MANAGERIAL DECISION MAKING

AND DEVELOPMENT
Chapter 1
Introduction and Main Concepts
Definitions

■ Decision making is the process of making choices by identifying a decision,

gathering information, and assessing alternative resolutions. 
■ Decision making refers to making choices among alternative courses of action—which
may also include inaction
■ A decision-making process is a series of steps taken by an individual to determine
the best option or course of action to meet their needs. In a business context, it is a
set of steps taken by managers in an enterprise to determine the planned path for
business initiatives and to set specific actions in motion.
What is decision-making
in business?
 DM is an activity that lies at the heart of
management
■ Organisations face a scarcity of resources and the need to make the most effective use of the
resources available to them
■ Organisations face growing competition
■ Issues such as a consumer safety, pollution or employment practices, frequently raise public
concern over the degree if social responsibility demonstrated by organizations in their decision
making
■ Decision making is such a vital and complex process that is justifies both academic study and
critical examination by the practicing manager.
Who makes decisions?

■ The work of any good manager  is being able to make the right decision at the right
time, even in less-than-ideal circumstances. Regardless of sector and industry, it’s an
important element of any management role, having the potential to impact employees as
well as the direction a company might take going forward.
■ Big or small, decisions have the power to alter things at both a micro and a macro level.
Whether it’s the snacks served at a meeting or a change in company culture,
management has a lot to weigh up when it’s crunch time.
■ In a business context, following a formal process of decision-making lets businesses
make more informed, considered decisions that set specific actions in motion.
Decisions examples

■ Which technology to employ?

■ What scale of manufacture, how large a plant?
■ How flexible should the plant be?
■ Where should plant be located?
■ How to finance and source the equipment?
■ How much should be produced this year/ week?
■ Where should materials be sourced?
■ What should be the employment and training policy for employees?
■ …………..
Decisions impact

■ The decisions may affect the lives of others and change the course of an organization
■ Increasing effectiveness in decision making is an important part of maximizing managers effectiveness at work
■ Many decisions involve an ethical component so check it with following questions:
 Is this decision fair?
 Will I feel better or worse about myself after I make this decision?
 Does this decision break any organizational rules?
 Does this decision break any laws?
 How would I feel if this decision was broadcast on the news?
 Decision making is a vital skill in the business workplace, particularly for managers and those in leadership
positions.
Information needs for decision-makers

■ Objective: To reach a decision, the decision-maker must determine the objective. What problems and issues
stand in the way of reaching this objective, and how are you going to overcome these problems?
■ Resources: What can you use that will help you reach the decision? Whether it’s financial or human capital,
knowing which resources are at your disposal can make the decision-making process go a lot smoother.
■ Alternatives: A singular approach to reaching the objective might not cut it. Back-ups, contingencies, and
alternatives are therefore a crucial part of decision-making. However you carry it out, thorough analysis of
each possible decision’s outcome will ensure you have alternative routes to explore if things don’t properly
work out.
■ Leadership: Once you’ve reached a decision, having the confidence to act on your plans is key. As well as
your own leadership, you should be aware of the leadership skills of others within the company. Bringing
them into the decision-making process could improve your chances of success and make things go a lot
more smoothly as a result.
DM concerns

■ In order to make better decisions there is a need to be aware of what is in fact

happening when we make decisions.
■ What are the individual, group and organizational processes that are involved in
decision-making activity?
■ How can accounting and management science techniques assist decision making?
■ How can the decision maker recognize and cope with the complexity and uncertainty
that is a part of many problems?
Types of Decisions
■ Programmed And Non-Programmed Decisions:
 Programmed decisions are routine and repetitive in nature, or a definite procedure
has been established for making the decision.
 Non-programmed decision are novel, unstructured and consequential
■ Operational and Strategic Decisions
■ Organizational and Personal Decisions
■ Major and Minor Decisions
■ Individual and Group Decisions
■ Tactical and Operational Decisions
Examples of decisions

