Chapter 09 Managerial Decision Making

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Managerial Decision Making
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Decision Making is not Easy

• It must be done amid ever-changing factors

• Unclear information.
• Often conflicting points of view.

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Types of Decisions
Decision making the process of identifying
problems and opportunities, then resolving them.

• 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.

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Programmed and Nonprogrammed Decision Differences

• Certainty
• all the information the decision maker needs is
  fully available.
• Risk
• decision has clear-cut goals.
• good information is available.
• future outcomes associated with each alternative
  are subject to chance.
• Uncertainty
• managers know which goals they with to achieve.
• information about alternatives and future events
  is incomplete.
• managers may have to come up with creative
  approaches to alternatives.
• Ambiguity
• by far the most difficult decision situation.
• goals to be achieved or the problem to be solved
  is unclear.
• alternatives are difficult to define.
• information about outcomes is unavailable.

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Conditions that Affect the Possibility of
Decision Failure
Organizational Problem
Problem Solution
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Selecting aDecision Making Model

• Depends on the managers personal preference.
• Whether the decision is programmed or
  non-programmed.
• Extent to which the decision is characterized by
  risk, uncertainty, or ambiguity.

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Three Decision Making Models

• Political Model

• Administrative Model

• Classical Model

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Classical Model

• Based on economic conditions
• Is considered to be normative

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Classical Model

• Accomplishes goals that are known and agreed
  upon.
• Strives for certainty by gathering complete
  information.
• Criteria for evaluating alternatives are known.
• Decision maker is rational and uses logic.

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Administrative Model

• How managers actually make decisions in
  situations characterized by non-programmed
  decisions, uncertainty, and ambiguity.
• Focuses on organizational, rather than economic.
• Two concepts are instrumental in shaping the
  administrative model.
• bounded rationality means that people have
  limits or boundaries on how rational they can be.
• satisficing 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

• Closely resembles the real environment in which
  most managers and decision makers operate.
• Decisions are complex.
• Disagreement and conflict over problems and
  solutions are normal.
• Coalition building is important.

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Comparisons of Classical, Political,
Administrative Models
Classical Model Administrative Model
Political Model
Clear-cut problem and goals. Condition of
certainty. Full information about alternatives
and their outcomes. Rational choice by
individual for maximizing outcomes.
Vague problem and goals. Condition of
uncertainty. Limited information about
alternatives and their outcomes. Satisfying
choice for resolving problem using intuition.
Pluralistic conflicting goals. Condition of
uncertainty/ambiguity. Inconsistent viewpoints
ambiguous information. Bargaining and discussion
among coalition members.
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Six Steps in the ManagerialDecision Making
Process
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Diagnosis Questions(Kepner Tregoe)

• What is the state of disequilibrium affecting us?
• When did it occur?
• Where did it occur?
• How did it occur?
• To whom did it occur?
• What is the urgency of the problem?
• What is the interconnectedness of events?
• What result came from what activity?

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Personal Decision Framework

• Personal Decision Style
• Directive
• Analytical
• Conceptual
• Behavioral

• Decision Choice
• Best Solution to Problem

• Situation
• Programmed/non-programmed
• Classical, administrative,
  political
• Decision steps

• Directive Style used by people who prefer
  simple, clear-cut solutions.
• Analytical Style used by managers who like to
  consider complex solutions based on as much data
  as they can gather.
• Conceptual Style used by people who like to
  consider a broad amount of information, more
  socially oriented.
• Behavioral Styleoften the style adopted by
  managers having a deep concern for others.

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Participation in Decision Making

• Vroom-Jago Model
• Helps gauge the appropriate amount of
  participation for subordinates.
• Leader Participation Styles
• Five styles available, depending on the
  situation.
• Participation in decision making ranging from
  highly autocratic to highly democratic.
• Diagnostic Questions
• Decision participation depends on a number of
  situational factors.
• Questions deal with the problem, the required
  level of decision quality, and the importance of
  having subordinates commit to the decision.

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Participation in Decision MakingDiagnostic
Questions

• Decision significance
• Importance of commitment
• Leader expertise
• Likelihood of commitment
• Group support for goals
• Group expertise
• Team competence

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New Decision Making Approaches

• Lean, Dont Punish
• Know When to Bail
• Practice the Five Whys
• Build Collective Intuition
• Engage in Constructive Conflict

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Information Technology

• The hardware, software, telecommunications,
  database management, and other technologies used
  to store, process, and distribute information.

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Characteristics ofHigh-Quality Information
Source Adapted from James A. OBrien,
Introduction to Information Systems, 8th ed.
(Burr Ridge, Ill, Irwin, 1997),284-285.
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Types of Information Systems
Operations Information Systems
? Transaction-processing systems.
? Process control
systems. ?
Office automation systems.
Management Information Systems
? Information-reporting
systems. ? Decision
support systems.
? Group decision support systems.
? Executive
information systems.
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Basic Elements ofManagement Information Systems
Corporate and External Databases
Decision Support Systems
Executive Information Systems
Operations Information Systems
Management Information Systems
Group Decision Support System
Reporting Systems
SOURCE Adapted from Ralph M. Stair and George W.
Reynolds, Principles of Information Systems A
Managerial Approach, 4th ed. (Cambridge, Mass.
Course Technology, 1999), 391.
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Strategies for Integrating Bricks and Clicks
In-HouseDivision
Partnership
Spin-OffCompany
Integration
Separation

• Brand recognition
• Purchasing leverage
• Shared information
• Distribution efficiencies

• Focus
• Flexibility
• Responsiveness
• Entrepreneurial culture

SOURCE Based on Ranjay Gulati and Jason Garino,
Get the Right Mix of Bricks and Clicks, Harvard
Business Review (May-June 2000), 107-114.
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Management and Technology Implications
Improved employee effectiveness. Increased
efficiency. Empowered employees. Information
overload. Enhanced collaboration. Organizational
learning.