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The Manager as a
Decision Maker
The Manager as a
Decision Maker
7-2
2006 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
Learning Objectives
Learning Objectives
After studying the chapter, you should be able to:
Differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a complex,
uncertain process.
Describe the six steps that managers should take
to make the best decisions.
Explain how cognitive biases can affect decision
making and lead managers to make poor
decisions.
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Learning Objectives
Learning Objectives
Explain the role that organizational learning
and creativity play in helping managers to
improve their decisions.
Identify the advantages and disadvantages
of group decision making, and describe
techniques that can improve it.
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The Nature of Managerial Decision
Making
The Nature of Managerial Decision
Making
Decision Making
The process by which managers respond to
opportunities and threats by analyzing options, and
making decisions about goals and courses of
action.
Decisions in response to opportunitiesoccurs when
managers respond to ways to improve organizational
performance.
Decisions in response to threatsoccurs when managers
are impacted by adverse events to the organization.
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Decision Making
Decision Making
Programmed Decision
Routine, virtually automatic decision
making that follows established rules or
guidelines.
Managers have made the same decision many
times before
There are rules or guidelines to follow based on
experience with past decisions
Little ambiguity involved
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Decision Making
Decision Making
Non-Programmed Decisions
Nonroutine decision making that occurs in
response to unusual, unpredictable
opportunities and threats.
The are no rules to follow since the
decision is new.
Decisions are made based on information, and a
managers intuition, and judgment.
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Decision Making
Decision Making
Intuition feelings, beliefs, and hunches that
come readily to mind, require little effort and
information gathering and result in on-the-spot
decisions
Reasoned judgment decisions that take
time and effort to make and result from careful
information gathering, generation of
alternatives, and evaluation of alternatives
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The Classical Model
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.
Optimum decision
The most appropriate decision in light of what managers
believe to be the most desirable future consequences for
their organization.
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The Classical Model of Decision Making
The Classical Model of Decision Making
Figure 7.1
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The Administrative Model
The Administrative Model
Administrative Model of Decision Making
Bounded rationality
There is a large number of alternatives and
available information can be so extensive that
managers cannot consider it all.
Decisions are limited by peoples cognitive
abilities.
Incomplete information
most managers do not see all alternatives and
decide based on incomplete information.
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The Administrative Model
The Administrative Model
Administrative Model of Decision Making
An approach to decision making that
explains why decision making is inherently
uncertain and risky and why managers
usually make satisfactory rather than
optimum decisions.
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Why Information Is Incomplete
Why Information Is Incomplete
Figure 7.2
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Causes of Incomplete Information
Causes of Incomplete Information
Risk
The degree of probability that the possible
outcomes of a particular course of action will
occur.
Managers know enough about a given outcome to be able
to assign probabilities for the likelihood of its failure or
success
Uncertainty
Probabilities cannot be given for outcomes and the
future is unknown.
Many decision outcomes are not known such as the
success of a new product introduction.
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Causes of Incomplete Information
Causes of Incomplete Information
Time constraints and information costs
managers have neither the time nor
money to search for all possible
alternatives and evaluate potential
consequences
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Causes of Incomplete Information
Causes of Incomplete Information
Young Woman
or Old Woman
Ambiguous
Information
Information whose
meaning is not clear
allowing it to be
interpreted in multiple
or conflicting ways.
Figure 7.3
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Causes of Incomplete Information
Causes of Incomplete Information
Satisficing
Searching for and choosing an acceptable, or
satisfactory response to problems and
opportunities, rather than trying to make the best
decision.
Managers explore a limited number of options and choose
an acceptable decision rather than the optimum decision.
Managers assume that the limited options they examine
represent all options.
This is the typical response of managers when dealing
with incomplete information.
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Six Steps in Decision Making
Six Steps in Decision Making
Figure 7.4
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Decision Making Steps
Decision Making Steps
Step 1. Recognize Need for a Decision
Sparked by an event such as environment
changes.
Managers must first realize that a decision must be made.
Step 2. Generate Alternatives
Managers must develop feasible alternative
courses of action.
If good alternatives are missed, the resulting decision is
poor.
It is hard to develop creative alternatives, so managers
need to look for new ideas.
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Decision Making Steps
Decision Making Steps
Step 3 Evaluate Alternatives
What are the advantages and
disadvantages of each alternative?
Managers should specify criteria, then
evaluate.
When ranking, all information needs to be
considered.
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Decision Making Steps
Decision Making Steps
Step 4 Evaluate alternatives
Criteria

Legal ity Is the al ternati ve legal both i n thi s country and
abroad for exports?
Ethi cal ness

Is the al ternati ve ethi cal and will not bring
harm stakehol ders unnecessaril y?
Economi c Feasibili ty Can organizations performance goals sustai n
thi s alternati ve?
Practi cali ty

Does the management have the capabil iti es
and resources required to implement the
alternati ve?

