Managerial Decision Making

Managerial Decision Making
Chapter 7
Copyright Atomic Dog Publishing, 2003
Management Decision Making
Management decision making is a complex mix of

knowledge, experience, creative thinking, and risk
taking. It is often a rapid-fire, fragmented process
More and more companies are pushing critical

decision making down to the level of the organization
most affected by the decision
A decision can be defined as a conscious choice

among alternatives followed by action to implement
the decision
Decision-making process is a series of steps that is

followed, either consciously or unconsciously, to make
a choice and undertake action
2/42
Management Decision Making (cont.)
Managers must learn how to deal with a decisionmaking environment that emphasizes communicating,
working with others, and working with incomplete
information
Decisions are often based on impressions, estimates,

and personal experience
Management researchers have developed a set of

useful concepts to understand the phenomenon
Individual decision making differs from group decision

making
3/42
Types of Managerial Decisions
Types of Managerial Decisions
Programmed and Non-Programmed

Decisions
Proactive and Reactive Decisions
Intuitive and Systematic Decisions
5/42

Decisions
Programmed Decisions
One that would be made if a particular situation

occurs and a routine procedure or policy has been
established to handle it
Repetitive and routine
A large number in daily operations
Although they should be made with care and
concern about effectiveness, they should be made
efficiently without needlessly tying up
organizational resources
6/42

Decisions (cont.)
Non-Programmed Decisions
No pre-existing structure or decisionmaking procedure in place
Have significant implications for the future
of the organization and must be made only
after careful analysis
7/42
Proactive and Reactive Decisions
Proactive Decision
Made in anticipation of an external change
or other conditions
Can prevent many common problems
Reactive Decision
Made in response to changes that have
already occurred
8/42
Intuitive and Systematic Decisions
Intuitive Decision Making
Use of estimates, guesses, or hunches to decide

among alternative courses of action
Voice of experience that speaks to managers
when faced with a decision situation
Dont rely on intuition alone; supplement intuition
with systematic information gathering and analysis
Systematic Decision Making
Organized, exacting, data-driven process

Requires a clear set of objectives, a relevant
information base, and a sharing of ideas among
key managers and other employees
9/42
The Decision-Making Process
The Decision-Making Process
Clarify the problem or opportunity
Develop alternative courses of action
Evaluate and select a course of action
Implement the decision
Monitor its effectiveness
11/42
Step 1: Clarify the Problem or

Opportunity
Problems are defined as the realization that a

discrepancy exists between a desired state and
current reality
Several common biases or mistakes managers make

when identifying and clarifying a problem:
Perceptual inaccuracies
Defining problems in terms of solutions
Identifying symptoms as problems
Consider an issue from a variety of perspectives
Consult various perspectives before making decisions

12/42
Step 2: Develop Alternative Courses

of Action
Examine the organizations internal and external

environments for information and ideas that may lead
to creative solutions to a problem
A popular approach to this is known as benchmarking

(identify and study firms who are leaders in a given
area of business)
Managers should encourage creativity and innovation

among employees
Encourage a diversity of approaches to problem

solving can lead to better solutions and courses of
action
13/42
Step 3: Evaluate Alternatives and

Select a Course of Action
Select the alternatives that will produce the most

favorable outcomes and the least unfavorable
outcomes
Two cautions should be kept in mind
Keep this step distinct from the previous stepespecially in a

group context
Be wary of solutions that are evaluated as being perfect
Rather than being an optimizer, the decision maker is

said to be a satisficer a person who accepts a
reasonable alternative course of action that isnt
necessarily the optimum course of action
14/42
Step 4: Implement the Selected

Alternative Course of Action
A decision is an abstraction if it isnt implemented
Actions must be implemented effectively if it is to

achieve an objective
Implementing decisions involves delegating

responsibilities to people
Here are six steps to effective delegation:
Define the task clearly

Give guidelines to begin to follow
Give authority to accomplish the task
Monitor the tasks, but dont hover
Give feedback along the way
Reward and recognize effort as well as results
15/42
Step 5: Control and Assess the

