Managerial decision-making process
Chapter 9
Suzaan Hughes
Learning outcomes
• Explain why decision-making is an important component of good
management.
• Discuss the difference between programmed and non-programmed
decisions and the decision characteristics of certainty and uncertainty.
• Describe the classical, administrative and political models of decision-
making.
• Explain the process by which managers actually make decisions in the
real world.
• Identify the six steps used in managerial decision-making.
• Describe four personal decision styles used by managers and explain the
biases that frequently cause managers to make bad decisions.
• Identify and explain innovative techniques for decision-making, including
brainstorming, evidence-based management and after-action reviews.
2
Types of Decisions and Problems
Decision Decision is
making is the
a choice
process of
identifying
made from
opportunities available
alternatives
3
3
Programmed and Non-programmed Decisions
•Programmed Decisions
✓Recurring problems
✓Apply rule
•Non-programmed Decisions
✓Unique situations
✓Poorly defined
✓Unstructured
✓Important consequences
4
4
Facing Certainty and Uncertainty
•Difference between programmed and non-programmed
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
•Ambiguity – the goal to be achieved or the problem to be
solved is unclear, alternatives are difficult to define and
information about outcomes are unavailable
5
5
9.1 - Conditions that Affect the Possibility of Decision Failure
6
6
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
7
7
The Ideal, Rational Model
•The classical model
•Rational economic assumptions drive decisions
✓Operates to accomplish established goals, problem is
precisely formulated and defined
✓Decision maker strives for information and certainty,
alternatives evaluated
✓Criteria for evaluating alternatives is known; select
alternative with maximum benefit
✓Decision maker is rational and uses logic
8
8
How Managers Actually Make Decisions
•Administrative model - 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
9
9
Assumptions in the Administrative Model
•Decisional goals are often vague, conflicting and lack
consensus
•Rational procedures are not always used, and may be
confined to a simplistic view of the problem
•Managers’ searches for alternatives are limited
•Most managers settle for satisficing rather than maximizing
•Intuition – Quick apprehension of situation based on
practice and experience
10
10
Decision-Making Model: Political
•Useful for non-programmed decisions in uncertain conditions
with limited information and manager conflict
•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
11
11
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
12
12
9.2 – Characteristics of Classical, Administrative, and Political
Decision-Making Models
13
13
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 managerial,
administrative and persuasive abilities to execute chosen
alternative
6. Evaluation and Feedback – Gather information about
effectiveness
14
14
9.3 - Six Steps in the Managerial Decision-Making Process
15
15
9.4 - Decision Alternatives
with Different Levels of Risk
16
16
9.5 - Personal Decision Framework
17
17
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
• Behavioural style – Managers with a deep concern for others
18
18
Why Do Managers Make
poor 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
19
19
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
20
20