Decision Making

CHAPTER

9
Learning Objectives
In this chapter, you will:

 Learn why decision making is considered a

fundamental part of management effectiveness.
 Learn why decision making is an important
component of good management.
 Know the difference between programmed and
non-programmed decisions.
 Know the forms of decision making.
 Know what is meant by satisficing and bounded
rationality.
9.1 The Nature of Decision
Making

 Decision making is a conscious process of

making choices from one or more
alternatives for getting the desired outcome.

 A decision is the alternative picked from a

number of alternatives.
9.1.1 Programmed Decisions

 Know what kind of decision that needs to be

made and when, and who will be consulted,
etc.

 This kind of programmed decision is

something that is routine and often repetitive.
9.1.2 Non-Programmed
Decisions

 Requires a lot of thinking and consultation.

 Occurs under unfamiliar situations.

9.2 General Decision-Making
Styles

 How an individual perceives and reacts to

information reflects his decision-making
style.

 Decision-making styles vary along two

dimensions: value orientation and tolerance
for ambiguity.
9.2.1 Value Orientation vs
Tolerance for Ambiguity

 Value orientation refers to the extent a

person pays attention to either task or
people in making decisions.

 Tolerance for ambiguity indicates the level

of structure a person needs in his or her life.
Some people dislike uncertainties or
ambiguities and these kind of people prefer
a very structured life.
9.2.2 Decision-Making Styles

Directive: Directive style people are action

oriented and they focus on facts.
Analytical: Analytical people tend to overanalyse a
situation and they always take into
consideration of more information
before they make their decisions.
Conceptual: The conceptual style takes a broad
perspective at solving problems.
Behavioural: They are very people oriented.
9.3 Rational Decision Making

 The rational model, or known as the Classical

model by some, is based on economic
assumptions (Daft, 2006).

 Managers are expected to make decisions

that are in the best interest of the
organizations.
9.3.1 Assumptions Underlying the
Rational Model
 The decision maker operates to accomplish
common goals.
 Decision maker strives for conditions of certainty.
All alternatives and potential results are
calculated.
 Decision maker selects alternative that will
maximize the economic return of the organization.
 The decision maker is rational and makes
decision that will maximize the attainment of
organizational goals.
9.3.2 Four Stages Associated With
Rational Decision Making
Stage 1
Identify the problem or opportunity

Stage 2
Think of alternative solutions

Stage 3
Evaluate alternatives and select solution

Stage 4
Implement and evaluate solution chosen
9.4 Non-Rational Decision
Making
 The non-rational model, or generally known as
the administrative model, describes how
managers make decisions in difficult situations
where there is an abundance of uncertainties
and ambiguities.
 Due to uncertainties and ambiguities, managers
are unable to make economically rational
decisions. Therefore, managers try to make the
best out of what is available.
9.4.1 The Administrative Model
 Administrative model is based on two
concepts: bounded rationality and satisficing.
 Bounded rationality as stated by Daft (2006)
means that people have limits, or boundaries, on
how rational they can be.
 Making decisions which satisfice means that
managers have to choose the first solution that
satisfies minimal decision criteria.
9.4.2 Assumptions Underlying the
Non-Rational Model

 Decision goals are often vague, conflicting and

lack consensus among managers.
 Rational procedures are not always used. Even
when they are, they are confined to a simplistic
view of the problem.
 Managers’ searches for alternatives are limited
due to constraints.
 Most managers settle for satisficing rather than
maximizing solution.
9.5 Group Decision Making
Advantages
 Greater pool of knowledge.
 Different perspectives.
 Intellectual stimulation.
 Better understanding of decision rationale.
 Deeper commitment to the decision.
9.5 Group Decision Making
(cont.)

Disadvantages
 A few people may dominate.
 Groupthink.
 Satisficing.
 Goal displacement.
 Review Questions

1. Why is decision making considered a

fundamental part of management effectiveness?
2. Why decision making is an important component
of good management
3. What is the difference between programmed and
non-programmed decisions?
4. What are the forms of decision making?
5. What is meant by satisficing and bounded
rationality?