Chapter 6Managerial Decision Making

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Programmed DecisionsRoutine situations Decision rules can be developed and appliedManagers formulate decision rules so subordinates can make decisions

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Nonprogrammed DecisionsPoorly defined situationsDecisions are complexRoutine decision rules do not applyTrend is toward subordinates making more nonprogrammed decisions

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Degrees of Outcome PredictabilityCertaintyRiskUncertaintyAmbiguity

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CertaintyFull knowledge of available alternatives Full knowledge of what outcome will result from each alternativeFew certain decisions in the real world.

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RiskKnowledge of what the alternatives areKnow the probabilities of outcomes resulting from each alternative.

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UncertaintyGoals are known, but information about alternatives and future outcomes is incomplete (probabilities unknown)

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AmbiguityObjectives to be achieved are unclearLittle, if any, knowledge of alternatives

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Classical Model1. Goals are known and agreed upon. Problems are precisely defined2. All alternatives and outcomes are calculated3. Criteria evaluated and decision made maximizing return (expected value)4. Uses rationality and logic.

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Classical ModelAssumes:Knowledge of Persons and Environ.Stability of Persons and EnvironmentMemory and Reasoning CapabilitiesAbsence of EmotionResources (Time & Money)

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Administrative ModelDescribes how managers actually make decisions including those that are:NonprogrammedUncertainAmbiguousNot QuantitativeUsed due to Bounded Rationality

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Bounded RationalityPeople have limits on the information they can process in making a decision, so their use of rationality is limited.

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Satisficing (Satisfactory + Sacrifice)Choosing the first alternative satisfying minimum decision criteria (i.e., the optimal solution is often not needed)Often cannot afford time and expense of complete information, even if possible.

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IntuitionBased on years of practice and hands-on experience (i.e., not naive guessing)Facilitates Satisficing

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Decision Making StepsRecognition of Decision RequirementDiagnosis and Analysis of CausesDevelopment of AlternativesSelection of Desired AlternativeImplementation of Chosen AlternativeEvaluation and Feedback.

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Comments on Decision Making StepsThe Classical Model focuses on the Selection of Desired AlternativeNonprogrammed problems require more attention to the earlier steps.Evaluation and Feedback can lead to reverting back to any prior stage to make a correction.

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Personal Decision FrameworkDirective Style: used by people who prefer simple, clear-cut solutions. They are efficient and rational.Analytical Style: used by managers who like to consider complex solutions based on as much data as they can gather. They are objective and rational and like optimal solutions.Conceptual Style: used by people who like to consider a broad amount of information, and are more creative and socially oriented. They consult with others for information and ideas.Behavioral Style: often the style adopted by managers having a deep concern for others. They consult with others to determine the feelings of the others.

Situation:Programmed/non-programmedClassical, administrative, politicalDecision steps

Decision Choice:Solution to Problem

Personal Decision Style:DirectiveAnalyticalConceptualBehavioral

Advantages of Group Decision MakingMore background knowledge More alternatives generatedMore understanding of the decisionMore support for decisionHelps fulfill social needs

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Disadvantages of Group Decision MakingTime consuming, inefficientIneffective Compromise decisionsGroupthink, social pressure, conflictLack of clear responsibility

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Conditions for GroupthinkTeam leaders opinion is knownTeam is highly cohesiveTeam is isolated from outside influencesTeam has recent decision failures

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Escalation of CommitmentBritish government funded the Concorde supersonic jet long after its lack of commercial viability was apparent. Today, some scholars refer to escalation of commitment, in general, as the Concorde Fallacy. Corel Corp. With permission

Corel Corp. With permissionCauses of Escalation of CommitmentEgo DefenseSunk CostsGamblers Fallacy

An Interactive GroupMembers meet face-to-face and have a specific agenda and decision objectives. (the typical meeting)

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Improving Interactive GroupsTo Combat Groupthink:Devil's AdvocateMultiple AdvocacyDialectic Inquiry

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Improving Interactive GroupsBrainstorming

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Improving Interactive GroupsBrainstormingMore ideas Synergy

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Alternatives to Interactive GroupsNominal Groups Ideas in writing before discussion to help equalize participationDelphi Groups No face-to-face interaction - even more equal participation

Improving Decision-Making EffectivenessLearn from past decisions, but dont waste time

regretting pastDistinguish between idea getting and evaluating (Dont

be too critical when generating ideas.)Seek advice, when practicalAs a group leader, dont dominate

the discussionWhen possible, sleep on decisions,

but dont wait too long.

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