Chapter 9 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.2

Programmed and Nonprogrammed Decisions Programmed Decisions – Recurring problems – Apply rule e.g.reorder inventory, employee selection Nonprogrammed Decisions – Unique situations – Poorly defined – Unstructured – Important consequences Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.3

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.4

9.1 Conditions That Affect the Possibility of Decision Failure Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.5

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 Ambiguity and Conflict Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.6

The Ideal, Rational/Classical Model : How Managers Should Make Decisions 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 e.g. airlines automated system, programming, break even analysis etc Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.7

Assumptions Goals are often vague Rational procedures are not always used Managers’ searches for alternatives are limited Most managers settle for satisficing Bounded rationality – people have limits or boundaries Satisficing – decision makers choose the first solution that satisfies minimal decision criteria Intuition – quick apprehension of situation based on practice and experience Administrative Model Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.8

Assumptions: Orgz are made up of groups with diverse interests, goals and values-may disagree Information ambiguous and incomplete Managers don’t have time, resource and capacity to identify all dimensions of problem-need to seek others to gain info & reduce uncertainty Managers discuss and debate to decide-based on coalition Political Model Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 9

Political Model 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.10

9.2 Comparing the Models Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.11

Decision-Making Steps 1.Recognition of Decision Requirement – identify problem or opportunity 2.Diagnosis and Analysis – analyze underlying causal factors 3.Develop Alternatives – define feasible alternatives 4.Selection of Desired Alternative – alternative with most desirable outcome 5.Implementation of Chosen Alternative – use of management persuasive abilities to execute 6.Evaluation and Feedback – gather information about effectiveness Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.12

9.3 Six Steps in the Managerial Decision-Making Process Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.13

9.5 Personal Decision Framework Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.14 Many managers depend on their own decision-making style to make decisions

Personal Decision Framework Directive style – people who prefer simple, clear-cut solutions to problems-rely on existing rules, don’t deal with lots of info Analytic style – managers prefer complex solutions based on a lot of data, search for best possible decision Conceptual style – managers like a broad amount of information but more social talk to others to get info Behavioral style – managers with a deep concern for others, concerned how decisions may affect others Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.15