Managerial Decision Making

MSE 608B (Final Project) Professor: Mark Rajai

Done By: Abdulellah Alhagbani Nasser Alromaih Y aser Aljuwaid

Table of contents:

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Introduction....3-4 Evolution of Rationality.....4 Management Leadership and Decision Ma ers.....4-! Managerial Decision Ma ing. !-" - #rogrammed Decision.." - $on-programmed Decision.." Managerial Decision Ma ing %nder Ris and %ncertainty.& Managerial Decision Ma ing' (ognitive )tyle...*-+ (ase )tudy.. ,References... ,,

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Managerial Decision Making

Introduction Decision ma ing is the most important part of managers0 1o23 and it is the process of identifying and selecting a course of action to solve a specific pro2lem. Moreover3 decision is outcome that is a choice of different alternatives. In the past3 man merely made decisions on matters of 4here to get food and 4hich of those availa2le are good to eat and 4hich are not. 5o4ever3 as man evolved and population gre43 man0s decision ma ing also got more complicated and the things that he has to ma e decisions on li e4ise e6panded3 that is3 man0s pro2lems are no longer confined to 1ust a2out food3 they no4 included matters that affect not 1ust man0s immediate family 2ut those that involved other people in the community and even include those outside one0s community7 it no4 covered themes such as governance of communities3 money matters3 crime punishment3 ho4 many children to have and the options of 4hether one should have a child or not3 ho4 to compete in 2usiness 8 1ust to mention a fe4. In addition3 man0s decision ma ing activities are no longer confined to 9finding a 4ay: to solve pro2lems3 at present3 decision ma ing also covers the manifold 4ays of solving pro2lems3 as in finding the 2est possi2le solution from among the many solutions availa2le and using different approaches and various tools in order to arrive at a solution or at a decision. (ompared to his predecessor3 4ho only ma es simple choices 4hen ma ing a decision3 contemporary man has to go through several processes to aid him in coming up 4ith the 2est decision o2taina2le. ;o illustrate3 2elo4 is ho4 a decision is arrived at' 3/#age

;his treatise 4ill attempt to sho4 ho4 the art3 process and function of decision ma ing is a vital facet in management-related tas s and 4hy it is necessary for those occupying leadership roles and positions to learn and to master the art of decision ma ing in order for them to 2ecome effective and successful in their management underta ings. ;his paper li e4ise ela2orates on specific processes3 paradigms and models of decision ma ing and ho4 they relate to managerial functions.

Evolution of Rationality In the area of ma ing decisions3 there is 4hat is referred to as the source 2randed as the evolution of rationality <Maldonato3.-,-=. In other 4ords3 as man struggles for survival3 he also learns that the course of action he has formulated is dependent on the accuracy of information he has o2tained and the corresponding timeliness of his decision ma ing are all vital to his survival. ;his evolutionary pressure propelled the human mind to amass voluminous information in order to provide man 4ith a logical foundation for his decisions. >s e6pected though3 the strategies 2eing formulated 4ere 2ased on the limited cognitive assimilations of human 2eings7 this limited cognition has influences on human no4ledge of the real 4orld coupled 4ith human drive and environmental pressures <Maldonato3.-,-=. ;his rationality evolution is o2viously a non-ideal ta e on decision ma ing3 particularly since there are a num2er of e6tremely complicated vie4points 4ithin the realm of decision ma ing and especially 4here management function is concerned. 5o4ever3 4hat can 2e gained from this stand point is that decision ma ing is vie4ed as a

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primeval function of human 2eings as they complete the many human endeavors that they plunge into. In its entirety3 it is al4ays a2out survival of man as he ma es his 4ay through diverse circumstances and the many odds that he has to surmount3 overpo4er or ta e control of <Maldonato3.-,-=. ;his treatise 4ill attempt to sho4 the art3 process and function of decision ma ing plays a vital role in managerial tas s and 4ill endeavor to illustrate the essential demands of management roles especially 4here leadership is concerned. In addition3 this paper 4ill underta e to discuss the different processes3 paradigms and models on decision ma ing specific to managerial functions.