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General
Criteria for
Evaluating
Possible
Courses of
Action
Figure 7.5
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Decision Making Steps
Decision Making Steps
Step 5. Implement Chosen Alternative
Managers must now carry out the alternative.
Often a decision is made and not implemented.
Step 6. Learn From Feedback
Managers should consider what went right and
wrong with the decision and learn for the future.
Without feedback, managers do not learn from
experience and will repeat the same mistake over.
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Cognitive Biases and Decision
Making
Cognitive Biases and Decision
Making
Heuristics
Rules of thumb to deal with complex
situations.
Decision makers use heuristics to deal with
bounded rationality.
If the heuristic is wrong, however, then poor
decisions result from its use.
Systematic errors can result from use of an
incorrect heuristic and will appear over and over
since the rule used to make decision is flawed.
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Sources of Cognitive Bias at the
Individual and Group Levels
Sources of Cognitive Bias at the
Individual and Group Levels
Figure 7.6
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Types of Cognitive Biases
Types of Cognitive Biases
Prior Hypothesis Bias
Allowing strong prior beliefs about a
relationship between variables to influence
decisions based on these beliefs even
when evidence shows they are wrong.
Representativeness
The decision maker incorrectly generalizes
a decision from a small sample or a single
incident.
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Types of Cognitive Biases
Types of Cognitive Biases
Illusion of Control
The tendency to overestimates ones own
ability to control activities and events.
Escalating Commitment
Committing considerable resources to
project and then committing more even if
evidence shows the project is failing.
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Group Decision Making
Group Decision Making
Superior to individual making
Choices less likely to fall victim to bias
Able to draw on combined skills of
group members
Improve ability to generate feasible
alternatives
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Group Decision Making
Group Decision Making
Allows managers to process more
information
Managers affected by decisions agree
to cooperate
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Group Decision Making
Group Decision Making
Groupthink
Biased decision making resulting from
group members striving for agreement.
Usually occurs when group members rally
around a central managers idea , and become
blindly commit to the idea without considering
alternatives.
The groups influence tends to convince each
member that the idea must go forward.
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Improved Group Decision Making
Improved Group Decision Making
Devils Advocacy
A group member who defends unpopular or
opposing alternatives for the sake of
argument
One member of the group who acts as the
devils advocate by critiquing the way the
group identified alternatives and pointing
out problems with the alternative selection.
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Improved Group Decision Making
Improved Group Decision Making
Dialectical Inquiry
Two different groups are assigned to the problem
and each group evaluates the other groups choice
of alternatives.
Top managers then hear each group present their
alternatives and each group can critique the other.
Promote Diversity
Increasing the diversity in a group may result in
consideration of a wider set of alternatives.
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Devils Advocacy and Dialectical Inquiry
Devils Advocacy and Dialectical Inquiry
Figure 7.7
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Organizational Learning and
Creativity
Organizational Learning and
Creativity
Organizational Learning
Managers seek to improve a employees
desire and ability to understand and
manage the organization and its task
environment so as to raise effectiveness.
The Learning Organization
Managers try to maximize the peoples
ability to behave creatively to maximize
organizational learning.
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Senges Principles for Creating a
Learning?
Senges Principles for Creating a
Learning?
Figure 7.8
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Creating a Learning Organization
Creating a Learning Organization
Personal Mastery
Managers empower employees and allow them to
create and explore.
Mental Models
Challenge employees to find new, better methods
to perform a task.
Team Learning
Is more important than individual learning since
most decisions are made in groups.
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Creating a Learning Organization
Creating a Learning Organization
Build a Shared Vision
People share a common mental model of
the firm to evaluate opportunities.
Systems Thinking
Knowing and understanding how actions in
one area of the firm will impact other areas
of the firm.
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Organizational Learning and
Creativity
Organizational Learning and
Creativity
Creativity
The ability of the decision maker to
discover novel ideas leading to a feasible
course of action.
A creative management
staff and employees are
the key to the learning
organization.
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Promoting Individual Creativity
Promoting Individual Creativity
Organizations can build an environment
supportive of creativity.
Managers must provide employees with the
ability to take risks.
If people take risks, they will occasionally fail.
To build creativity, periodic failures must be
rewarded.
This idea is hard to accept for some managers.
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Building Group Creativity
Building Group Creativity
Brainstorming
Managers meet face-to-face to generate and
debate many alternatives.
Group members are not allowed to evaluate alternatives
until all alternatives are listed.
When all are listed, then the pros and cons of each are
discussed and a short list created.
Production blocking
Members cannot absorb all information being presented
during the session and can forget even their own
alternatives.
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Building Group Creativity
Building Group Creativity
Nominal Group Technique
Provides a more structured way to generate
alternatives in writing.
Avoids the production blocking problem.
Similar to brainstorming except that each member is given
time to first write down all alternatives he or she would
suggest.
Alternatives are then read aloud without discussion until
all have been listed.
Then discussion occurs and alternatives are ranked.
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Building Group Creativity
Building Group Creativity
Delphi Technique
Provides a written format without having all
managers meet face-to-face.
Delphi allows distant managers to participate.
Problem is distributed in written form to managers who
then generate written alternatives.
Responses are received and summarized by top
managers.
These results are sent back to participants for feedback,
and ranking.
The process continues until consensus is reached.
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Movie Example: Fellowship of the Ring
Movie Example: Fellowship of the Ring
How does the council of Elrond use
the decision-making process to
decide the fate of the Ring?