Consequences of the Action
Periodic assessment of the results of the

chosen course of action
If actual results arent meeting planned

results, changes must be made
Two types of feedback that managers use to

gather the necessary information:
Formative
Summative
16/42
Influences on Individual Decision

Making
Influences on Individual Decision

Making
Importance of the decision
Time pressures
Managers values
Managers propensity for risk
18/42
The Importance of the Decision
Numerous yardsticks for measuring the

importance of a decision exist, including the
amount of resources involved, the number of
people influenced by the decision, and the
time required to make the decision
Managers must allot more time and attention

to significant problems
19/42
Time Pressures
Managers must make the most of their

decisions in others time frames
When time pressures are significant,

managers may be unable to gather enough
information
Time management is a priority
Managers who effectively manage their time

feel less stress and tend to make better
decisions than their stress-filled counterparts
20/42
The Managers Values
An individuals values become guidelines when s/he

confronts a choice
Values are one of the most important influences on

human behavior
Values are the likes, dislikes, shoulds, oughts,

judgments, and prejudices that determine how the
world is viewed
Value-based decision making is methodical and

ensures that organizational values enter into all major
decisions
Although people dont think consciously about their

values and rarely arrange them in any kind of order,
managers should be very aware of their values
Serious conflicts can occur among values
21/42
The Managers Propensity for Risk
People vary greatly in their propensity to take

risks
The issue for managers is not whether to take

risks, but how to take reasonable risks
22/42
Group Decision Making
Group Decision Making
A great deal of decision making is achieved

through committees, teams, task forces,
virtual teams, etc.
Decisions made on non-programmed

problems being made by one individual on a
regular basis are unusual
Use of the collective approach to a decisionmaking process is increasing
Many managers spend as much as 80% of

their working time in committee meetings
24/42
Individual vs. Group Decision Making
Groups usually take more time to reach a

decision
Consensus decisions with five or more

participants are superior to individual decision
making, majority vote, and leader decisions
Problems with group decision making:
Pressure to conform
Influence of a dominant personality
Status incongruity
Attempt of certain participants to influence others
25/42
Individual vs. Group Decision Making

(cont.)
Non-programmed decisions appear to be

better suited to group decision making
As we move from individual to consensus,

the quality of the decision improves
For a complex problem requiring pooled

knowledge, the quality of the decision is likely
to be higher as the group moves toward
achieving consensus
26/42
Creativity in Group Decision Making
If groups are better suited to non-programmed

decisions than individuals, then it is important
that an atmosphere fostering group creativity
be created
27/42
Techniques for Stimulating Creativity
Brainstorming
The Delphi Technique
The Nominal Group Technique
28/42
Brainstorming
Brainstorming promotes the generation of

ideas while at the same time avoiding the
inhibitions many people feel in group settings
The basic rules are:
No idea is too ridiculous

Each idea presented belongs to the group, not to
the person stating it
No idea can be criticized
29/42
The Delphi Technique
The Delphi technique comprises the

solicitation and comparison of anonymous
judgments on the topic of interest through a
set of sequential questionnaires that are
interspersed with summarized information and
feedback of opinions from earlier responses
30/42
The Delphi Technique (cont.)
The advantage is having several judges while

removing the biasing effects that might occur
during face-to-face interaction
Basic approach is to collect anonymous judgments

from group members by mail questionnaire
A process administrator then summarizes the

responses as the group consensus, and feeds this
summary back along with a second questionnaire
for reassessment
Respondents independently evaluate their earlier

responses
Underlying belief is that the consensus estimate

will result in a better decision after several rounds
of anonymous group judgment
31/42
The Nominal Group Technique (NGT)
The NGT comprises processes that bring

people together but do not allow them to
communicate verbally. Thus, the collection of
people is a group nominally, or in name
only
32/42
The Nominal Group Technique (NGT)

(cont.)
A structured group meeting proceeds as
follows:
A group of individuals (7 to 10) sit around a table

but do not speak to one another
Each person writes ideas on a pad of paper
A recorder writes the ideas on a flip chart in full view
of the entire group
This continues until all of the participants indicate
that they have no further ideas to share
Each idea receives attention before a vote is taken
Each participant, in private, selects priorities by
ranking or voting
The group decision is the mathematically pooled
outcome of the individual votes
33/42
Information Technology and