Management Leadership and Decision Makers ?eside the daily pro2lems that managers face in their everyday 2usiness operations3 arriving at @uality managerial decisions is a huge challenge for managers. Aith the stiff competition in the 2usiness 4orld3 the challenge to e6cel can 2e painsta ingly difficult. 5ence3 the success of a 2usiness greatly depends upon the decision ma ing capa2ilities of managers. 5o4ever3 it is not 1ust a2out decision ma ing per se that is 2eing tal ed a2out here3 4e are referring to quality decision ma ing 4hich has 2een designated as 9a competence that every responsi2le manager must ac@uire: as 4ell as 2eing a 9discipline that must 2e practiced: <Aang3.-,-=. >nother challenge concerns the fre@uency of ma ing decisions. ;here are important decisions that have to 2e made 4ith regard to the implementation of plans3 strategies and directives of an organiBation and there are also those vital decisions that have to 2e made in the course of operating and supporting a 2usiness. ?riefly then3 9managerial decision ma ing is not a one-time event3: rather it is part and parcel of 9the 1ourney of continuous learning and improvement: <Aang3 .-,-=. Ahen it comes to corporate or organiBational decision ma ing3 the conceptualiBation of decisions has also ta en a special treatment. It has 2een regarded as the 9specific allocation of real resources: 4hich is re@uired 4hen there is something to 2e implemented <Aang3 .-,-=. Decisions and implementations are t4o ma1or components of !/#age

a 2igger process and need to 2e ta en together3 never apart3 separate or independent of each other. Logically3 if nothing has 2een implemented then the decision remains a concept. Cnce there is implementation3 real resource allocation 4ill come in and 4ill 2e necessary <Aang3 .-,-=. ;his is the reason 4hy managerial decision ma ing 2ecomes imperative 2ecause there are resources involved and as it 4as characteriBed3 9a decision is all a2out choosing the 2est alternative to achieve a goal 4ith finite resources3 4hether tangi2le or intangi2le: <Aang3 .-,-=.

Managerial Decision Making ;he decision ma ing process 4as depicted as involving the identification of pro2lems and opportunities and then resolving them <Daft and Marcic3.-,,= and this 4ill not 2e complete unless there is implementation. It is an ac no4ledged fact that decision ma ing is not an easy tas yet it is imperative that it 2e done along 4ith dynamically changing aspects such as vague information and conflicting points of vie4 <Daft and Marcic3.-,,=. Cne 4ay to ma e the process more managea2le for those occupying management roles 4ould 2e for them to classify the ind of decisions they have to ma e and categoriBe them under programmed and non programmed decisions <Daft and Marcic3.-,,=. #rogrammed decisions are those that involve situations 4hich ta e place ha2itually enough as to ena2le the development of decision rules or guidelines <Daft and Marcic3.-,,=. Cn the other hand3 non programmed decisions are those that respond to situations 4hich can 2e descri2ed as uni@ue3 poorly defined and largely unstructured <Daft and Marcic3.-,,=. ;he strategic planning and determination3 formulation and esta2lishment of organiBational directions can 2e considered a non programmed decision 2y virtue of its significance to the future of that organiBation. Diven the nature of this type decision3 it is surmised that this forms part of the more challenging and difficult aspects in the dynamics of decision ma ing. ;hese t4o types of decisions are specifically 2ased on four decisive factors namely' certainty3 risk3 uncertainty and ambiguity <Daft and Marcic3.-,,=. ;he certainty criterion is represented all the information a decision ma er needs is fully availa2le to him7 4hereas there is ambiguity 4hen future outcomes of non-programmed decisions such as strategic plans are haBy or 2lurred <Daft and Marcic3.-,,=. It is especially important to use this criteria 2ecause it serves as the determinant for possi2ilities of failure. In other 4ords3 4hen the organiBational pro2lem falls under the certainty criterion3 the possi2ility of

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failure is lo4 4hile those that fall under am2iguity have a high li elihood of failing <Daft and Marcic3.-,,=.

Managerial Decision Making under Risk and Uncertainty ;he presumption made here is that to engage in decision ma ing for programmed decisions 4ill have to 2e 2ased on the esta2lished rules. Eurther3 ma ing programmed decisions 4ill involve information that is readily availa2le to managers thus ma ing the pro2a2ility of failure very lo4. ?ut as decisions move further into the spectrum of the aforementioned criteria3 so does the possi2ility of failure. ;his signifies that there should 2e focused and dedicated processing for such decisions. In a study conducted 2y the International Journal for Computer Science3 one of the main pro2lems identified 2y the manager respondents in the face of ris -laden decisions is the 9lac of information and precise o21ective data: <Ria2ac e3.--"=. In addition3 it 4as found out that doing ris and pro2a2ility estimations3 most managers 4ould 2ase their decisions on 9inade@uate information and intuition: <Ria2ac e3.--"=. ;his 2ecame especially true 4hen managers do not possess the essential proficiencies of appro6imating &/#age

