3- 1

Heading
Managerial Decision Making Learning
Objectives
 After studying this slides 3, you will know:
 the kinds of decisions you will face as a manager
 how to make “rational” decisions

 the pitfalls you should avoid when making decisions

 the pros and cons of using a group to make decisions

 the procedures to use in leading a decision-making group

 how to encourage creative decisions

 the processes by which decisions are made in organizations

 how to make decisions in a crisis

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 3- 2
Characteristics
HeadingOf Managerial Decisions

Risk Uncertainty

Lack of
Conflict
Structure

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 3- 3
Characteristics
HeadingOf Managerial Decisions
(cont.)
 Lack of structure
 theusual state of affairs in managerial decision making
 programmed decisions - decisions that have been encountered

and made in the past

 have objectively correct answers
 are solvable by using simple rules, policies, or numerical

computations
 nonprogrammer decisions - new, novel, complex decisions
having no proven answers
 decision maker must create or impose a method for making the
decision

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 3- 4
Comparison Of Types Of Decisions
Heading

Programmed Decisions Nonprogrammer Decisions

Problem Frequent, repetitive, routine. Novel, unstructured. Much

Much certainty regarding uncertainty regarding cause and
cause and effect relationships. effect relationships.

Procedure Dependence on policies, Necessity for creativity, intuition,

rules, and definite procedures. tolerance for ambiguity, creative
problem solving.

Business Periodic reorders of inventory. Diversification in new products

example and markets.

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 3- 5
Characteristics
HeadingOf Managerial Decisions
(cont.)
 Uncertainty and risk
 certainty- have sufficient information to predict precisely the
consequences of one’s actions
 uncertainty - have insufficient information to know the

consequences of different actions

 cannot estimate the likelihood of various consequences of their
actions
 risk - available information permits estimation of the likelihood
of various consequences
 probability of an action being successful is less than 100 percent,
and losses may occur
 good managers prefer to manage risk

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 3- 6
Characteristics
HeadingOf Managerial Decisions
(cont.)
 Conflict

 opposing pressures from different sources

 occurs at two levels

 psychological conflict - individual decision makers:

 perceive several attractive options
 perceive no attractive options
 conflict between individuals or groups
 few decisions are without conflict

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 3- 7
The Stages Of Decision Making
Heading

Identifying and
diagnosing
the problem
Generating
alternative
solutions

Evaluating
alternatives

Making the
choice

Implementing
the decision

Evaluating
the decision
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 3- 8
Stages Of Decision Making
Heading

 Identifying and diagnosing the problem

 recognize that a problem exists and must be solved
 problem - discrepancy between current state and:
 past performance
 current performance of other organizations
 future expected performance
 decision maker must want to resolve the problem and have the
resources to do so
 Generating alternative solutions
 ready-made solutions - ideas that have been tried before
 may follow the advice of others who have faced similar problem
 custom-made solutions - combining new ideas into solutions
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 3- 9
Stages Of Decision Making (cont.)
Heading

 Evaluating alternatives
 determining the value or adequacy of the alternatives
 predict the consequences that will occur if the various options

are put into effect

 managers should consider several types of consequences
 success or failure of the decision will affect the track record of
the decision maker
 contingency plans - alternative courses of action that can be

implemented based on how the future unfolds

 contingency plans are necessary to prepare for different
scenarios
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 3 - 10
Stages Of Decision Making (cont.)
Heading

 Making the choice

 maximize - a decision realizing the best possible outcome
 requires searching thoroughly for a complete range of alternatives
 each alternative is carefully assessed

 compare one alternative to another

 satisfies - choose an option that is acceptable although not

necessarily the best or perfect
 compare the choice with the goal, not against other options
 search for alternatives ends when an okay solution is found

 optimizing - achieving the best possible balance among several

goals

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 3 - 11
Stages Of Decision Making (cont.)
Heading

 Implementing the decision

 those who implement the decision must:
 understand the choice and why it was made
 be committed to its successful implementation

 can’t assume that things will go smoothly during

implementation
 identify potential problems
 identify potential opportunities

 always expect the unexpected

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 3 - 12
Steps InHeading
The Implementation Plan

Determine how things will

look when the decision
is fully operational

Assign responsibility for Order the steps necessary

each step to specific to achieve a fully
individuals operational decision
Implementation
Plan

List the resources and

Estimate the time needed
activities required to
for each step
implement each step

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 3 - 13
Stages Of Decision Making (cont.)
Heading

 Evaluating the decision

 collecting information on how well the decision is working
 evaluation is useful whether the feedback is positive or negative

 if decision appears inappropriate, the process cycles back to the first

stage
 The best decision
 nothing can guarantee a “best” decision
 must be confident that the procedures used are likely to produce the

best decision given the circumstances

 vigilance - decision maker carefully and conscientiously executes all
stages of decision making

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 3 - 14
BarriersHeading
To Effective Decision Making

 Psychological biases
 biases that interfere with objective rationality
 illusion of control - a belief that one can influence events

even when one has no control over what will happen

 framing effects - how problems or decision alternatives are

phrased or perceived
 subjective influences can override objective facts
 discount the future - weigh short-term costs and benefits
more heavily than longer-term costs and benefits
 the avoidance of short-term costs or the seeking of short-term
rewards may result in negative long-term consequences
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 3 - 15
BarriersHeading
To Effective Decision Making
(cont.)
 Time pressures
 today’s economy places a premium on acting quickly and
keeping pace
 in order to make timely and high-quality decisions one must:

 focus on real-time information

 involve people more effectively and efficiently

 rely on trusted experts

 take a realistic view of conflict

 Social realities
 many decisions result from intensive social interactions,
bargaining, and politicking
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 3 - 16
Pros And Cons Of Using A Group To
Heading
Make Decisions
Potential Advantages Potential Disadvantages

