Chapter 5

Managerial Decision Making

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 Learning objectives
• Explain why decision making is an important component of good
management.
• Compare and contrast programmed and nonprogrammed decisions, and
describe the decision characteristics of certainty and uncertainty.
• Compare the ideal, rational model of decision making to the political
model of decision making.
• Explain the process by which managers actually make decisions in the real
world.
• Summarize the six steps used in managerial decision making.
• Describe four personal decision styles used by managers.
• Identify the biases that frequently cause managers to make bad
decisions.
• Explain innovative techniques for decision making, including
brainstorming, evidence-based management, and after-action reviews
© 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.
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 Types of Decisions
and Problems

Decision making is
the process of Decision is a
identifying problems choice made
and opportunities from available
and
then resolving them alternatives

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 Programmed and Non-programmed Decisions

• Programmed Decisions: involved situations that are

• Recurring problems
• Developed and applied rule in the future
• Non-programmed Decisions: made in response to situation that are
• Unique situations
• Poorly defined
• Unstructured
• Important consequences

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 Facing Certainty
and Uncertainty
• Difference between programmed and un-programmed decisions
• Certainty – Situation in which all information is fully available
• Risk – a decision has clear-cut goals and that good information is
available. Future outcomes associated with an alternative are subject to
some chance of loss or failure
• Uncertainty - managers know which goals they wish to achieve, but
information about alternatives and future events is incomplete

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 Risk vs. Uncertainty

• Risk refers to decision-making situations under which all potential

outcomes and their likelihood of occurrences are known to the decision-
maker.
• Uncertainty refers to situations under which either the outcomes and/or
their probabilities of occurrences are unknown to the decision-maker.

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 Ambiguity and Conflict

• Ambiguity - Making decisions in difficult situations

• The goals, the problem and the outcomes are unclear
• There is often no “right” answer

Ambiguity = Something having more than one possible meaning

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Conditions that Affect the Possibility of Decision Failure

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 DECISION MODELS

Classical Model
Rational choice by
individual
for maximizing outcomes

Administrative
Model Political
Satisficing choice for Model
resolving Bargaining and discussion
problem using intuition among coalition members

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 The Ideal - Rational Model (Normative)

• 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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 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

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 Administrative Model

• Goals are often vague

• Rational procedures are not always used
• Managers’ searches for alternatives are limited
• Most managers settle for satisficing (requirements) rather than
maximizing
• Intuition – Quick apprehension of situation based on practice and
experience

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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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 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

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Characteristics of Classical, Administrative, and Political
Decision-Making Models

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 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 16
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 Personal Decision Framework

• Decision styles are differences among people with respect to how they
perceive problems and make choices
• The most effective managers are able to shift among styles as needed to
meet the situation.
• Four major decision styles are directive, analytical, conceptual, and
behavioral.

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 Personal Decision Framework

• Directive style
• People who prefer simple, clear-cut solutions to problems.
• They are efficient and rational, prefer to rely on existing rules or
procedures for making decisions

• Analytic style
• Managers prefer complex solutions based on a lot of data.
• These individuals carefully consider alternatives and often base their
decisions on objective, rational data
• They search for the best possible decision based on the information
available.

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 Personal Decision Framework

• Conceptual style
• Managers like a broad amount of information.
• They are more socially oriented than those with an analytical style and
like to talk to others about the problem and possible alternatives for
solving it.
• They consider many broad alternatives, rely on information from both
people and systems, and like to solve problems creatively.

• Behavioral style
• Managers with a deep concern for others.
• They like to talk to people one on one, understand their feelings about
the problem, and consider the effect of a given decision on them.
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 Decision style model

Complexity

Cognitive Complexity
Analytical Conceptual

Directive Behavioral

Structure
Rational Intuitive
Task -> People Social

Cognitive complexity is how complexly or simply people think about a

particular issue. 20
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© 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.
 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 emotions
• Over-confidence

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 Group Decision making

• Pros • Cons
• Ideas • Time-consuming
• Motivation • Conflict
• Commitment • Groupthink
• Perspectives • Big ego
• Collaboration • Social inhibitions
• Interaction • Responsibilities
• Satisficing
• Social loafing

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 Innovative Decision Making

• Start with brainstorming

• Use hard evidence
• Engage in rigorous debate: constructive conflict improve decision quality
• Avoid groupthink: a certain amount of disagreement and conflict is much
healthier than blind agreement
• Know when to bail: avoid escalating commitment.
• Do a after-action review

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 Innovative Decision Making - Brainstorming

• Face-to-face interactive group to spontaneously suggest as many ideas as

possible for solving a problem
• Highly effective for quickly generating a wide range of alternatives
• Drawbacks:
• People want to conform to what others are saying
• Pleasing the boss or impressing colleagues
• Social inhibitions

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Innovative Decision Making – 635 Method

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© 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.