Fundamental of Management. Lecture 5

Types of Decisions
and Problems
Decision making is
the process of
identifying
opportunities
A decision is a
choice made
from available
alternatives
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 2

Programmed and Nonprogrammed
Decisions
Programmed Decisions
– Recurring problems
– Apply rule
Nonprogrammed Decisions
– Unique situations
– Poorly defined
– Unstructured
– Important consequences

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

9.1 Conditions That Affect the Possibility
of Decision Failure

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

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

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

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

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

9.2 Comparing the Models

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

9.3 Six Steps in the Managerial Decision-
Making Process

9.4 Decision Alternatives
with Different Levels of Risk

9.5 Personal Decision Framework
Many managers depend on their own
decision-making style to make decisions

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

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

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
• Don’t ignore crisis – managers should expect and
plan for crises (with speed)
• Know when to bail – good managers must know
when to pull the plug!

Fundamental of Management. Lecture 5

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Fundamental of Management. Lecture 5