Wessex Press, Inc. All rights reserved.
 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–2
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–3
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Sources of Organizational and Entrepreneurial Decisions

• Decision making
 The process through which managers and leaders
identify and resolve problems and capitalize on
opportunities.
• Problem
 A condition that occurs when some aspect of
organizational performance is less than desirable.
• Opportunity
 Any situation that has the potential to provide
additional beneficial outcomes. 6–4

© 2016 Wessex Press, Inc. All rights reserved.

 Figure 6.1 Seven Steps in the Decision-Making Process

Identifying opportunities
and diagnosing problems

Identifying objectives

Generating alternatives

Evaluating alternatives

Reaching decisions

Choosing implementation strategies

6–5

Monitoring and evaluating

© 2016 Wessex Press, Inc. All rights reserved.

 Step 1: Identifying Opportunities
and Diagnosing Problems
• The clear identification of opportunities or the
diagnosis of problems that require a decision.
• An assessment of opportunities and problems
will only be as accurate as the information on
which it is based.

6–6

© 2016 Wessex Press, Inc. All rights reserved.

 Step 2: Identifying Objectives
• Objectives reflect the results the organization
wants to attain. Also called targets, standards or
ends.
 The quantity and quality of the desired results should
be specified, for these aspects will ultimately guide
the decision maker in selecting the appropriate
course of action.
 Objectives can be measured on a variety of
dimensions (monetary units, output per hour, % of
defects, etc.) and whether the objectives are long-
term versus short-term.
6–7

© 2016 Wessex Press, Inc. All rights reserved.

 Step 3: Generating Alternatives
• Once an opportunity has been identified or a
problem diagnosed correctly, a manager
develops various ways to solve the problem and
achieve objectives.
• The alternatives can be standard and obvious as
well as innovative and unique.

6–8

© 2016 Wessex Press, Inc. All rights reserved.

 Step 4: Evaluating Alternatives
• Determining the value or adequacy of the
alternatives generated.
• Predetermined decision criteria may be used in
the evaluation process.
 Quality desired
 Anticipated costs
 Benefits
 Uncertainties
 Risks
6–9

© 2016 Wessex Press, Inc. All rights reserved.

 Step 5: Reaching Decisions
• Decision making is commonly associated with
making a final choice.
• Although choosing an alternative would seem to
be a straightforward proposition, in reality the
choice is rarely clear-cut.

6–
10

© 2016 Wessex Press, Inc. All rights reserved.

 Step 6: Choosing Implementation Strategies

• The bridge between reaching a decision and

evaluating the results.
• The keys to effective implementation are:
 Sensitivity to those who will be affected by the
decision.
 Proper planning and consideration of the resources
necessary to carry out the decision.

6–
11

© 2016 Wessex Press, Inc. All rights reserved.

 Step 7: Monitoring and Evaluating
• No decision-making process is complete until
the impact of the decision has been evaluated.
• Managers must observe the impact of the
decision as objectively as possible and take
further corrective action if it becomes necessary.

6–
12

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–
13
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Classifying Decision Situations
• Programmed decision
 A decision made in response to a situation that is
routine or recurring.
 Example: starting your automobile
• Nonprogrammed decision
 A decision made in response to a situation that is
unique, unstructured, or poorly defined.
 Example: deciding to get a tattoo

6–
14

© 2016 Wessex Press, Inc. All rights reserved.

 Responses to Decision Situations

Programmed Nonprogrammed
Decisions Decisions

Alternatives are Alternatives are not

familiar to decision familiar to decision
makers. makers.

Responses are Responses require

routine. creativity.
6–
15

© 2016 Wessex Press, Inc. All rights reserved.

 Figure 6.3 Two Contrasting Decision Models

6–
16

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–
17
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Rational-Economic Decision Model
• A prescriptive framework of how
a decision should be made that
assumes managers have
completely accurate
information.
• Concentrates on how decisions
should be made, not on how
they actually are made

6–
18

© 2016 Wessex Press, Inc. All rights reserved.

 Assumptions of the Rational-Economic Model

• Managers have “perfect information.”

• Managers attempt to accomplish objectives that are
known and agreed upon.
• Managers have an extensive list of alternatives to choose
from.
• Managers are rational, systematic, and logical in
assessing alternatives and their associated probabilities.
• Managers work in the best interests of their organizations.
• Ethical decisions do not arise in the decision-making
process.
6–
19

© 2016 Wessex Press, Inc. All rights reserved.

 Drawbacks of the Rational-Economic Model

• Leaders rarely have access to perfect information.

