The Role of Decision Making in Management Chapter 1

INTRODUCTION Decision Making is a key element in the process of management To manage a complex job, it has to be broken down in small pieces and study them in isolation. Managers must do planning and control they managerial functions are most important of all Further breaking down those tasks into their pieces, we find they both include stages of decision making and problem solving

Decisions are inevitable All of us make decisions Some decisions are simple some are complex But most of the problem solving or decision making are convoluted with much fuzziness and backtracking Decision making is basic foundation of the process of management

WHAT IS DECISION MAKING PROCESS

Step #1: Define the Problem What? Where? How? When? With whom? Why?

Step #2: Gather Additional Data Broad Objective Verifiable Relevant

Step #3: Lay It All Out

Step #4: Identify Your Options What options do we have? What has been done in the same situation by others? In other disciplines? How about something new?

Step #5: Evaluate Your Options

Step #6: Make Your Decision

Step #7: Move Forward Communicate the decision/solution Plan the implementation Monitor results Learn as you go

Situation: Something’s Gone Wrong Find and correct the changes that account for the fall-off in results.

Situation: Increased – or Changing – Expectations Find new ways of operating.

Situation: The Double Whammy Find ways to reengineer the system – correct and invent.

Situation: It Never Did Work Right Find ways to overhaul – or completely rebuild.

Things That Can Limit Your Thinking Searching for THE ONE RIGHT ANSWER Not involving front line people Looking inside the library only Waiting for 100% agreement Fear of embarrassment or failure

Types of Decisions Programmed decisions: situations that occur often enough to enable decision rules to be developed. Nonprogrammed decisions: are made in response to situations that are unique, are poorly defined and largely unstructured. many involve strategic planning. Decision making the process of identifying problems and opportunities, then resolving them.

Programmed and Nonprogrammed Decision Differences  Certainty – all the information the decision maker needs is fully available.  Risk – decision has clear-cut goals. – good information is available. – future outcomes associated with each alternative are subject to chance.  Uncertainty – managers know which goals they with to achieve. – information about alternatives and future events is incomplete. – managers may have to come up with creative approaches to alternatives.  Ambiguity – by far the most difficult decision situation. – goals to be achieved or the problem to be solved is unclear. – alternatives are difficult to define. – information about outcomes is unavailable.

Conditions that Affect the Possibility of Decision Failure Organizational Problem Solution LowHighPossibility of Failure CertaintyRiskUncertaintyAmbiguity Programmed Decisions Nonprogrammed Decisions

Three Decision Making Models  Classical Model  Administrative Model  Political Model

Classical Model  Based on economic conditions  Is considered to be normative

Classical Model  Accomplishes goals that are known and agreed upon.  Strives for certainty by gathering complete information.  Criteria for evaluating alternatives are known.  Decision maker is rational and uses logic.

Administrative Model  How managers actually make decisions in situations characterized by non-programmed decisions, uncertainty, and ambiguity.  Focuses on organizational, rather than economic.  Two concepts are instrumental in shaping the administrative model. – bounded rationality: means that people have limits or boundaries on how rational they can be. – satisficing: means that decision makers choose the first solution alternative that satisfies minimal decision criteria.  Is considered to be descriptive.  It is considered intuitive.

Political Model  Closely resembles the real environment in which most managers and decision makers operate.  Decisions are complex.  Disagreement and conflict over problems and solutions are normal.  Coalition building is important.

Comparisons of: Classical, Political, & Administrative Models Classical Model Administrative Model Political Model Clear-cut problem and goals. Condition of certainty. Full information about alternatives and their outcomes. Rational choice by individual for maximizing outcomes. Vague problem and goals. Condition of uncertainty. Limited information about alternatives and their outcomes. Satisfying choice for resolving problem using intuition. Pluralistic; conflicting goals. Condition of uncertainty/ambiguity. Inconsistent viewpoints; ambiguous information. Bargaining and discussion among coalition members.