Engineering

Management
LESSON NO. 11 – MANAGERIAL DECISION MAKING
Specific Objectives of the Lesson
At the end of the lesson, the student should be able to:
◦ Know and understand the characteristics of a Managerial Decision.
◦ Have knowledge on the concept and stages of Decision Making.
◦ To understand how Creative Decisions are developed.
 Managerial Decision Making
As the Coca-Cola situation graphically illustrates, gaining and
maintaining ~ competitive edge requires extensive managerial
decision-making.
Decision Making is the process through which managers identify
organizational problems and attempt to resolve them.
In Goizueta’s situation, he recognized that Coca Cola was in danger
of losing its preeminence in the soft-drink industry.
He also said that the company was not using its tremendous assets
to their full capacity.
Hence he took steps to solve these problems. Managers may not
always make the right decision, but they can use their knowledge
of appropriate decision-making processes to increase the odds.
The Nature of Managerial
Decision Making
Like Goizueta, managers, make many different
decisions in the course of their work.
While managers at lower levels in organizations
might not make such monumental decisions as
changing the formula for a revered product, many
smaller decisions at lower levels have a cumulative
effect on organizational effectiveness.
For example: Motorola has built its reputation for
high quality and innovation (particularly in
semiconductors, electronic pagers, and cellular
telephones) partially by encouraging individual
from design, manufacturing and marketing
departments to involve themselves early in
decision making for new projects.
Good decision making is important in all levels.
Types of Problems Decision
Makers Face
Managerial decision making typically centers on
three types of problems:
1. Crisis. A crisis problem is a serious difficulty
requiring immediate action.
◦ Example: The discovery of a severe cash-flow deficiency
that has a high potential of quick evolving into serious
loses. Coca-Cola faced a crisis when loyal customers
protested the demise of the classic Coke formula.
Non-Crisis. A non crisis problem is an issue that
requires resolution but does not simultaneously
have the importance and immediacy characteristics
of a crisis. Many of the decisions that managers
make center on noncrisis problems.
◦ Example: Factory that needs to be brought into
conformity with new state antipollution standards during
the next 3 years and an employee who is frequently late
for work.
Opportunity. An opportunity problem is a
situation that offers strong potential for significant
organizational gain if appropriate actions are taken.
Opportunities typically involve new ideas and novel
directions and , therefore, are major vehicles for
innovation.
◦ Top management at Coca-cola saw the opportunity in the
possibility of putting the Coke name on a more extensive
line of softdrinks.
Characteristics of a Managerial
Decision
Lack of Structure
◦ Some decisions are routine and clear-cut, for most there is no
automatic procedure to follow.
◦ Problems are novel and unstructured, leaving the decision maker
uncertain about how to proceed in solving it.
 Uncertainty
◦ Means the manager has insufficient information to
know the consequences of different actions.
◦ Decision makers may have strong opinions – they
may feel sure of themselves – but they are still
operating under condition of uncertainty if they and
cannot estimate the results of their action.
 Risk:
◦ This exist when the probability of an action being
successful is less than 100 percent.
◦ If the decision is a wrong one, you may lose money,
time, reputation, or other important assets.
 Conflict:
◦ This exists when the manager must consider
opposing pressures from different source.
◦ Example:
◦ There are three desirable applicants for a single position.
But choosing one means rejecting the other two.
Stages of Decision Making
Identifying and Diagnosting the Problem
◦ The first stage in decision making process is to
recognize that a problem exists and must be solved.
◦ Typically, a manager realizes some discrepancies
between the current state (the things are) and a
desired state (the way things ought to be).
◦ Such discrepancies may be detected by comparing
current performance against:
◦ Past performance
◦ The current performance of other organizations or
departments
◦ Future expected performance as determined by plans and
forecast
 Generating Alternative Solutions
◦ Problem diagnosis is linked to the development of alternative
courses of action aimed at solving the problem.
◦ Managers generate at least some alternative solutions based on
some past experience and such solutions ranges from Ready-
made to Custom-made.
◦ Ready-made – uses ideas they have seen or tried before or follow
advice of others who have faced similar problems.
◦ Custom-made – must be designed for the specific problem. This
technique requires combining ideas in new, creative solutions.
 Evaluating Alternatives
◦ In this stage, it involves determining the value of
discrepancy of the alternatives that were generated.
Asking the question, which solution will be the best?
 Making the Choice
◦ Important concepts in making a choice:
◦ Maximizing – is to make the best possible decision. Maximizing
decisions realizes the greatest positive consequences and
fewest negative consequences. In other words, maximizing
results in the greatest benefit at the lower cost, with the
largest expected total return.
◦ Satisficing – is to chose the first option that is minimally
acceptable or adequate, the choice appears to meet a
targeted goal or criterion. It is the result of laziness; other
times there is not other option because time is short,
information is unavailable, or other constraints make it
possible to maximize.
◦ Example: You would be maximizing if you checked out all your
options and their prices, and then bought the cheapest one
that meet your performance requirements. But you would be
satisficing if you bought the first one you found that was within
your budget, and failed to look for less expensive options.
◦ Optimizing – is the type of maximizing which means that you achieve the best
possible balance among several goals.
◦ Example: In purchasing equipment, you are interested in quality and durability as
well as price. Instead of buying the cheapest piece of equipment that works, you buy
the one with the best combination of attributes, even though there may be options
that are better on price criterion and others that are better on the quality and
durability criteria.
 Implementing the Decision
◦ This decision process does not end once a choice is made. The chosen
alternative must be implemented.
 Evaluating the Decision
◦ The final stage in decision-making is evaluating the
decision. This means collecting information on how
well the decision is working. The evaluation of the
decision may be positive or negative, if positive, did
it meet the goals of the decision and if negative, go
back to the drawing table and (re)define the
problem and the decision making process begins
anew.
Making Creative Decisions
If the optimizing approach to decision making is
based on unrealistic assumptions and the intuitive
and satisficing approaches often results in less than
optimal decisions, what can managers do to
improve their decision making process?
One option that has produced positive results in
numerous organizations is to encourage creative
decision and innovation at all levels.
 The Creative Process
Four Basic Stages of the Creative Process
◦ Preparation
It involves the hard, conscious, systematic, and often fruitless
examination of a problem area of study. It also involves getting ready
to solve a particular problem.
◦ Incubation
It is the stage were the individual or group is not consciously thinking
about the problem. It is the unconscious mental exploration of the
problem.
◦ Illumination
This stage occurs with the appearance of the solution and is generally
a very sudden occurrence.
◦ Verification
At this stage of creativity, it involves testing and refining the solution.