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Decision Making is not Easy

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‡ Unclear information.
‡ Often conflicting
points of view.
ypes of Decisions | 
  

   
       
       

Programmed decisions:
‡ situations that occur often enough to enable
decision rules to be developed.
Nonprogrammed decisions:
‡ are made in response to situations that are
unique, are poorly defined and largely
unstructured.
‡ many involve strategic planning.
Programmed and
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Nonprogrammed
Decision Differences
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Πall the information the decision maker needs is fully available.
¦ £
Πdecision has clear-cut goals.
Πgood information is available.
Πfuture outcomes associated with each alternative are subject to
chance.
¦ r   
Πmanagers know which goals they with to achieve.
Πinformation about alternatives and future events is incomplete.
Πmanagers may have to come up with creative approaches to
alternatives.
¦ Ñ   
Πby far the most difficult decision situation.
Πgoals to be achieved or the problem to be solved is unclear.
Πalternatives are difficult to define.
Πinformation about outcomes is unavailable.
èelecting a | 
  

Decision Making Model

‡ Depends on the manager¶s


personal preference.
‡ Whether the decision is
programmed or non-programmed.
‡ Extent to which the decision is
characterized by risk, uncertainty,
or ambiguity.
hree Decision Making | 
  

Models

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¦u  
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ulassical Model

¦ [ased on economic
conditions
¦ Is considered to be
normative
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ulassical Model

¦ Ñccomplishes goals that are known and


agreed upon.
¦ ètrives for certainty by gathering complete
information.
¦ uriteria for evaluating alternatives are
known.
¦ Decision maker is rational and uses logic.
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Ñdministrative Model
¦ row managers actually make decisions in situations
characterized by non-programmed decisions, uncertainty,
and ambiguity.
¦ Focuses on organizational, rather than economic.
¦ wo concepts are instrumental in shaping the
administrative model.
Πbounded rationality: means that people have limits or
boundaries on how rational they can be.
Πsatisficing: means that decision makers choose the
first solution alternative that satisfies minimal decision
criteria.
¦ Is considered to be descriptive.
¦ It is considered intuitive.
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Political Model
¦ ulosely resembles the real
environment in which most managers
and decision makers operate.
¦ Decisions are complex.
¦ Disagreement and conflict over
problems and solutions are normal.
¦ uoalition building is important.
uomparisons of: | 
  

ulassical, Political, &


Ñdministrative Models

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èix èteps in the Managerial
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Decision Making Process
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üuantitative and üualitative


Factors in Decision Making
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üuantitative and üualitative


Factors in Decision Making
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üuantitative Factors
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Investment Ñppraisal

‡ Payback period
‡ NPV
‡ Ñ
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üuantitative Factors
‡ Provide a numerical basis for decision
making Πreduces decisions to looking
at a monetary value placed on different
choices, e.g.
ΠForecasted sales figures
for the next 3 years
Πhe cost of a series of redundancies
against the longer term financial benefits
to the firm of this process
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üualitative Factors
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üualitative Factors
‡ üualitative factors look to take
account of these other issues
that may influence the outcome
of a decision
‡ uan be wide ranging and especially
need to consider the impact
on human resources and
their response to decisions
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èWO
‡ Ñ decisions (for example, investment in a new
production plant) could be considered not only
in financial terms but also to apply other
techniques of decision making
to look at wider issues:
‡ Ñ èWO analysis might be part of this:
Π   |
Π   
Π    
Π|  
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PEè
‡ Might also need to factor in other external
issues that might influence the decision
making process which can be summarised as:
Π   
Π  
Π 
Π |   
‡ Political could be in its widest sense,
e.g. the internal politics of a firm as well as
the national and international political effect
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PEè
‡ he decision to site a series of wind turbines in
a coastal area might be justified on financial
grounds but:
ΠWhat is the reaction of the local
community?
ΠDoes government policy support such
planning developments?
Œ Ñre there social impacts Œ e.g. noise
pollution, damage to eco-systems, etc?
‡ èuch factors may make the difference
between success and failure
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ruman esources Management


‡ Impact on a firm¶s human resources
is essential to consider,
in particular the effects on:
‡ Motivation
‡ Morale
‡ ecruitment and etention
‡ May be difficulty to assess and measure
‡ May need to distinguish between short term
effects and long term
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ètakeholder Ñnalysis
‡ Wider impacts on stakeholder groups may also
be necessary, such stakeholders include:
ΠEmployees
Œ èhareholders
ΠManagers
ΠEnvironment
Πocal uommunity
Œ èuppliers
Πovernment
Πuonsumers
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Decision Making
‡ Eventual decision may rest on the
balance between the perceived effects
of quantitative and qualitative
‡ If the long term effect on the workforce
for example was to reduce productivity
or increase absence because of
the impact on motivation and morale,
the fact that a decision
makes financial sense may be shelved!
‡ üualitative by its nature, therefore,
is very subjective