Decision Making

Chapter 9

Managerial Decision Making

INTRODUCTION
 The

word decision has been derived from the
Latin word "decidere" which means "cutting
off".
 Thus, decision involves cutting off of
alternatives between those that are desirable
and those that are not desirable.

Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
2

DEFINITION
 In

the words of Ray A Killian, "A decision in
its simplest form is a selection of
alternatives".
 Dr. T. G Glover defines decision "as a choice
of calculated alternatives based on
judgement".
 "Decision-making is the selection based on
some criteria from two or more possible
alternatives".
3

Managerial Decision Making
 Decision
 It
–
–
–

making is not easy

must be done amid
ever-changing factors
unclear information
conflicting points of view

Manager’s Challenge: Tupperware

4

Managerial
Decision Making
 Decision

Characteristics

 Decision-making

Models

 Steps

Executives Take Making Important
Decisions

 Participative

Decision Making

 Techniques

for Improving Decision Making in
Today’s Organizations

5

Decisions and Decision Making
 Decision = choice made from available

alternatives
 Decision

Making = process of identifying

problems and opportunities and resolving
them
6

Categories of Decisions
 Programmed

Decisions

Situations occurred often enough to enable
decision rules to be developed and applied in
the future
– Made in response to recurring organizational
problems
 Nonprogrammed Decisions – in response to
unique, poorly defined and largely unstructured,
and have important consequences to the
organization
–

Ethical Dilemma: The No-Show Consultant

7

Decisions and Decision Making
 Many

decisions that managers deal with
every day involve at least some degree of
uncertainty and require nonprogrammed
decision making





May be difficult to make
Made amid changing factors
Information may be unclear
May have to deal with conflicting points of view

8

Certainty, Risk, Uncertainty, Ambiguity
●

Certainty
●

●

Risk
●
●
●

●

decision has clear-cut goals
good information is available
future outcomes associated with each alternative are subject to
chance

Uncertainty
●
●
●

●

all the information the decision maker needs is fully available

managers know which goals they wish 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

9

Conditions that Affect the Possibility
of Decision Failure
Organizational
Problem
Low

Possibility of Failure

Certainty

Risk

Uncertainty

Programmed
Decisions

Ambiguity

Nonprogrammed
Decisions
Problem
Solution

10

High

Selecting a Decision Making Model
 Depends

on the manager’s personal
preference
 Whether the decision is programmed or
non-programmed
 Extent to which the decision is
characterized by risk, uncertainty, or
ambiguity
11

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

12

13

Classical Model
Logical decision in the organization’s best economic interests

Assumptions







Decision maker operates to accomplish goals that
are known and agreed upon
Decision maker strives for condition of certainty –
gathers complete information
Criteria for evaluating alternatives are known
Decision maker is rational and uses logic

Normative = describes how a manager should and
provides guidelines for reaching an ideal decision
14

Administrative
Model

Herbert A. Simon

How nonprogrammed decisions are made--uncertainty/ambiguity



Two concepts are instrumental in shaping
the administrative model
●

Bounded rationality: 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

15

Administrative Model
How nonprogrammed decisions are made--uncertainty/ambiguity
●

Managers actually make decisions in difficult situations
characterized by non-programmed decisions, uncertainty,
and ambiguity

●

●

Decision goals often are vague, conflicting and lack consensus
among managers;
Rational procedures are not always used
Managers’ searches for alternatives are limited
Managers settle for a satisficing rather than a maximizing solution
intuition, looks to past experience

●

Descriptive = how managers actually make decisions--not how

●
●
●

they should

16

Political Model
Closely resembles the real environment
●

Closely resembles the real environment in which
most managers and decision makers operate

●

Useful in making non-programmed decisions

●

Decisions are complex

●

Disagreement and conflict over problems and
solutions are normal

●

Coalition = informal alliance among
manages who support a specific goal

17

Characteristics of Classical, Political,
and Administrative Decision Making
Models
Classical Model

Administrative Model

Clear-cut problem and goals

Vague problem and goals

Pluralistic; conflicting goals

Condition of certainty

Condition of uncertainty

Condition of uncertainty/ambiguity

Full information about

Limited information about

Inconsistent viewpoints; ambiguous

alternatives and their outcomes

Alternatives and their outcomes

information

Rational choice by individual

Satisficing choice for resolving

Bargaining and discussion among

for maximizing outcomes

problem using intuition

18

Political Model

coalition members

Six Steps in the Managerial
Decision-Making Process

Evaluation
and
Feedback

Implementation
of Chosen
Alternative





Recognition of
Decision
Requirement

DecisionMaking
Process

Selection of
Desired
Alternative



Diagnosis
and Analysis
of Causes

Development of
Alternatives


19

Steps in Decision Making

20

Six C's of Decision Making
 1. Construct.
 2. Compile.
 3. Collect.
 4. Compare.
 5. Consider.
 6. Commit.
21

Six C's of Decision Making


Construct a clear picture of

precisely what must be decided.


