Managerial Decision Making

Managerial Decision Making

Decision making is the act of choosing one alternative

from among a set of alternatives to solve problems and
follow them up with the necessary actions

Decision-Making Conditions
The decision
maker faces
conditions of...

Certainty

Risk

Uncertainty

Level of ambiguity and chances of making a bad decision

Lower

Moderate

Higher

Types of Decisions
Programmed Decisions
Non-programmed decisions

Decision making process

Define the problem.
Identify limiting factors.
(information, time, personnel, equipment, etc.

Develop potential alternatives.

Evaluate/Analyze the alternatives.
Select the best alternative.
Implement the decision.
Establish a control and evaluation system

Evaluating Alternatives in the

Decision-Making Process

Is the alternative
feasible?

Yes

Is the alternative
satisfactory?

Yes

Are the alternatives

consequences
affordable?

No

No

No

Eliminate from
consideration

Eliminate from
consideration

Eliminate from
consideration

Yes

Retain for further

consideration

Steps in the Rational

Decision-Making Process
Step

Detail

Example

1. Recognizing and
defining the decision
situation

Some stimulus indicates

that a decision must be
made. The stimulus may be
positive or negative.

A plant manager sees that

employee turnover has
increased by 5 percent.

2. Identifying alternatives

Both obvious and creative

alternatives are desired. In
general, the more important
the decision, the more
alternatives should be
considered.

The plant manager can

increase wages, increase
benefits, or change hiring
standards.

3. Evaluating alternatives

Each alternative is evaluated to determine its

feasibility, its
satisfactoriness, and its
consequences.

Increasing benefits may not

be feasible. Increasing
wages and changing hiring
standards may satisfy all
conditions.

Steps in the Rational

Decision-Making Process (contd)
Step

Detail

Example

4. Selecting the best

alternative

Consider all situational

factors, and choose the
alternative that best fits the
managers situation.

Changing hiring standards will

take an extended period of time
to cut turnover, so increase
wages.

5. Implementing the
chosen
alternative

The chosen alternative is

implemented into the
organizational system.

The plant manager may need

permission from corporate
headquarters. The human
resource department establishes
a new wage structure.

6. Following up and
evaluating the
results

At some time in the future,

the manager should ascertain
the extent to which the
alternative chosen in step 4
and implemented in step 5
has worked.

The plant manager notes that, six

months later, turnover has
dropped to its previous level.

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Models of Decision making

Types of Decision Making

1. Individual Decision Making
2. Group Decision Making

Personal DecisionMaking Styles

The three most common decision models are as
follows:
Rational/logical (Seven step process)
Intuitive
Predisposed ( manager decides first and then
gathers support inform)

Heuristics in Decision Making

Sometimes when there seem to be too many
alternatives to choose from, managers rely on
their own decision rules. These decision rules
are called heuristics, and they allow complex
judgments to be made more simply.
Simplifying heuristics may be necessary in
entrepreneurial situations where there are
many unknown variables.
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Group and Team

Decision Making
in Organizations
Many decisions
are made in a
group setting.
Groups decision
making can call on
combined skills,
and abilities

Techniques of Group Decision

Making
1. Brainstorming
2. Nominal Group Technique
rank the options and
scoring
3. Delphis Technique Panel
Discussion with a moderator

4. Devils Advocacy
5. Dialectical inquiry

Devils Advocacy v. Dialectic Inquiry

Devils Advocacy
Presentation of
alternative

Critique of
alternative

Reassess
alternative
accept, modify,
reject

Dialectic
Inquiry
Alter. 1

Alter. 2

Debate the two

alternatives

Reassess
alternatives
accept 1 or 2, combine

Examples

Coca Cola Failure: Background and Research

- Early 80s, share lost to Pepsi
- New Product research carried out
$4m cost
200,000 taste tests
60% of consumers preferred it in blind tests

Coca Cola Failure: Chronology

May 1985

Old Coke withdrawn

New Coke introduced

July

Old Coke reintroduced as Coke Classic

Reasons for failure

Research was narrowly defined
considered taste not emotions
dropping Old Coke not mentioned

Crystal Pepsi
Crystal Pepsi
Pepsi introduced this clear cola in the early 1990s.
Unlike other clear carbonated drinks, this one didnt
have a lemon/lime flavor yet it didnt quite have a
normal cola flavor either. Despite a very expensive
media blitz, this see-through soda just didnt catch on.
Pepsi lost hundreds of millions guessing at straws, and
they have never recovered fully, said Laermer. This
was an error competitors still learn from: dont amend
a color thats acceptable!

The One who rejected Google

In 1999, the former Excite CEO George Bell
secured the chance of buying Google for a 550
$U.S., but he didn't. Now the search giant has
a market value of $163 billion.

The Man who Missed Bill Gate's

Shoes
In 1980, IBM was in search of a firm to provide an
Operating System (OS) for its new invention, the
personal computers. The company wanted to
discuss this with a software expert Gary Kildall
over a meeting. Kildall instead skipped the IBM
meeting and chose his favorite pass time of plane
flying. An irritated IBM then turned to Microsoft
and Bill Gates to fill in its OS requirement.

$15 Million Offer Dismissed

In 1979, Texas businessmen Ross Perot offered
to buy Microsoft for US$15 million. Bill Gates
asked $60 million. Perot walked away emptyhanded and lost a life time opportunity.
Microsoft today has a market value of $265
billion.

Ignoring Future
In 1980, while the first IBM PCs were being created, the
company was looking for an appropriate operating system
for its computers. IBM turned to Microsoft and Bill Gates
wrote a simple interpreter called PC DOS. IBM paid Gates a
onetime fee and installed the program in all its computers
and started selling. However, for reasons unknown, IBM
ignored the fact that Gates still owned the interpreter. As
soon as IBM began making profits, Microsoft started
making fortunes by selling its operating system to IBM's
competitors.

Good decisions come from experience

and experience comes from bad
decisions