Chapter Managerial Decision Making © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Types of Decisions and Problems Decision making is the process of identifying opportunities Decision is a choice made from available alternatives © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Programmed and Nonprogrammed Decisions  Programmed Decisions Recurring problems Apply rule  Nonprogrammed Decisions Unique situations Poorly defined Unstructured Important consequences © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Facing Certainty and Uncertainty  Difference between programmed and unprogrammed decisions  Certainty – Situation in which all information is fully available  Risk – Future outcomes associated with an alternative are subject to chance  Uncertainty - Depends on the amount and value of information available © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 9.1 Conditions that Affect the Possibility of Decision Failure © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Ambiguity and Conflict  Ambiguity - Making decisions in difficult situations 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 © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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  Normative─ how a decision maker should make a decision © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 on how rational they can be  Satisficing – Decision makers choose the first solution that satisfies minimal decision criteria © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 10 Decision-Making Model: Political  Assumptions of the political model Organizations are made up of groups with diverse interests, goals, and values Information is ambiguous and incomplete Lack of time, resources, or mental capacity to process all information regarding a problem Decisions are the result of bargaining and discussion among coalition members © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 11 9.2 Characteristics of Classical, Administrative, and Political Decision-Making Models © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 12 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 managerial, administrative, and persuasive abilities to execute chosen alternative  Evaluation and Feedback – Gather information about effectiveness © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 13 9.3 Six Steps in the Managerial Decision-Making Process © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 14 9.4 Decision Alternatives with Different Levels of Risk © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 15 9.5 Personal Decision Framework © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 16 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 © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 17 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 © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 18 Innovative Decision Making  Mechanisms to help reduce bias-related decision errors:  Start with brainstorming  Use hard evidence  Engage in rigorous debate  Avoid groupthink  Know when to bail  Do a postmortem © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 19