Compile a list of requirements that must
be met.



Collect information on alternatives that

meet the requirements.

22



Compare alternatives that meet

requirements.


the

Consider the "what might go wrong"

factor with each alternative.


Commit to a decision and follow through

with it.

23

Diagnosis and Analysis of Causes
 Diagnosis = analyze underlying causal

factors associated with the decision situation
 Managers

make a mistake if they jump into
generating alternatives without first exploring
the cause of the problem more deeply

24

Underlying Causes - Kepner /Tregoe


What is the state of disequilibrium affecting us?



When did it occur?



Where did it occur?



How did it occur?



To whom did it occur?



What is the urgency of the problem?



What is the interconnectedness of events?



What result came from which activity?

25

Selection of Desired Alternatives
 Risk

Propensity = willingness to undertake
risk with the opportunity of gaining an
increased payoff

 Implementation

= using managerial,
administrative, and persuasive abilities to
translate the chosen alternative into action

26

Decision Styles
 Differences

among people with respect to how
they perceive problems and make decisions

 Not
–
–
–
–

all managers make decisions the same

Directive style
Analytical style
Conceptual style
Behavioral style

27

Personal Decision Framework

Situation:
· Programmed/nonprogrammed
· Classical, administrative,
political
· Decision steps

Personal Decision
Style:
·Directive
·Analytical
·Conceptual
·Behavioral

28

Decision Choice:
·Best Solution to
Problem

Directive Style
 People

who prefer simple, clear-cut solutions
to problems
 Make decisions quickly
 May consider only one or two alternatives
 Efficient and rational
 Prefer rules or procedures

29

Analytical Style
 Complex

solutions based on as much data
as they can gather
 Carefully consider alternatives
 Base decision on objective, rational data
from management control systems and other
sources
 Search for best possible decision based on
information available
30

Conceptual Style


Consider a broad amount of information



More socially oriented than analytical style



Like to talk to others about the problem and possible
solutions



Consider many broad alternatives



Relay on information from people and systems



Solve problems creatively

31

Behavioral Style


Have a deep concern for others as individuals



Like to talk to people one-on-one



Understand their feelings about the problem and the
effect of a given decision upon them



Concerned with the personal development of others



May make decisions to help others achieve their
goals
Experiential Exercise: What’s Your Personal Decision Style?

32

Participation in
Decision Making

Vroom-Jago
Model

 Helps

gauge the appropriate amount of
participation for subordinates in process

●

Leader Participation Styles



Five levels of subordinate participation in decision
making ranging from highly autocratic to highly
democratic

33

Participation in
Decision Making

Vroom-Jago
Model

 Diagnostic


Questions
Decision participation depends on the
responses to seven diagnostic questions
about
●
●
●

the problem
the required level of decision quality
the importance of having subordinates commit to
the decision

34

Seven Leader Diagnostic Questions








How significant is the decision?
How important is subordinate commitment?
What is the level of the leader’s expertise?
If the leader were to make the decision alone at what level
would subordinates be committed to the decision?
What level is the subordinate’s support for the team or
organization’s objectives?
What is the member’s level of knowledge or expertise
relative to the problem?
How skilled or committed are group members to working
together?

35

New Decision Approaches
for Turbulent Times
New
Decision
Approaches
for Turbulent
Times

Brainsto
rming

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Kno
w

ate

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ar
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En

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ag

i go
nR

r ou

b
De
s

th
ctice
Pra

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ni
sh

36

h
ive W
eF

W he
n to

Bail

ys

CHARACTERISTICS OF
EFFECTIVE DECISIONS






1. Action Orientation: Decisions are action-oriented and
are directed towards relevant and controllable aspects of the
environment. Decisions should ultimately find their utility in
implementation.
2. Goal Direction: Decision making should be goal-directed
to enable the organization to meet its objectives.
3 Effective in Implementation: Decision making should take
into account all the possible factors not only in terms of
external context but also in internal context so that a decision
can be implemented properly.

37

BARRIERS IN MAKING DECISIONS
 Hasty-

Making quick decisions without having
much thought.
 Narrow - Decision making is based on very
limited information.
 Scattered - Our thoughts in making decisions
are disconnected or disorganized.
 Fuzzy - Sometimes, the lack of clarity on
important aspects of a decision causes us to
overlook certain important considerations.

38

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