1. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 0 E. FRANK HARRISON Fifth Edition The Managerial Decision-Making Process

2. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 1 The Managerial Decision-Making Process Fifth Edition Author: E. Frank Harrison, Ph.D. Slides by Monique A. Pelletier, Ph.D. Author: E. Frank Harrison, Ph.D. Slides by Monique A. Pelletier, Ph.D.

3. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 2 Eclectic Approaches to Decision Making Eclectic Approaches to Decision Making Chapter 5

4. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 3 Decision-Making Models n Rational model n Organizational model n Political model n Process model

5. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 4 Table 5.1 A Typology of Decision-Making Models Primary Decision-Making Model Criterion Key Ingredients Key Assumptions Rational Maximized Objectives; specific states of nature; subjective Fixed objectives; unlimited information; no cog- (classical) outcome probabilities; quantified utilities (payoffs); nitive limitations; no time and cost constraints; exhaustive alternatives; disregard of environment; quantifiable and transitive alternatives; controlled computational decision-making strategy; short- variables; closed system; quantitatively limited term horizon; highly structured process outcomes Organizational Satisficing Objectives; general states of nature; limited Attainable objectives; limited information; cogni- (neoclassical) outcome subjective probabilities; partially quantified tive limitations; time and cost constraints; par- utilities (payoffs); nonexhaustive alternatives; tially quantifiable and intransitive alternatives; sensitive environment; judgmental decision- open system; qualitatively -- and quantitatively -- making strategy; short-term horizon; moderately limited outcomes structured process Political Acceptable Objectives; general states of nature; no prob- Limited objectives; unlimited information; no cog- (adaptive) outcome abilities; unquantifiable utilities (payoffs); nitive limitations; no time and cost constraints; nonexhaustive alternatives; dominant environ- nonquantifiable and generally transitive alterna- ment; compromise or bargaining decision-making tives; open system; environmentally limited strategy; restricted number of outcomes; short- outcomes; no "right" decision term horizon; incremental steps; loosely structured process Process Objectives- Objectives; general states of nature; generallyHighly dynamic objectives; limited information; (managerial) oriented subjective probabilities; objectives-oriented utilities cognitive limitations; time and cost constraints; outcome (payoffs); exhaustive alternatives; sensitive to generally nonquantifiable and intransitive environmental constraints; judgmental decision- alternatives; open system; sequential decision- making strategy with selective use of computation making functions; objectives-oriented outcomes and compromise; long-term horizon; limited number of outcomes; highly structured process

6. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 5 The Rational Model The Rational Model n Founded on quantitative disciplines n Maximized outcome n Computational decision-making strategy n Closed decision-making process n Fixed objectives n No bounded rationality

7. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 6 The Organizational Model The Organizational Model n Attainable objectives n Bounded rationality n Short-term horizon n Qualitative orientation n Judgmental decision-making strategy n Open decision-making process n Satisficing outcome

8. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 7 The Political Model The Political Model n Acceptable outcomes n Compromise decision-making strategy n No bounded rationality n Ambiguous or nonexistent objectives n Incremental or marginal choices n Short-term horizon

9. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 8 The Process Model The Process Model n Dynamic objectives n Objectives-oriented outcomes n Long-term horizon n Accommodates innovation n Bounded rationality n Judgmental decision-making strategy n Open decision-making process

10. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 9 Interdisciplinary Framework of Decision Making Interdisciplinary Framework of Decision Making n Behavioral disciplines n Quantitative disciplines n Behavioral/quantitative fusion

11. Copyright © 1999 Houghton Mifflin Company. All rights reserved. 5 - 10 Figure 5.1 The Interdisciplinary Framework of Decision Making The decision- making process Philosophy Psychology Mathematics Sociology Social psychology Economics Statistics Values and ethics Utility and probability Individual behavior Group behavior Models and simulation Environment Law Anthropology Political science