Chapter 9

Decision Making

Types of Decisions
and Problems

Decision
making is the
process of
identifying
opportunities

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A decision is
a choice
made from
available
alternatives

Programmed and Nonprogrammed

Decisions

Programmed
Decisions
Recurring problems
Apply rule

Nonprogrammed
Decisions
Unique situations
Poorly defined
Unstructured
Important

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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
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9.1 Conditions That Affect the Possibility of Decision

Failure

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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

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The Ideal, Rational Model

(Classical 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

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The Classical Model

Classical Model of Decision Making
A prescriptive model of decision making that
assumes the decision maker can identify and
evaluate all possible alternatives and their
consequences and rationally choose the most
appropriate course of action.
The classical model is prescriptive, which means
that is specifies how decisions should be made.
Managers using this model make a series of
simplifying assumptions about the nature of the
decision-making process.
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The Classical Model

Optimum decision
The most appropriate decision in light of what
managers believe to be the most desirable future
consequences for their organization.
The models premise is that managers have
access to all of the information they need to make
the optimum decision.
It also assumes that managers can easily list and
rank each alternative from most to least preferred
in order to reach an optimum decision.

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The Classical Model of Decision Making

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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
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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

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Why Information Is
Incomplete

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Causes of Incomplete
Information
Risk
The degree of probability that the possible outcomes of a particular course
of action will occur.

Uncertainty
the probabilities of alternative outcomes cannot be determined and future
outcomes are unknown

Ambiguous Information
Information that can be interpreted in multiple and
often conflicting ways.

Time constraints and information costs

managers have neither the time nor money to search for all possible
alternatives and evaluate potential consequences

End Result: Satisficing

Searching for and choosing an acceptable, or satisfactory response to
problems and opportunities, rather than trying to make the best decision

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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
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9.2 Comparing the Models

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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
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9.3 Six Steps in the Managerial Decision-Making

Process

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9.4 Decision Alternatives

with Different Levels of Risk

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9.5 Personal Decision Framework

Many managers depend on their own

decision-making style to make decisions

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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
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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

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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
Dont ignore crisis managers should expect
and plan for crises (with speed)
Know when to bail good managers must
know when to pull the plug!
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