Chapter 9 Decision Making. Types of Decisions and Problems Decision making is the process of...

Chapter 9Decision Making

Types of Decisions and Problems

Decision making is the process of

identifying opportunities

A decision is a choice made

from available alternatives

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Programmed and Nonprogrammed Decisions

Programmed Decisions– Recurring problems – Apply rulee.g.reorder inventory, employee selection

Nonprogrammed Decisions– Unique situations– Poorly defined– Unstructured– Important consequences


Facing Certainty and Uncertainty

• Difference between programmed and unprogrammed decisions

• Uncertainty depends on the amount and value of information available

• Certainty – situation in which all information is fully available

• Risk – the future outcomes associated with an alternative are subject to chance


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9.1 Conditions That Affect the Possibility of Decision Failure

Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

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• Ambiguity makes decisions difficult

– 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

Ambiguity and Conflict


The Ideal, Rational/Classical Model : How Managers Should Make Decisions

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 e.g. airlines automated system, programming, break even analysis etc


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

• Satisficing – decision makers choose the first solution that satisfies minimal decision criteria


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• 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

Steps in the Administrative Model


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


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• Useful for nonprogrammed decisions• Uncertainty• Limited information• Potential for manager conflicts

Political Model


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9.2 Comparing the Models


Decision-Making Steps

1. Recognition of Decision Requirement – identify problem or opportunity

2. Diagnosis and Analysis – analyze underlying causal factors

3. Develop Alternatives – define feasible alternatives

4. Selection of Desired Alternative – alternative with most desirable outcome

5. Implementation of Chosen Alternative – use of management persuasive abilities to execute

6. Evaluation and Feedback – gather information about effectiveness


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9.3 Six Steps in the Managerial Decision-Making Process


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


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


Innovative Group Decision Making

• Start with brainstorming – spontaneous suggestions in a group

• Engage in rigorous debate – use divergent points of view to focus problems

• Avoid groupthink – acknowledge disagreement as value instead of blind agreement

• Act with speed – some decisions have to be made incredibly quickly

• Don’t ignore crisis – managers should expect and plan for crises (with speed)

• Know when to bail – good managers must know when to pull the plug!


Chapter 9 Decision Making. Types of Decisions and Problems Decision making is the process of...

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