various types of ris s <Ria2ac e3.--"= 4hich 1ustifies the re@uirement of a2ility in decision ma ing. In these instances of ris and uncertainty in decision ma ing3 the goal 4ould 2e to ma e the 2est possi2le decision 4hile also decreasing chances of failure. In the study of Ria2ac e3 it 4as suggested that a 9prescriptive computer-2ased approach: is a good 4ay to resolve discrepancies in the decision ma ing process. %sing computers to aid in decision ma ing creates a distancing 2et4een the decision ma er and the process. Li e4ise3 it 4as inferred that 9;odayFs good decisions are driven 2y data: and that 9in the 2usiness conte6t3 an amaBing diversity of data is availa2le for inspection and analytical insight. ?usiness managers and professionals are increasingly re@uired to 1ustify decisions on the 2asis of data and that they need statistical model-2ased decision support systems <>rsham3 .-,,=. ;o ma e sure that data and information 4ould not come lac ing3 it is important for data to 2e collected according to a 4ell developed plan especially since valid information on a con1ecture needs to 2e o2tained <>rsham3 .-,,=. %sing data laden approach to decision ma ing3 >rsham proposes the follo4ing statistically 2ased decision ma ing process that can 2e used over again'

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In addition3 it 4as cited ho4 9fortunately the pro2a2ilistic and statistical methods for analysis and decision ma ing under uncertainty are more numerous and po4erful today than ever 2efore: 4hile also su2scri2ing to the suggestion made earlier on computer 2ased decision ma ing stating that 9the computer ma es possi2le many practical applications: <>rsham3.-,,=.

Managerial Decision Making: Cognitive Style Despite the advantage of 2asing decisions from data3 statistics and figure-driven methodologies3 the value of ma ing decisions 2ased on cognitive styles cannot 2e discounted. >n article from the %niversity of ;ulsa cites ho4 2asing from the 9strategic decision made 2y &4+ senior managers and e6ecutives3 5ough concluded that the use of associative3 lo4-effort heuristics 2ased on impersonal information allo4ed i$tuitingG;hin ing <$;= managers to ma e higher @uality strategic decisions than managers 4ith other styles: <%;3.-,,=. ;his is in reference to managers 4ho have gained the a2ility to rely 9on their intuition to rapidly incorporate logical conclusions into choices3 resulting in @uic er and more decisions in a given period: <%;3.-,,=. ;o add3 there is also such a thing no4n as 9practical 4isdom: 4hich 2asically proposes that the process of decision ma ing must not only 2e reliant on facts 2ut must factor in values as 4ell <MelH3.--+=. It 4as asserted that the employment of data in ma ing decisions can 2e referred to as 9instrumental rationality: 4hich has its o4n merits 2ut must 2e put into perspective and this is 2ecause many times3 managers ma e decisions under conditions of uncertainty <MelH3.--+=. ;hey end up simply satisfying certain elements of 2usiness such as their sta eholders. Aith the inclusion of practical rationality as reinforced 2y practical 4isdom3 4hat is humanly good in each situation is there2y considered. In other 4ords3 9practical 4isdom in decision-ma ing3 4ithout e6cluding instrumental rationally3 adds the ethical dimension in each stage of the decision-ma ing process. Moral reasoning 2y practical 4isdom3 far from applying rules3 considers the situation as a 4hole and see s to discover 4hat is good in each particular situation: <MelH3.--+=. Aith many ethical conflicts and issues that have 2een reported as of late3 there is value in considering this particular paradigm in decision ma ing. +/#age

(ontrary to all these3 an article in the 5arvard ?usiness )chool ne4sletter reports on the suggestion of Michael Mau2oussin that intuition 9serves us 4ell in sta2le environments 4here feed2ac from previous decisions is clear and 4here cause-and-effect relationships can 2e identified: <5es ett3.-,-=. It is 4iser3 says Mau2oussin to 2e more careful in our approach 2y giving due value to mathematical models and systematicallycollected data <5es ett3.-,-=.

