Managerial Decision Making

Managerial Decision Making

1. Decision and decision making

   • A decision is a choice made from available alternatives
   • decision making The process of identifying problems and opportunities and then resolving them

2. Programmed and Nonprogrammed Decisions

   • nonprogrammed decision
     • A decision made in response to a situation that is unique, is poorly defined and largely unstructured
   • programmed decision
     • A decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future.

3. Facing Certainty and Uncertainty

   • Certainty
     • all the information the decision maker needs is fully available.
   • Risk
     • a decision has clear-cut goals and that good information is available, but the future outcomes associated with each alternative are subject to chance
   • Uncertainty
     • managers know which goals they wish to achieve, but information about alternatives and future events is incomplete.
   • Ambiguity
     • A condition in which the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define

4. Decision Making Models

   • Classical Model
     • based on rational economic assumptions and manager beliefs about what ideal decision making should be
       • Four Assumptions
         • 1. The decision maker operates to accomplish goals that are known and agreed on
         • 2. The decision maker strives for conditions of certainty, gathering complete information.
         • 3. The decision maker selects the alternative that will maximize the economic return to the organization
         • 4. The decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives
       • The classical model of decision making is considered to be normative, which means it defnes how a decision maker should make decisions.
   • Administrative Model
     • describes how managers actually make decisions in situations characterized by nonprogrammed decisions, uncertainty, and ambiguity.
       • Bounded rationality
         • people have the time and cognitive ability to process only a limited amount of information on which to base decisions
       • Satisficing
         • To 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

5. Decision Making Steps

   • Diagnosis and Analysis of Causes
     • . Diagnosis is the step in the decision-making process in which managers analyze underlying causal factors associated with the decision situation.
   • Recognition of Decision Requirement
     • A problem occurs when organizational accomplishment is less than established goals
     • opportunity exists when managers see potential accomplishment that exceeds specifed current goals.
   • 1. Recognition of decision requierment
   • 2. Diagnosis and analisis of causes
     • Diagnosis is the step in the decision-making process in which managers analyze underlying causal factors associated with the decision situation.
   • 3. Development of alternatives
     • generate possible alternative solutions that will respond to the needs of the situation
   • 4. Selection of desired alternatives
   • 5. Implementation
     • involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out.
   • 6. Evaluation and Feedback

6. Why do they 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

7. Innovative Group Decision Making

   • Brainstorming
     • A technique that uses a face-to-face group to spontaneously suggest a broad range of alternatives for decision making
   • Avoid Groupthink
     • Groupthink refers to the tendency of people in groups to suppress contrary opinions
   • Know When to Bail
     • escalating commitment Continuing to invest time and resources in a failing decision