1. Managerial Decision Making
Chapter 9
Managerial Decision Making

2. Types of Decisions and Problems
Decision making is the process of identifying opportunities
Decision is a choice made from available alternatives

3. Programmed and Nonprogrammed Decisions
Recurring problems
Apply rule
Nonprogrammed Decisions
Unique situations
Poorly defined
Unstructured
Important consequences

4. Facing Certainty and Uncertainty
Difference between programmed and unprogrammed decisions
Certainty – Situation in which all information is fully available
Risk – Future outcomes associated with an alternative are subject to chance
Uncertainty - Depends on the amount and value of information available

5. 9.1 Conditions that Affect the Possibility of Decision Failure

6. Ambiguity and Conflict
Ambiguity - Making decisions in difficult situations
The goals and the problem are unclear
Wicked decisions involve conflict over goals and have changing circumstances, fuzzy information, and unclear links
There is often no “right” answer

7. The Ideal, Rational Model
Rational economic assumptions drive decisions
Operates to accomplish established goals, problem is defined
Decision maker strives for information and certainty, alternatives evaluated
Criteria for evaluating alternatives is known; select alternative with maximum benefit
Decision maker is rationale and uses logic
Normative─ how a decision maker should make a decision

8. How Managers Actually Make Decisions
Administrative/descriptive approach
How managers really make decisions
Recognize human and environmental limitations
Bounded rationality – People have limits or boundaries on how rational they can be
Satisficing – Decision makers choose the first solution that satisfies minimal decision criteria

9. Steps in the Administrative Model
Goals are often vague
Rational procedures are not always used
Managers’ searches for alternatives are limited
Most managers settle for satisficing
Intuition – Quick apprehension of situation based on practice and experience

10. Decision-Making Model: Political
Decisions involve managers with diverse interests
Managers must engage in coalition building
Informal alliance to support specific goal
Without a coalition, powerful groups can derail the decision-making process
Political model resembles the real environment

11. Decision-Making Model: Political
Assumptions of the political model
Organizations are made up of groups with diverse interests, goals, and values
Information is ambiguous and incomplete
Lack of time, resources, or mental capacity to process all information regarding a problem
Decisions are the result of bargaining and discussion among coalition members

12. 9.2 Characteristics of Classical, Administrative, and Political Decision-Making Models

13. Decision-Making Steps
Recognition of Decision Requirement – Identify problem or opportunity
Diagnosis and Analysis – Analyze underlying causal factors
Develop Alternatives – Define feasible alternatives
Selection of Desired Alternative – Alternative with most desirable outcome
Implementation of Chosen Alternative – Use of managerial, administrative, and persuasive abilities to execute chosen alternative
Evaluation and Feedback – Gather information about effectiveness

14. 9.3 Six Steps in the Managerial Decision-Making Process

15. 9.4 Decision Alternatives with Different Levels of Risk

16. 9.5 Personal Decision Framework

17. Personal Decision Framework
Directive style – People who prefer simple, clear-cut solutions to problems
Analytic style – Managers prefer complex solutions based on a lot of data
Conceptual style – Managers like a broad amount of information
Behavioral style – Managers with a deep concern for others

18. Why Do Managers Make Bad Decisions?
Being influenced by initial impressions
Justifying past decisions
Seeing what you want to see
Perpetuating the status quo
Being influenced by problem framing
Overconfidence

19. Innovative Decision Making
Mechanisms to help reduce bias-related decision errors:
Start with brainstorming
Use hard evidence
Engage in rigorous debate
Avoid groupthink
Know when to bail
Do a postmortem