Case: Computer

ars and !ast "hinking

(ompa@ 4as at the top of its game in ,++* 2eing the largest seller of personal computers 4hile also 2eing Eor2es0 9(ompany of the Iear: yet 4ithin a span of t4o short years3 it lost J. 2illion as it fell victim to Dell Computers <Aeygandt3 Kimmel and Kieso3.-,-=. Dell came up 4ith a ne4 supply chain design that ena2led them to sell computers 4hich had the specific re@uirements of their clients shipped 4ithin .4 hours ,- / # a g e

4ithout spending a single cent on inventory. Lac ing timely response3 (ompa@ had no choice 2ut to merge 4ith 5#. 5# mean4hile also lost significant mar et share to Dell on account of the latter0s price strategies that 5# could not compete 4ith. ;he threat increased as Dell too 2egan selling printers 4hich led many to 2elieve that Dell 4ould soon reign supreme in the computing 4orld. ?ut 5# @uic ly gained its footing. ?y .--*3 it managed to mount a 3-year turnaround gaining J,-- 2illion in sales and landing the title as 2iggest technology company in the 4orld. 5# did this feat 2y adopting lean manufacturing practices that ena2led them to compete 4ith Dell in pricing 4hile also developing innovative designs and successful retail mar eting. >s an e6tension of their products3 5# also got into consulting and data storage services 2ecause they realiBed that selling e@uipment can 2e a limited source of revenue 4hile ongoing services provide high margin and continued revenue stream and in most cases also an opportunity to ma e more hard4are sales <Aeygandt3 Kimmel and Kieso3.-,-=. It 4as elucidated previously that one of the important aspects of decision ma ing in the conte6t of survival 4ould 2e formulation of the most critical ones in a timely fashion. In this case3 5# had 2een @uic in ma ing decisions on strategy ad1ustments in response to the mounting threat 2eing posed 2y Dell (omputer. 5ad it prolonged another moment later3 it might have ended up in the same 2oat as (ompa@. It is note4orthy ho4 5# had managed to regain its dominance 2y ma ing @uic and strategic decisions 4here operations 4ere concerned 4hile also the decision to e6pand services to create revenue streams3 2oth overtly critical in gaining the a2ility to compete in pricing 2ut more importantly to gain leverage to get 2ac on trac . It 4as imperative to address gro4th of Dell early on 2ecause it 4ould have 2ecome ingrained as a primary provider of computers. >nd as one e6pert o2server commented3 9;he longer you ta e to ma e a decisionthe farther a4ay you are from the reality that e6ists at this moment: and that a delayed decision3 no matter the greatness of it3 loses its sheen: <5es ett3.-,-=.

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References: ( ) >rsham3 5. L)tatistical ;hin ing for Managerial Decisions.L .-,,. %niversity of ?altimore. ,* $ov .-,, Mhttp'GGhome.u2alt.eduGnts2arshG?usinessstatGopre!-4.htmNrrstatthin O. (!) Daft3 R.L. and D. Marcic. %nderstanding Management . Mason3 C5' )outh Aestern (engage Learning3 .-,,. (") 5es ett3 P. LMa ing Right (hoices' >rt or )cienceQL . Dec .-,-. Aor ing Kno4ledge 5arvard ?usiness )chool. ,* $ov .-,, Mhttp'GGh2s4 .h2s.eduGitemG"4&!.htmlO. (#) LAhatFs the ?est Aay to Ma e (areful DecisionsQL 4 Ee2 .-,-. Aor ing Kno4ledge 5arvard ?usiness )chool. ,* $ov .-,, Mhttp'GGh2s4 .h2s.eduGitemG"33+.htmlO. ($) Maldonato3 M. Decision Ma ing' ;o4ards an Evolutionary #sychology of Rationality. %K' )usse6 >cademic #ress3 .-,-. (6) MelH3 D. L#R>(;I(>L AI)DCM I$ ;5E M>$>DERI>L DE(I)IC$M>KI$D #RC(E)).L .4 >ug .--+. %niversity of )t. ;homas. ,* $ov .-,, Mhttp'GG444.stthomas.eduGcathstudiesGcstGconferencesG#racticalAisdomG#ractical AisdomGMelepaper.pdfO. (%) Ria2ac e3 >. LManagerial Decision Ma ing %nder Ris and %ncertainty.L I>E$D International Pournal of (omputer )cience <.--"=. (8) %;. L(ognitive )tyle and Managerial Decision-Ma ing.L .-,,. ;he %niversity of ;ulsa. ,* $ov .-,, Mhttp'GG444.utulsa.eduGacademicsGcollegesG(ollins-(ollege-of?usinessG2us-dept-schoolsGDepartment-of-Management-andMar etingGResearchG(ognitive-)tyle-and-Managerial-Decision-Ma ing.asp6O. (&) Aang3 (. Managerial Decision Ma ing Leadership' ;he Essential #oc et )trategy ?oo . )an Erancisco3 (>' Pohn Ailey R )ons3 .-,-. ( 0) Aeygandt3 P.P.3 #.D. Kimmel and D.E. Kieso. Managerial >ccounting' ;ools for ?usiness Decision Ma ing. 5o2o en3 $P' Pohn Ailey R )ons3 .-,-.

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