CH8-Managerial Decision Making

CH8-Managerial Decision Making

1. TYPES OF DECISIONS AND PROBLEMS

   • Decision making: the process of identifying problems and opportunities and then resolving them, it involves effort both before and after the actual choice.
   • Programmed and Nonprogrammed Decisions:
     • Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future.
     • Nonprogrammed decisions: are made in response to situations that are unique, poorly defined, largely unstructured, and have important consequences for the organization
       • involve strategic planning because uncertainty is great and decisions are complex
   • Facing Certainty and Uncertainty
     • Every decision situation can be organized on a scale according to the availability of information and the possibility of failure.
       • Certainty means that all the information the decision maker needs is available.
       • Risk means that a decision has clear-cut goals and that information is available, but the future outcomes associated with each alternative are subject to chance.
       • Uncertainty means that managers know which goals they wish to achieve, but information about alternatives and future events is incomplete.
     • Ambiguity is the most difficult decision situation. It means that the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable
       • A highly ambiguous situation can create a wicked decision problem: associated with conflicts over goals and decision alternatives, rapidly changing circumstances, fuzzy information, and unclear links among decision elements.

2. DECISION-MAKING MODELS:

   • The choice of model depends on the manager’s personal preference, whether the decision is programmed or nonprogrammed, and the degree of uncertainty associated with the decision.
   • The Ideal, Rational Model
     • The classical model of decision making is based on rational economic assumptions and beliefs about what ideal decision making should be. is considered to be normative, which means it defines how a decision maker should make decisions.
       • Problems are precisely formulated and defined.
       • The decision maker strives for conditions of certainty, gathering complete information.
       • selects the alternative that will maximize the economic return to the organization.
       • is rational and uses logic to assign values, order preferences, evaluate alternatives, and make the decision that will maximize the attainment of organizational goals
   • Administrative model: based on the work of Herbert A. Simon
     • Is considered to be descriptive, meaning that it describes how managers actually make decisions in complex situations rather than dictating how they should make decisions according to a theoretical ideal
       • Recognizes the human and environmental limitations that affect the degree to which managers can pursue a rational decision-making process
       • Simon proposed two concepts that were instrumental in shaping the administrative model: bounded rationality and satisficing.
         • 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.
       • Intuition: the immediate comprehension of a decision situation based on past experience but without conscious thought.
   • Political Model
     • A coalition is an informal alliance among managers who support a specific goal. Coalition building is the process of forming alliances among managers
       • Gives managers the opportunity to contribute to decision making, enhancing their commitment to the alternative that is ultimately adopted
       • The political model begins with four basic assumptions:
         • 1. Organizations are made up of groups with diverse interests, goals, and values.
         • 2. Information is ambiguous and incomplete
         • 3. Managers talk to each other and exchange viewpoints to gather information and reduce ambiguity.
         • 4. Managers engage in the push and pull of debate to decide goals and discuss alternatives.

3. DECISION-MAKING STEPS

   • Managers confront a decision requirement in the form of either a problem or an opportunity
     • A problem occurs when organizational accomplishment is less than established goals.
     • An opportunity exists when managers see potential accomplishment that exceeds specified current goals.
     • Awareness of a problem or opportunity is the first step in the decision sequence and requires surveillance of the internal and external environment for issues that merit executive attention
       • Diagnosis is the step in the decision-making process in which managers analyze underlying causal factors associated with the decision situation.
   • 1. Recognition of decision requirement
   • 2. Diagnosis and analysis of causes
   • 3. Development of alternatives
   • 4. Selection of desired alternative
   • 5. Implementation of chosen alternative
   • 6. Evaluation and feedback
   • Selection of Desired Alternatives:
     • Risk propensity is the willingness to undertake risk with the opportunity of gaining an increased payoff. The level of risk will influence the analysis of cost and benefits to be derived from any decision.:
     • The implementation stage involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out.
       • FEEDBACK is important because decision making is a continuous, never-ending process, it provides decision makers with information that can precipitate a new decision cycle

4. DECISION STYLES

   • The directive style is used by people who prefer simple, clear-cut solutions to problems
   • Analytical style like to consider complex solutions based on as much data as they can gather.
   • Conceptual style is socially oriented than those with an analytical style and like to talk to others about the problem and possible alternatives for solving it
   • The behavioral style is often the style adopted by managers having a deep concern for others as individuals

5. WHY DO MANAGERS MAKE BAD DECISIONS?

   • 1. Being influenced by initial impressions.
   • 2. Justifying past decisions.
   • 3. Seeing what you want to see
   • 4. Perpetuating the status quo
   • 5. Being influenced by problem framing
   • 6. Overconfidence
   • What they can do to improve:
     • Brainstorming: suggest a wide range of alternatives for decision making. The keys is that people can build on one another’s ideas
     • Point-counterpoint A decision-making technique in which people are assigned to express competing points of view.
     • Groupthink: the tendency of people in groups to suppress contrary opinions.