Decision Programmed Non-programmed

Production schedule development for each day or week

New product or service development

Raw materials and components stock replenishment

Company new office establishment

Please give your own examples

 Level of decision Examples Who typically makes

Strategic Should we merge with another company? Board of the Directors

decisions Should we pursue a new product line? CEO
Please add____________________ Top management

Tactical decisions How should we market the new product line? Managers
How motivate people?
__________________________________

Operational How often should I communicate with my Employees

decisions colleague?
What should I say to customer about new
product?
_________________________________
Steps of the Decision Making Process

The following are the seven key steps of the decision making process:
■ Identify the problem. The first step in making the right decision is recognizing the
problem or opportunity and deciding to address it. Determine why this decision will
make a difference to your customers or fellow employees.
■ Gather information. Next, it’s time to gather information so that you can make a
decision based on facts and data. This requires making a value judgment, determining
what information is relevant to the decision at hand, along with how you can get it. Ask
yourself what you need to know in order to make the right decision, then actively seek
out anyone who needs to be involved.
Steps of the Decision Making Process cont.
■ Identify alternatives. Once you have a clear understanding of the issue, it’s time to identify the various
solutions at your disposal. It’s likely that you have many different options when it comes to making your
decision, so it is important to come up with a range of options. This helps you determine which course of
action is the best way to achieve your objective. Example
https://www.nibusinessinfo.co.uk/content/choosing-right-premises-suit-our-business-needs-totalmobile-video
■ Weigh the evidence. In this step, you’ll need to “evaluate for feasibility, acceptability and desirability” to
know which alternative is best, according to management experts Phil Higson and Anthony Sturgess.
Managers need to be able to weigh pros and cons, then select the option that has the highest chances of
success. It may be helpful to seek out a trusted second opinion to gain a new perspective on the issue at hand.
■ Choose among alternatives. When it’s time to make your decision, be sure that you understand the risks
involved with your chosen route. You may also choose a combination of alternatives now that you fully grasp
all relevant information and potential risks.
■ Take action. Next, you’ll need to create a plan for implementation. This involves identifying what resources
are required and gaining support from employees and stakeholders. Getting others onboard with your
decision is a key component of executing your plan effectively, so be prepared to address any questions or
concerns that may arise.
■ Review your decision. An often-overlooked but important step in the decision making process is evaluating
your decision for effectiveness. Ask yourself what you did well and what can be improved next time.
What guru of management talks?

■ Peter F. Drucker (November 19, 1909 – November 11, 2005) was an Austrian-born American
management consultant, educator, and author whose writings contributed to the philosophical and
practical foundations of the modern business corporation. He was also a leader in the development of
management education, he invented the concept known as management by objectives, and he has been
described as “the founder of modern management.”
■ The Effective Decision From the Magazine (January 1967)
■ “Effective executives do not make a great many decisions. They concentrate on what is important. They
try to make the few important decisions on the highest level of conceptual understanding. They try to
find the constants in a situation, to think through what is strategic and generic rather than to “solve
problems.” 
https://hbr.org/1967/01/the-effective-decision
■ Read the article and discuss
Decision-Making Models

The four different decision-making models vary in terms of how experienced or motivated a
decision maker is to make a choice:
■ rational
■ bounded rationality
■ Intuitive
■ creative
 Rational Model
The rational model of decision-making
(often cited as the classical approach) is the most
commonly used method, and typically consists of the
following steps:

