DECISION MAKING

Decisions and Decision

Making
• A Decision is a choice made from
available alternatives.

• Decision making is the process of

identifying problems and opportunities
and then resolving them.
 Decision Making

• Decision Making is at the heart of

organizational effectiveness, climate, and
health.
• Two dominant issues affect how decisions
are made in organizations;
– Stability (application of existing practices and
maintenance of existing performance levels)
– Change (environmental demands for quick
response and emerging problems that are
ambiguous)
 Characteristics Of
Managerial Decisions
• Lack of structure
– Programmed decisions - decisions encountered and made
in the past
• have objectively correct answers
• are solvable by using simple rules, policies, or numerical
computations
– Nonprogrammed decisions - new, novel, complex
decisions having no proven answers
• a variety of solutions exist, all of which have merits and
drawbacks
• demand creative responses, intuition, and tolerance for
ambiguity
Participative decision making structures are
required to effectively manage change.
– Empowering people to participate in important
decisions is highly motivating to them
– Broad participation infuses the decision-
making process with the full spectrum of
knowledge and good ideas that people
throughout the organization have to contribute
• Uncertainty and risk
– certainty - have sufficient information to predict
precisely the consequences of one’s actions
– uncertainty - have insufficient information to
know the consequences of different actions
• cannot estimate the likelihood of various
consequences of their actions
– risk - available information permits estimation of
the likelihood of various consequences
• probability of an action being successful is less than
100 percent
• good managers prefer to avoid or manage risk
• Conflict
– opposing pressures from different sources
– occurs at two levels
• psychological conflict - individual decision
makers:
– perceive several attractive options
– perceive no attractive options
• conflict between individuals or groups
Rationality in Decision Making

Herbert Simon’s three phases of decision

making:
– Intelligence activity - gathering information
regarding the need for a decision to be made
– Design activity - alternatives are envisioned,
developed and analyzed
– Choice activity - selecting a course of action
Peter Drucker’s rational steps in decision
making:
– Define the Problem
– Analyze the Problem
– Develop Alternative Solutions
– Decide on the Best Solution
– Convert decisions into Effective Actions
Three Decision Making
Models

Political
 PoliticalModel
Model

Administrative
 AdministrativeModel
Model

Classical
 ClassicalModel
Model
 Classical Model

• Clear-cut problem and goals.

• Condition of certainty.
• Full information about alternatives and
their outcomes.
• Rational choice by individual for
maximizing outcomes.
Administrative Model

• Vague problem and goals.

• Condition of uncertainty.
• Limited information about alternatives
and their outcomes.
• Satisficing choice for resolving
problem using intuition.
 Political Model

• Pluralistic; conflicting goals.

• Condition of uncertainty/ambiguity.
• Inconsistent viewpoints; ambiguous
information.
• Bargaining and discussion among
coalition members.
The Stages Of Decision
Making
Identifying and
diagnosing
the problem

Generating
alternative
solutions

Evaluating
alternatives

Making the
choice

Implementing
the decision

Evaluating
the decision
 Stages Of Decision Making
• Identifying and diagnosing the problem
– Generating alternative recognize that a problem exists and
must be solved
• problem - discrepancy between current state and past
performance, current performance of other organizations, or
future expected performance
• decision maker must want to resolve the problem and have
the resources to do so
• Solutions
– ready-made solutions - ideas that have been tried before
• may follow the advice of others who have faced similar problem
– custom-made solutions - combining new ideas into creative
solutions
• Evaluating alternatives
– determining the value or adequacy of the
alternatives
– predict the consequences that will occur if the
various options are put into effect
– contingency plans - alternative courses of
action that can be implemented based on how
the future unfolds
• required to prepare for different scenarios
• Making the choice
– maximize - a decision realizing the best possible outcome
• greatest positive consequences and fewest negative
consequences
• greatest benefit at the lowest cost and the largest expected
total return
– satisfies - choose an option that is acceptable although not
necessarily the best or perfect
• compare the choice with the goal, not against other options
• search for alternatives ends when an okay solution is found
– optimizing - achieving the best possible balance among
several goals
• Implementing the decision
– those who implement the decision must:
• understand the choice and why it was made
• be committed to its successful implementation
– can’t assume that things will go smoothly
during implementation
• identify potential problems
• identify potential opportunities
• Evaluating the decision
– collecting information on how well the decision is
working
– if decision appears inappropriate, the process cycles
back to the first stage
• The best decision
– nothing can guarantee a “best” decision
– must be confident that the procedures used are likely to
produce the best decision given the circumstances
• vigilance - decision maker carefully and
conscientiously executes all stages of decision
making
Barriers To Effective
Decision Making
• Psychological biases
– biases that interfere with objective rationality
• Time pressures
– today’s economy places a premium on acting
quickly and keeping pace
• Social realities
– many decisions result from intensive social
interactions, bargaining, and politicking
Ethical Decision Making

The process of making ethical decisions requires:

•Commitment: The desire to do the right thing regardless

of the cost
•Consciousness: The awareness to act consistently and
apply moral convictions to daily behavior
•Competency: The ability to collect and evaluate
information, develop alternatives, and foresee potential
consequences and risks
Arnold Schwarzenegger’s is really long.
Jamie fox’s is really short.
Mickey Mouse’s isn’t human.
Madonna doesn’t have one.
What is it?
LAST NAME
 NO RECIPES,
JUST RULES OF
THUMB
Recipes 
•is a list of ingredients and a set of instructions that
tell you how to cook/do something.
Rules of Thumb
•A decision-making shortcut that people use versus a
gut feeling or intuition. These “judgmental heuristics”
are based upon each person’s personal experiences. 
•It provides almost immediate guidance for behavior in
certain situations.
No Recipes, just Rules of
Thumb”

 There is no exact formula or procedure for doing

or attaining something, you will only rely from the
guidelines and principle based on experience or
practice.
 Rules of thumb in business
decision-making

• Business executives face the challenge of making every

day better business decisions. They make those
decisions using gut feel, common sense, intuition,
experience, and various forms of heuristics or rules of
thumb.
• “There is instrumentality in some technical aspects of
leader-manager role, but when it comes to people, there
is no recipe. The capability that one might develop is
reflexive curiosity which involves the capacity of sense-
making and practical judgment.”
Three basic types in
 identifying ROTs by
Dr.  Modesto Alex Maidique
(Executive director of the Florida International University
Center for Leadership)
• Green (Portable)
- A universal ROTs and can be applied in
any situation. Green ROTS are often tied
to basic humanistic values.
- Green ROTs tend to lead to positive
outcomes and typically come from positive
childhood learning experiences and past
successes.
• Yellow (Contextual)
- develop rules of thumb that work well within a
certain environment like a particular business
or industry, however, these rules can be
problematic if applied outside that context.
- Always driving for innovation may be a
fallback rule you follow at a tech startup, but
it may not be quite as applicable to running a
chain of barber shops.
• Red (Destructive)
-The most common, and potentially most
dangerous, driver of decisions is emotion.
Red ROTs can come from negative
sentiments like hatred, revenge and fear.
-Emotion can often cloud judgment and we
have all let emotion creep into our
decision-making process.
 “At the end of the day you have to
know yourself first before you can
make good decisions and effectively
lead others. The rules of thumb you
develop determine how you make
decisions and the decisions you make
are the key to your success in both
business and in life”
-Dr.  Modesto Alex Maidique