• Decision makers are limited in their ability to
comprehend and process vast amounts of information.
• Decision makers may lack adequate knowledge about
future consequences of alternatives.
• Personal factors can prevent a decision maker from
acting in a completely rational manner.
• Individual culture and ethical values will influence the
decision process.
6–
20

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–
21
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Behavioral Decision Model
• Acknowledges the human limitations that make
rational decisions difficult to achieve.
 A manager’s cognitive ability to process information is
limited.
 Managers usually attempt to behave rationally within
their limited perception of a situation.
 The complexity of most organizational situations
forces managers to view problems within sharply
restricted bounds.
 The behavior of managers can be considered
rational, but only in terms of their simplified view of 6–

the problem. 22

© 2016 Wessex Press, Inc. All rights reserved.

 Concepts Important to the
Behavioral Decision Model
• Bounded Rationality
 Recognizes that people are limited by organizational
constraints such as time, information, resources, and
their own mental capabilities.
• Intuition
 An unconscious analysis based on past experience.
• Satisficing
 The search and acceptance of something that is
satisfactory rather than perfect or optimal.
6–
23

© 2016 Wessex Press, Inc. All rights reserved.

 Concepts Important to the Decision
Model (cont’d)
• Escalation of Commitment
 The tendency to increase commitment to a previously
selected course of action beyond the level that would
be expected if the manager followed an effective
decision-making process.

6–
24

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–
25
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Group Considerations in Decision Making

• Group decision making is becoming more

common as organizations focus on improving
customer service and push decision making to
lower levels.

6–
26

© 2016 Wessex Press, Inc. All rights reserved.

 Situational Contingencies Affecting Decision Making Participation

1. Decision significance
2. Importance of commitment
3. Leader expertise
4. Likelihood of commitment
5. Team support
6. Team expertise
7. Team competence
6–
27

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–
28
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Table 6.2 Advantages and Disadvantages of Group Decision
Making

Advantages Disadvantages
• Experience and expertise • Greater time requirement
of several individuals
• Minority domination
available
• Compromise
• More information, data,
and facts accumulated • Concern for individual
rather than group goals
• Problems viewed from
several perspectives • Social pressure to
conform
• Higher member
satisfaction • Groupthink
• Greater acceptance and
commitment to decisions 6–
29

© 2016 Wessex Press, Inc. All rights reserved.

 LEARNING OUTCOMES
When you have finished studying this chapter, you
should be able to explain:

1 2 3
The nature of the decision- The basic classifications for The rational-economic model of
making process and each of its managerial decisions. decision making.
seven steps.

4 5 6 7
The behavioral decision The participative The advantages and The list of various
model and its related approach to decision disadvantages of techniques used to
concepts of bounded making. participative decision improve participative
rationality, intuition, making. decision making.
satisficing, and
escalation of 6–
30
commitment.

© 2016 Wessex Press, Inc. All rights reserved.

 Techniques for Quality in Group
Decision Making
• Brainstorming
• Nominal Group Technique
• Delphi Technique
• Devil’s Advocacy Approach
• Dialectical Inquiry

6–
31

© 2016 Wessex Press, Inc. All rights reserved.

 Brainstorming
• Brainstorming
 A technique to enhance creativity by encouraging
group members to generate as many novel ideas as
possible on a given topic without evaluating them.
• Rules of Brainstorming
 Freewheeling is encouraged.
 Ideas are not criticized as they are being generated.
 Quality is encouraged.
 The wilder the ideas, the better.
 Piggyback on previously stated ideas.
6–
 Ideas are evaluated after alternatives are generated. 32

© 2016 Wessex Press, Inc. All rights reserved.

 Other Decision-Making Techniques
• Nominal Group Technique (NGT)
 A structured process designed to stimulate creative group
decision making where agreement is lacking or the members
have incomplete knowledge concerning the nature of the
problem.
• Delphi Technique
 Uses experts to make predictions and forecasts about future
events without meeting face-to-face.

6–
33

© 2016 Wessex Press, Inc. All rights reserved.

 Ethical and Social Implications in Decision Making

• Many leading companies look beyond the bottom-

line profitability and include a component of ethical
behavior and social responsibility into their business
decisions.
 Toyota
 Walt Disney
 Burger King
 General Motors

6–
34

© 2016 Wessex Press, Inc. All rights reserved.

 Implications for Leaders
• Be able to recognize quickly problems and
opportunities that call for a decision.
• Be able to recognize the different time frames
and scopes of strategic decisions versus
operational decisions.
• Be equipped with all the tools and techniques
that can aid in making strategic decisions.

6–
35

© 2016 Wessex Press, Inc. All rights reserved.

 Implications for Leaders
• Be able to recognize the different decision-
making environments in which their operational
decisions will be made.
• Have an awareness and understanding of the
various quantitative tools that can aid in making
operational decisions.

6–
36

© 2016 Wessex Press, Inc. All rights reserved.