0. The Managerial Decision-Making Process
MGT 404
Managerial Decision Making

1. An Overview of Decision Making
Chapter 1
An Overview of Decision Making

2. Profile of a Decision The Decision-Making Process The Decision Maker

3. Decision Making and Problem Solving
Problem solving is concerned with overcoming obstacles in the path toward an objective.
Problem solving may or may not require action.
A decision is an act requiring judgment that is translated into action.

4. Decision Making and Problem Solving (cont’d)
Decision making is much more comprehensive than problem solving.
The terms are interrelated, but not interchangeable.

5. The Significance of Decision Making
Decision making is the one truly distinctive characteristic of managers.
Decisions made by top managers commit the total organization toward particular courses of action.

6. The Significance of Decision Making (cont’d)
Decisions made by lower levels of management implement the strategic decisions of top managers in the operating areas of the organization.
Decisions invariably involve organizational change and the commitment of scarce resources.

7. The Scope of Decision Making
Individual decision making
Group decision making
Organizational decision making
Metaorganizational decision making
(Note: Refer to Figure 1.1)

8. Figure 1.1 The Scope of Decision Making
Decisional Inputs
(Objectives,
information,
resources,
energy)
Metaorganization
Organization
Interactional
Levels
Group
Individual
Permeable
Boundaries
Decisional
Outputs
(Actions
transactions,
outcomes)
External Environment

9. A Typology of Decisions
Decision-making strategies (Fig. 1.2)
l Computational
l Judgmental
l Compromise
l Inspirational

10. A Typology of Decisions (cont’d)
Decision categories
l Category I - routine, recurring,
certainty with regard to the outcome
l Category II - nonroutine,
nonrecurring, uncertainty with regard to the outcome

11. A Typology of Decisions (cont’d)
Decision combinations
l Category I / Computational strategy
l Category II / Judgmental strategy

12. Table 1.1 A Categorization of Decision Characteristics
Category I Decisions Category II Decisions
Classifications Programmable; routine; Nonprogrammable; unique;
generic; computational; judgmental; creative;
negotiated; compromise adaptive; innovative; inspirational
Structure Procedural; predictable; Novel, unstructured,
certainty regarding consequential, elusive, and
cause/effect relationships; complex; uncertain cause/
recurring; within existing effect relationships; non-
technologies; well-defined recurring; information
information channels; channels undefined, incom-
definite decision criteria; plete information; decision
outcome preferences may criteria may be unknown;
be certain or uncertain outcome preferences may
be certain or uncertain
Strategy Reliance upon rules and Reliance on judgment,
principles; habitual intuition, and creativity;
reactions; prefabricated individual processing;
response; uniform heuristic problem-solving
processing; computational techniques; rules of thumb;
techniques; accepted general problem-solving
methods for handling processes

13. Figure 1.2 The Concept of Decision-Making Strategies
Knowledge
Regarding
the Outcome
Preference for the Outcome
Strong Preference
Weak Preference
Computational
Decision-Making
Strategy
Compromise
Decision-Making
Strategy
High Level
of Knowledge
Judgmental
Decision-Making
Strategy
Inspirational
Decision-Making
Strategy
Low Level
of Knowledge

14. The Locus of Choice Top management makes Category II decisions.
Operating management makes Category I decisions.
Middle management supervises the making of Category I decisions and supports the making of Category II decisions.

15. Characteristics of Managerial Decisions (Category II)
Long-range organizational objectives
Best choice from among a set of alternatives
Decision involves organizational change
Decision requires a commitment of resources

16. Characteristics of Managerial Decisions (Category II) (cont’d)
Choice is a means to an end, not an end to itself
Decision maker tends to overestimate success
Success is measurable through objectives attainment

17. Perspectives on Managerial Decision Making
The integrative perspective
The interdisciplinary perspective
The interlocking perspective
The interrelational perspective

18. The Managerial Decision-Making Process
Process components are decision-making functions.
Decision-making functions are highly interrelated and interdependent.
The process is highly dynamic with several subprocesses.
The process can accommodate several concurrent Category II decisions.

19. Figure 2.1 The Decision-Making Process
Revise
objectives
Setting
managerial
objectives
Searching
for
alternatives
Comparing &
evaluating
alternatives
Revise or update objectives
Renew
search
Follow-up
and
control
Implementing
decisions
The act
of choice
Take
corrective
action as necessary

20. Decision-Making Function No. 1
Setting Managerial Objectives:
Objectives constitute the foundation for rational decision making.
Objectives are the ends for the means of managerial decision making.
Attainment of the objective is the ultimate measure of decision success.

21. Decision-Making Function No. 2
Searching for Alternatives:
The limitations of time and money
The declining value of additional information
The rising cost of additional information
Abort the search in the zone of cost effectiveness

22. Figure 2.2 The Cost of Additional Information
Average
value
cost of additional information
Value and
Point of
optimality
Cost
Marginal
value
Zone of
cost
effectiveness
Perfection of information
100%

23. Decision-Making Function No. 3
Comparing and Evaluating Alternatives:
Alternatives result from the search.
There are usually three to five alternatives.
One alternative is to do nothing.
Alternatives are evaluated using criteria derived from the objective.

24. Decision-Making Function No. 3 (cont’d)
Also:
Evaluation should include an anticipation of the likely outcome for each alternative.
Evaluation should also anticipate obstacles or difficulties at the time of implementation.

25. Decision-Making Function No. 4
The Act of Choice:
The choice is the culmination of the process, not all of it.
The choice confronts the decision maker with discernible constraints.
The best alternative may not be readily apparent to the decision maker.

26. Decision-Making Function No. 4 (cont’d)
Also:
The best choice is likely to ensue from the right approach.
The choice should be the alternative most likely to result in the attainment of the objective.

27. Decision-Making Function No. 5
Implementing Decisions:
Decision success is a function
of decision quality
and
decision implementation.

28. Decision-Making Function No. 5 (cont’d)
Areas contributing to decision success:
Observance of operating constraints
Influence of the decision maker
Involvement of decision implementers
Absence of conflict of interest

29. Decision-Making Function No. 5 (cont’d)
Areas detracting from decision success:
Disregard of timeliness
Unlimited additional information
Disregard of risk/reward relationships

30. Figure 2.3 Evaluation of Strategic Decision Success
Quality
Strategic Decision
Implementation
= f
+ f
1. Compatibility with 1. Conflict of interest.
operating constraints.
2. Timeliness. 2. Risk-reward factor.
3. Optimum amount of 3. Understanding the
information. decision.
4. Influence of the
decision maker.

31. Decision-Making Function No. 6
Follow-Up and Control
Follow-up and control is essential to ensure that an implemented decision meets its objective.
Performance is measured by observing the implemented decision in relation to its standard derived from the objective.

32. Decision-Making Function No. 6 (cont’d)
Also:
Unacceptable variance from standard performance should elicit timely and appropriate corrective action.
Corrective action (subprocess no. 1) may result in the implementation of another alternative (subprocess no. 2), which, if not successful, may result in a revision of the original objective (subprocess no. 3).