Decision Making
Information Technology and Decision

Making
In decision-making situations, managers cant

possibly use all available information
The challenge for managers is to collect, process, and

warehouse the most relevant information to make
effective decisions in the present and future
Tools for warehousing and retrieving information for

use throughout their firms:
Data warehousing
Data mining
Data marts
Search engines
Software agents
35/42
Attributes of Useful Information
Accessible
Timely relevant
Accurate
Verifiable
Complete
Clear
36/42
Information Sharing
Organizations that train people in the value of

information and how to use it and share it gain
competitive advantage over those who dont
37/42
Decision Support Systems (DDS)
Decision Support Systems (DDS)
DDS is an interactive information system that

enables managers to gain instant access to
information in a less structured format than a
traditional management information system or
database
Must obtain information about the firm,

competitors, and the business environment
May include links to the World Wide Web, and

have built-in artificial intelligence that adjusts
to group behaviors and needs
DDS is inherently user friendly
39/42
Decision Support Systems (cont.)
Supports managerial skills at all levels of

decision making by providing instant response
to managers information needs
An executive information system (EIS) is a

user-friendly DDS designed specifically for
executives
Consolidate the analysis provided by a DDS,

interpret it considering the firms strategic
goals, and present the results of executives in
an easily understandable format
40/42
Expert Systems and Artificial

Intelligence
Artificial intelligence allows computers to solve

problems involving imagination, abstract
reasoning, and common sense
Expert systems refers to computer systems

that can make decisions without human
interaction, by imitating human thinking and
offer advice or solutions to complex problems
in much the same way as a human expert
would
41/42
End of Chapter 7

Managerial Decision Making

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Managerial Decision Making

Copyright Atomic Dog Publishing, 2003

Management Decision Making

Management decision making is a complex mix of

More and more companies are pushing critical

A decision can be defined as a conscious choice

Decision-making process is a series of steps that is

Copyright Atomic Dog Publishing, 2003

Management Decision Making (cont.)

Decisions are often based on impressions, estimates,

Management researchers have developed a set of

Individual decision making differs from group decision

Copyright Atomic Dog Publishing, 2003

Types of Managerial Decisions

Copyright Atomic Dog Publishing, 2003

Types of Managerial Decisions

Programmed and Non-Programmed

Proactive and Reactive Decisions

Intuitive and Systematic Decisions

Programmed and Non-Programmed

One that would be made if a particular situation

Programmed and Non-Programmed

Proactive and Reactive Decisions

Intuitive and Systematic Decisions

Intuitive Decision Making

Use of estimates, guesses, or hunches to decide

Systematic Decision Making

Organized, exacting, data-driven process

Copyright Atomic Dog Publishing, 2003

The Decision-Making Process

Copyright Atomic Dog Publishing, 2003

The Decision-Making Process

Clarify the problem or opportunity

Develop alternative courses of action

Evaluate and select a course of action

Implement the decision

Monitor its effectiveness

Step 1: Clarify the Problem or

Problems are defined as the realization that a

Several common biases or mistakes managers make

Consider an issue from a variety of perspectives

Consult various perspectives before making decisions

Copyright Atomic Dog Publishing, 2003

Step 2: Develop Alternative Courses

Examine the organizations internal and external

A popular approach to this is known as benchmarking

Managers should encourage creativity and innovation

Encourage a diversity of approaches to problem

Copyright Atomic Dog Publishing, 2003

Step 3: Evaluate Alternatives and

Select the alternatives that will produce the most

Two cautions should be kept in mind

Keep this step distinct from the previous stepespecially in a

Rather than being an optimizer, the decision maker is

Step 4: Implement the Selected

A decision is an abstraction if it isnt implemented

Actions must be implemented effectively if it is to

Implementing decisions involves delegating

Here are six steps to effective delegation:

Define the task clearly

Copyright Atomic Dog Publishing, 2003

Step 5: Control and Assess the

Periodic assessment of the results of the

If actual results arent meeting planned