1) Identification of the problem or opportunity

2) Gathering and organising relevant information
3) Analysing the situation
4) Developing a range of options
5) Evaluating and assigning a value to each option
6) Selecting the option you feel is the best
7) Acting decisively on that option
The pros and cons of the Rational model
The pros
• The rational model allows for an objective • The process is sometimes constrained by
approach that’s based on scientifically
obtained data to reach informed decisions.
This reduces the chances of errors,
distortions, and assumptions, as well as a
manager’s emotions, that might have
resulted in poor judgments in the past.
• This means that, due to the step-by-step
methodology, decision-makers are
equipped to deal with difficult problems in
complex environments.
The cons
insufficient information, which creates
problems if a manager has to consider, and
then evaluate, any alternatives they need to
reach a decision.
• Time limitations can also be an issue.
Since there’s a lot of information needed,
the necessary time for observation,
collection and analysis is also essential. In
a fast-paced business environment where
time is crucial, the rational model is
somewhat limited/
The Intuitive Model
The intuitive decision-making model is much less
structured and opts for more subjective opinions –
though it’s not simply based on gut feelings.
Intuition and its model of thinking can’t really be
quantified in any measurable way.
It takes into consideration the following:
• Pattern recognition – seeing patterns in events and
information, and using them to figure out a course of
action
• Similarity recognition – seeing similarities in
previous situations and recognising the cause and
effect of a given situation
• Salience – understanding the importance of
information and the way it can affect personal
judgment
The pros and cons of the Intuitive model
The pros The cons

• intuitive decision-making allows for quick decisions to be • The intuitive model leans
reached, while a degree of gut feeling means managers can heavily on a person’s
eliminate counter-intuitive ideas in reaching their decision. experience and judgment. As a
• Since it takes into account the person’s emotions, it ensures that result, emotions and bad or
positive feelings are used to their advantage, leveraging them as a insufficient experience may
way to motivate you through the process. end up clouding judgment and
• As opposed to the structure of the rational model, which make for poor, impulsive
progresses through steps, the intuitive model opts to see decisions
everything as a bigger picture. As a result, intuition can help
managers to integrate pieces of isolated data, facts and figures to
form a cohesive vision of what needs to be done.
The Recognition Primed Model
A combination of the two models above, the primed model of decision-making begins
when a manager quickly assesses a situation, compares it to past situations, recognizes
patterns and creates a mental ‘action script’ which runs through the scenario up until
its conclusion.
This then leads to two options:
•The decision-maker finds no flaw in their scenario and sets about their chosen course
of action as outlined by the script they devised.
•The decision-maker encounters a problem in their action script. They then start over
with a different script, repeating the process until a scenario successfully plays out.
An experienced decision-maker will have more developed recognition patterns, with
more past scenarios to draw from to form their action script. Less experienced
decision-makers, meanwhile, may look more towards troubleshooting the mental
scenarios instead.
 The pros and cons of the recognition primed
model
The pros
• Since rational and intuitive reasoning is used, it
provides a degree of mental simulation from
your predictions. From here, you can prevent
problems should they arise because they’ve been
played out mentally beforehand.
The cons
Inexperienced managers may opt for this model
when one of the other two models would be more
appropriate in certain situations, such as for non-
critical decisions.
The trial-and-error approach makes it relatively
time-consuming. If time is of the essence, a
manager may pick the first course of action, which
may be unsatisfactory. 
Rational Approach
Common Challenges of Decision Making
■ Having too much or not enough information. Gathering relevant information is key when
approaching the decision making process, but it’s important to identify how much background
information is truly required.
■ In addition, relying on one single source of information can lead to bias and misinformation,
which can have disastrous effects down the line.
■ Misidentifying the problem. In many cases, the issues surrounding your decision will be
obvious. However, there will be times when the decision is complex and you aren’t sure where
the main issue lies. Conduct thorough research and speak with internal experts who experience
the problem firsthand in order to mitigate this. It will save you time and resources in the long
run
■ Overconfidence in the outcome. Even if you follow the steps of the decision making process,
there is still a chance that the outcome won’t be exactly what you had in mind. That’s why it’s
so important to identify a valid option that is plausible and achievable. Being overconfident in
an unlikely outcome can lead to adverse results.
Quality of decisions

■ Making “Good Enough” Decisions

■ Making Intuitive Decisions
■ Making Creative Decisions
Rational vs Administrative Model of DM