1. Larger pool of information 1. One person dominates

1. More perspectives and 1. Satisfying

approaches

3. Intellectual stimulation 1. Groupthink - team spirit

discourages disagreement

1. People understand the 1. Goal displacement - new

decision goals replace original goals

5. People are committed to

the decision
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 3 - 17
Managing Group Decision Making
Heading

Leadership Constructive Conflict

1. Avoid domination 1. Air legitimate
2. Encourage input differences
3. Avoid groupthink 2. Stay task-focused
and satisfying 3. Be impersonal
4. Remember goals 4. Play devil’s advocate

Effective Group
Decision Making

Creativity
1. Brainstorm
2. Avoid criticizing
3. Exhaust ideas
4. Combine ideas
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 3 - 18
Managing Group Decision Making
Heading

 Leadership style
 leader should attempt to minimize process-related problems
 leader should:

 avoid dominating the discussion

 encourage less vocal members to express themselves

 mitigate pressures for conformity

 stay alert to groupthink and satisfying

 prevent group from losing sight of the primary objective

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 3 - 19
Managing Group Decision Making
Heading
(cont.)
 Constructive conflict
a certain amount of constructive conflict should exist
 cognitive conflict - issue-based differences in perspectives or

judgments
 a constructive type of conflict
 can air legitimate differences of opinion and develop better ideas

 affectiveconflict - emotional disagreement directed toward other

people that is likely to be destructive conflict
 two techniques used to purposely program cognitive conflict

 devil’s advocate - has the job of criticizing others

 dialectic - structured debate comparing two conflicting courses of

action
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 3 - 20
Managing Group Decision Making
Heading
(cont.)
 Encouraging creativity
 creativity is essential to survival and involves:
 creation - bringing a new thing into being
 synthesis - joining two previously unrelated things

 modification - improving something or giving it new application

 to become creative one must:

 recognize creative potential in little opportunities
 obtain sufficient resources

 escape from work once in awhile and read widely

 brainstorming - group generates ideas about a problem

 evaluation of ideas is postponed until all have been proposed
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 3 - 21
Organizational
HeadingDecision Making

 Constraints on decision makers

 organizations cannot do whatever they wish

Financial

Organizational Legal
Constraints

Human Market

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 3 - 22
Organizational
HeadingDecision Making (cont.)

 Models of organizational decision processes

 bounded rationality - decision makers cannot be truly rational
because:
 they have imperfect, incomplete information about alternatives
 the problems they face are so complex

 human beings cannot process all the information to which they are

exposed
 time is limited

 people in the organization have conflicting goals

 when the conditions above hold, perfectly rational decision

making gives way to more biased, subjective decision
processes
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 3 - 23
Organizational
HeadingDecision Making (cont.)

 Models of organizational decision processes (cont.)

 incremental model - major decisions arise through a series of
smaller decisions
 piecemeal approach to larger solutions
 coalitionalmodel - groups with differing preferences use power
and negotiation to influence decisions
 used when people disagree about goals or compete for resources
 garbage can model - a chaotic process leading to seemingly
random decisions
 occurs when people are unsure of their goals and what should be done
 a dramatic departure from rationality in decision making

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 3 - 24
Organizational
HeadingDecision Making (cont.)

 Negotiations and politics

 negotiationsnecessary to galvanize the preferences of
competing groups and individuals
 organizational politics - people try to influence decisions to

promote their own interests

 use power to pursue hidden agendas
 create common goals - helps to make decision making a
collaborative rather than a competitive process
 Decision making in a crisis
 stressand time constraints make decisions less effective
 should be prepared for crises in advance

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 3 - 25
Heading
Mistaken Assumptions: How Not To
Handle Crisis Management
We don’t have a crisis.
We can handle a crisis.
Crisis management is a luxury we can’t afford.
If a major crisis happens, someone else will rescue us.
Accidents are just a cost of doing business.
Most crises are the fault of bad individuals; therefore, there’s not much
we can do to prevent them.
Only executives need to be aware of our crisis plans; why scare our
employees or members of the community?
We are tough enough to react to a crisis in an objective and rational
manner.
The most important thing in crisis management is to protect the good
image of the organization through public relations and advertising
campaigns.
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 3 - 26
Plan For Crisis Management
Heading

Strategic
Actions

Psychological and Technical and

Cultural Actions Structural Actions
Crisis
Management

Communication Evaluation and

Actions Diagnostic Actions

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 3 - 27
Organizational
HeadingDecision Making (cont.)

 Emergent strategies
 the strategy that evolves from all the activities engaged in by
people throughout the organization
 result from dynamic processes in which people engage in

discovery, implement decisions, and reconsider the initial

decision after discovering new things by chance
 emergent strategies may start at any organizational level

 emergent strategies are generally the result of constructive

processes

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 3 - 28
Emergent Strategies
Heading

Discovery
Action
• Systematic gathering
• Implementing
and analysis of
chosen option
• Correcting the facts
• Monitoring
deviations from
outcomes of
from plan
actions
Choice
• Set objectives
• Generate options
• Evaluate and select
acceptable, feasible,
suitable option

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