Topic 6: Managerial Decision Making Decision VS Decision Making Decision is a choice made from available alternatives Decision making

is the process of identifying problems and opportunities and resolving them Programmed and Non programmed Decisions Programmed decisions: 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 Non programmed decision: A decision made in response to a situation that is unique, is poorly defined and largely unstructured, and has important consequences for the organization Programmed and non programmed decisions differ because of the degree of certainty or uncertainty:

Certainty: The situation in which all the information the decision maker needs is fully available Risk: A situation in which a decision has clear-cut goals and good information is available, but the future outcomes associated with each alternative are subject to chance Uncertainty: The situation that occurs when 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, and information about outcomes is unavailable

Managers attempt to obtain information about decision alternatives Decision Making Models Classical Model, The Ideal, Rational Model: The classical model of decision making is based on rational economic assumptions and manager beliefs about what ideal decision making should be. The managers are expected to make decisions that are economically sensible and in the organisations best economic interests. Four assumptions of the model

The decision maker operates to accomplish goals that are known and agreed on. Problems are precisely formulated and defined The decision maker strives for conditions of certainty, gathering complete information. All alternatives and potential results of each are calculated. Criteria for evaluating alternatives are known. The decision maker selects the alternative that will maximize the economic return to the organisation. The decision maker 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:

A decision-making model that describes how managers actually make decisions in complex situations rather than dictating how they should make decisions according to a theoretical ideal Descriptive approach that recognizes human and environmental limitations that affect the degree to which managers can pursue a rational decision-making process

In difficult situations, such as those characterized by nonprogrammed decisions, uncertainty, and ambiguity, managers are typically unable to make economically rational decisions even if they want to

The administrative model relies on assumptions different from those of the classical model and focuses on organisational factors that influence individual decisions

Decision goals often are vague, conflicting and lack consensus among managers. Managers often are unaware of problems or opportunities that exist in the organisation Rational procedures are not always used, and, when they are, they are confined to a simplistic view of the problem that does not capture the complexity of real organisational events Managers searches for alternatives are limited because of human, information and resource constraints. Most managers will settle for a satisficing rather than maximizing solution, partly because the have limited information and partly because they have only vague criteria for what constitutes a maximizing solution.

Political Model: This model is useful for making non programmed decisions when conditions are uncertain, information is limited, and there are manager conflicts about what goals to pursue or what course of action to take. Most organizational decisions involve many managers who are pursuing different goals, and they have to talk with one another to share information and reach an agreement. Managers often engage in coalition building for making complex organizational decisions A coalition is an information alliance among managers who support a specific goal Coalition building is the process of forming alliances among managers. In other words, a manager who supports a specific alternative talks informally to other executives and tries to persuade them to support the decision. Without coalition, a powerful individual or group could derail the decision-making process Coalition building gives several managers an opportunity to contribute to decision making, enhancing their commitment to the alternative that is ultimately adopted The political model closely resembles the real environment in which most managers and decision makers operate Decisions are complex and involve many people, information is often ambiguous, ad disagreement and conflict over problems and solutions are normal

Four basic assumptions

Organizations are made up of groups with diverse interests, goals, and values. Managers disagree about problem priorities and may not understand or share the goals and interests of other managers Information is ambiguous and incomplete. The attempt to be rational is limited by the complexity of many problems as well as personal and organisational constraints Managers do not have the time, resources, or mental capacity to identify all dimensions of the problem and process all relevant information. Managers talk to each other and exchange viewpoints to gather information and reduce ambiguity

Managers engage in the push and pull of debate to decide goals and discuss alternatives. Decisions are the result of bargaining and discussion among coalition members

Decision-Making Models: Selecting a Decision Making Model depend on managers personal preference Whether the decision is programmed or non-programmed Extent to which the decision is characterized by certainty, risk, uncertainty, or ambiguity Six Steps in the Managerial Decision Making Process 1) Recognition of Decision Requirement

2) 3) 4) 5)

When a problem or opportunity is presented, decisions must be made Problem occurs when organizational accomplishment is less than established goals Opportunity when managers see potential accomplishment that exceeds specified current goals Diagnosis and Analysis of Causes

Managers must understand the situation (diagnosis) Managers ask a series of questions 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?

Generate possible alternative solutions For programmed decisions, feasible alternatives are easy to identify Nonprogrammed decisions, however require developing new courses of action In Selection of Desired Alternative, Managers will choose the most promising of several alternative courses of action. The selection should fit the goals and objectives The manager tries to select the choice with the least amount of risk and uncertainty In Implementation of Chosen Alternative, Using managerial, administrative and persuasive abilities to ensure that the alternative is carried out. Success depends on the managers ability to translate alternative into action Implementation requires communication, motivation, and leadership Personal Decision Framework

Not all managers make decisions in the same way. These differences can be explained by the concept of personal decision styles. Personal decision style refers to differences between people with respect to how they perceive problems and make decisions. Research has identified four major decision styles. Directive Style Analytical Style Conceptual Style Behavioral Style 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. 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 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 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 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 Engage in Rigorous Debate Avoid Groupthink Know When to Bail