Managerial Decision Making Chapter 9 Managerial Decision Making

Types of Decisions and Problems Decision making is the process of identifying opportunities A decision is a choice made from available alternatives Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Programmed and Nonprogrammed Decisions Recurring problems Apply rule Nonprogrammed Decisions Unique situations Poorly defined Unstructured Important consequences Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Facing Certainty and Uncertainty Difference between programmed and unprogrammed decisions Uncertainty depends on the amount and value of information available Certainty – situation in which all information is fully available Risk – the future outcomes associated with an alternative are subject to chance Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

9.1 Conditions That Affect the Possibility of Decision Failure Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Ambiguity and Conflict Ambiguity makes decisions difficult The goals and the problem are unclear Wicked Decisions involve conflict over goals and have changing circumstances, fuzzy information, and unclear links There is often no “right” answer Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

The Ideal, Rational Model Rational economic assumptions drive decisions Operates to accomplish established goals, problem is defined Decision maker strives for information and certainty, alternatives evaluated Criteria for evaluating alternatives is known, select alternative with maximum benefit Decision maker is rationale and uses logic Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

How Managers Actually Make Decisions Administrative/descriptive approach How managers really make decisions Recognize human and environmental limitations Bounded rationality – people have limits or boundaries Satisficing – decision makers choose the first solution that satisfies minimal decision criteria Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Steps in the Administrative Model Goals are often vague Rational procedures are not always used Managers’ searches for alternatives are limited Most managers settle for satisficing Intuition – quick apprehension of situation based on practice and experience Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Decision-Making Model: Political Decisions involve managers with diverse interests Managers must engage in coalition building Informal alliance to support specific goal Without a coalition, powerful groups can derail the decision-making process Political model resembles the real environment Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

9.2 Comparing the Models Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Decision-Making Steps Recognition of Decision Requirement – identify problem or opportunity Diagnosis and Analysis – analyze underlying causal factors Develop Alternatives – define feasible alternatives Selection of Desired Alternative – alternative with most desirable outcome Implementation of Chosen Alternative – use of management persuasive abilities to execute Evaluation and Feedback – gather information about effectiveness Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

9.3 Six Steps in the Managerial Decision-Making Process Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

9.4 Decision Alternatives with Different Levels of Risk Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

9.5 Personal Decision Framework Many managers depend on their own decision-making style to make decisions Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Personal Decision Framework Directive style – people who prefer simple, clear- cut solutions to problems Analytic style – managers prefer complex solutions based on a lot of data Conceptual style – managers like a broad amount of information Behavioral style – managers with a deep concern for others Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Why Do Managers Make Bad Decisions? Being influenced by initial impressions Justifying past decisions Seeing what you want to see Perpetuating the status quo Being influenced by problem framing Overconfidence Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Innovative Group Decision Making Start with brainstorming – spontaneous suggestions in a group Engage in rigorous debate – use divergent points of view to focus problems Avoid groupthink – acknowledge disagreement as value instead of blind agreement Act with speed – some decisions have to be made incredibly quickly Don’t ignore crisis – managers should expect and plan for crises (with speed) Know when to bail – good managers must know when to pull the plug! Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.