■ administrative model of decision making means that decision makers often settle for a less
than ideal solution because of time and motivation shortages. Instead of seeking the best
solution that maximizes the value of the decision, the decision maker accepts the first available
'good enough' alternative producing a value above the minimally acceptable. The concept of
settling for a less than perfect solution is called satisficing.
■ the decision maker has a limited number of criteria and considers a limited number of
alternatives. The degree to which the choice will be limited will depend upon the values and
skills of the decision maker.
■ This model is based on ideas first expressed by Herbert Simon. He called the decision maker
with limited rationality an Administrative Man and opposed him to a perfect Economic Man,
who is takes into consideration all possible criteria and evaluates all possible alternatives.
 Questions for discussion & Homework
■ Identify and describe an occasion when you have decided to act on a ‘hunch’ or an
intuitive feeling that it is the correct thing to do. Remember that intuitive thinking is
subconscious rather than analytical. Your response should reflect a ‘gut instinct’ to act
or decide in a particular way.
■ Outline the seven main steps in the rational decision making process
■ Identify the main difference between the rational and administrative models of decision
making.
■ Give three examples of potentially politically motivated decisions in organizations
■ Read the article “The Four Streams of Decision Making Approaches: Brief Summary
and Discussion” and discuss it. https://
www.researchgate.net/publication/349812510_The_Four_Streams_of_Decision_Makin
g_Approaches_Brief_Summary_and_Discussion
Chapter 2
Diagnosis And System Thinking in
Decision Making
Systems and system thinking
■ A System is an assemblage of things or parts forming a complex or unitary whole.
■ Business organizations can be analyzed as open systems. Each requires inputs from the
environment in order to continue their functioning. The inputs are transformed to
become outputs back to the environment.
■ The system approach provides a distinctive, holistic view of a situation and the
problems that are associated with that situation.
■ The solution to a problem has to take account of the systemic nature of the problem. It
is possible that a solution can improve the performance of a system in one respect only
to initiate deterioration in other aspects of system’s performance. The solution may also
help to make the system more complex or improve the whole system.

input process output

System Thinking

■ Systems thinking is considered to be a way of looking at the world as a hierarchy of systems that all
connect in some way.  
■ System thinking improves the way that decision makers define problems and the effectiveness of
decisions.
■ Rather than isolating a problem and then fixing it, which is a common practice using traditional
thinking, the ‘systems thinking’ approach widens the view to observe the area surrounding a problem. 
■ The video below gives an insight into the value of ‘systems thinking’.  It’s titled “A Cautionary
Tale”, and it shows the risks associated with using traditional thinking to solve what is considered to
be a simple problem, but it overlooks the complex systems surrounding the problem itself.
https://www.youtube.com/watch?v=17BP9n6g1F0 -Systems thinking: a cautionary tale (cats in
Borneo)
System Thinking in DM

Systems thinking as a process looks

to achieve three objectives:
1) understand a system’s dynamics
—analysis;
2) understand a system’s hierarchy
—synthesis;
3) develop solutions—decision
making. 
These three elements make it
possible to apply ‘systems thinking’
as a function for problem solving.
Diagnosis

■ Effective decision making requires good problem diagnosis. Unless a problem has been
correctly identified the decision making process will not be successful.
■ The Rational Model includes problem diagnosis. This is achieved through the use of
pre-established objectives and performance criteria that are used to highlight areas
where is a performance gap or actual performance has.
■ Identification of a performance gap is followed by a series of logical questions to
identify the cause of the problem.
■ Rational model forms an accurate description of decision making practice and the way
in which problems are diagnosed.
The nature of problems
■ Problems do not have an existence that is separate from the people involved in them.
■ Organisations are systems made up of a number of interacting individuals and groups. The definition of a
problem varies according to the perspective of those involved or interested in the situation and it may be
that appears to present a problem to one part of an organization will not seem problematic to another.
■ Financial director, Head of Production, Marketing director, ets – will perceive the situation at company
differently. Each has own view and definition of the problems based upon adopting a particular viewpoint
of situation.
■ The nature of problems and solutions is that both are mental constructs that reflect a particular viewpoint
of the problem situation.
■ Another characteristic of problem concerns complexity. Problems interacts with each other to produce a
system of problems or “mess”. Attention to one problem area requires consideration of the effects of those
changes in other areas.
Hard and Soft systems
■ There are two systems thinking namely Hard and Soft which are used to solve the problems.
■ Peter Checkland (1981) suggested that Hard system thinking which is identified in system
engineering and system analysis has the starting point in structured problems and assumes
that the objectives of the system are clear and stable. This system thinking has a formulated
way to solve the real world problems.
■ On the other hand, Soft system thinking which attempts to structure a debate about actions
in problem solving has the start point in ‘unstructured’ problems within social activity
systems.  
■ In hard systems engineering, the idea is to provide "something to meet the need " and the
concern is with "how.. not what?" .'Soft' approaches are based on an assumption that
people's perceptions of the world will vary and that their preferences may also differ.   
 Hard system analysis
■ The Hard Systems Approach (HSA) is an approach to real-world problems in which an
objective or end-to-be-achieved can be taken as given. Then, to meet or achieve the objective,
a system is engineered.
■ HSA can be used to address both qualitative and quantitative problems. It involves a step-by-step
procedure, which can be iterative, and the process should be revised if new information comes to
light or a later stage in the process changes the situational perspective. Hard systems thinking
Hard information may include:
 Authority structure
 Departments
 Groups and Significant individuals
 Key activities undertaken
 Reporting channels
 Physical structure and assets
 Products
Hard systems analysis and design

NEED
Analysis
Why?
What?
When?

THE SYSTEM

Where?
Design Who?
How?

IMPLEMENTATI
ON
Soft system analysis
■ SSM (Soft System Methodology) developed by Peter Checkland is his original book  ‘Systems
Thinking, Systems Practice’. It is a strategy for analysis complex problem situations and
identifying acceptable improvements that could be made to those situations.
■ For instance  dealing with a problem like ‘how to make health care better’ is not simply a design
challenge in physical components but a challenge in understanding and then working with a
complex social, political and technical system.
■ Soft system analysis begins with a seeking a broad view of situation.
■ Information gathered thorough interview, from documents and observations.
■ Soft information may include:
 Norms and behavior  Conflicts, friendship, loyalties

 Social processes such as gossip  Attitudes, motivation

 Perceived status  Politics, Climate and atmosphere

Soft system analysis cont
Soft systems analysis is based on a Seven steps methodology:
1) Entering the problem situation.
2) Expressing the problem situation.
3) Formulating root definitions of relevant systems.
4) Building Conceptual Models of Human Activity Systems.
5) Comparing the models with the real world.
6) Defining changes that are desirable and feasible.
7) Taking action to improve the real world situation.
 Seven Steps in SSM [ 1-2]

■ Step 1 involves identifying the

system under study – the problem
situation – and putting some
boundaries around it.
■ Step 2 involves building
representations of the problem
situation form different standpoints. 
A powerful tool in this stage is the
use of rich pictures – visual
representations using images,
cartoons, symbols, etc. to capture the
complexity and interrelationships.
Step #3

 Root definitions are powerful ways of building systems models which can help get to the heart of the problem issue.  
A powerful mnemonic – CATWOE – helps create root definitions which need to take account of and spell out:
■ Clients – Who are the beneficiaries or victims of this particular system? (Who would benefit or suffer from its
operations?)
■ Actors – Who are responsible for implementing this system? (Who would carry out the activities which make this
system work?)
■ Transformation – What transformation does this system bring about? (What are the inputs and what
transformation do they go through to become the outputs?)
■ Worldview – What particular worldview justifies the existence of this system? (What point of view makes this
system meaningful?)
■ Owner – Who has the authority to abolish this system or change its measures of performance?
■ Environmental constraints – Which external constraints does this system take as a given?
Steps #4-7
■ Step 4 involves building systems descriptions based on those root definitions.
If our café is to be a place for helping people meet then what would such a system look
like and how could we optimize it?
■ Step 5 looks at the real situation and the model built in step 4 and compares the two. 
If our goal is to improve people’s interaction then the current real world café system
may not be well designed to do this – and we might identify areas which we could focus
on to change.
■ Step 6 is identifying and specifying those changes and step 7 involves implementing
them