Learning ObjectivesSlide 1 of 3

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Learning Objectives Slide 1 of 3

• Describe the situations in which managerial
  decisions are called for.
• Discuss the basic classifications for managerial
  decisions.
• Describe the nature of strategic decision making
  as well as the strategic decision-making matrix
  approach for strategic selection.

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Learning Objectives Slide 2 of 3

• Identify the differences between the growth-share
  matrix and the industry attractiveness/ business
  strength matrix approaches for evaluating
  business portfolios.
• Describe the nature of operational decision
  making.
• Discuss the basic elements that add structure to
  the decision-making process.

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Learning Objectives Slide 3 of 3

• Discuss the differences between decision making
  under certainty, risk, and uncertainty.
• Describe the solution approaches that would be
  taken for risk and uncertainty situations.
• Discuss the basics of breakdown analysis, linear
  programming, and PERT analysis.

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Managerial Decision Situations

• Managers are faced with decisions when a problem
  occurs or when an opportunity arises.
• Problem
• A situation in which some aspect of
  organizational performance is less than
  desirable.
• Opportunity
• A situation that has the potential to provide
  additional beneficial outcomes.

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Classification of Decision Situations

• Programmed decisions
• Decisions made in response to routine situations
  that have occurred in the past.
• Nonprogrammed decisions
• Decisions made in response to situations that are
  unique, unstructured, or poorly defined.

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Responses to Decision Situations
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Strategy Selection

• The Strategic Decision-Making Matrix
• A two-dimensional grid used to select the best
  strategic alternative in light of multiple
  organizational objectives.

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Evaluation of Portfolios

• Business Portfolio Matrix
• A two-dimensional grid that compares the
  strategic positions of each of the organizations
  businesses.
• Most frequently used matrices
• Growth-share matrix.
• Industry attractiveness/business strength matrix.

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Boston Consulting Group (BCG) Matrix

• Business portfolio matrix that uses market growth
  rate and relative market share as the indicators
  of the firms strategic position.
• Market growth rate
• A measure of the annual growth percentage of the
  market in which the business operates.
• Relative market share
• The firms market share divided by the market
  share of its largest competitor.

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BCG Matrix
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BCG Matrix Stars and Cash Cows

• Stars Businesses that fall into the high market
  growth/high market share cell of the BCG matrix.
• Offer attractive profit and growth opportunities.
• Cash Cows Businesses that fall into the low
  market growth/high market share cell of a BCG
  matrix.
• Generate substantial cash surpluses.
• Generally yesterdays stars that have matured.

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BCG Matrix Dogs and Question Marks

• Dogs Businesses that fall into the low market
  growth/low market share cell of a BCG matrix.
• Typically generate low profits, and in some cases
  may even lose money.
• Question Marks Businesses that fall into the
  high market growth/low market share cell of a BCG
  matrix.
• Businesses that look attractive from an industry
  standpoint, however, their low market share makes
  their profit potential uncertain.

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GE Matrix

• Business portfolio matrix that uses several
  factors to assess industry attractiveness and
  business strength.

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Operational Decision Making

• Operational decision making relates to decision
  situations that cover much shorter time spans.
• These decisions are typically made at lower
  levels within the organization, but that need not
  always be the case.

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Applying Structure To The Decision-Making
Process slide 1 of 2

• Alternative Courses of Action
• Strategies that might be implemented in a
  decision-making situation.
• States of Nature
• Conditions over which the decision maker has
  little or no control.
• Payoffs
• The outcomes of decision situations.

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Applying Structure To The Decision-Making
Process slide 2 of 2

• Payoff Table
• A matrix that organizes the alternative courses
  of action, states of nature, and payoffs for a
  decision situation.

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Techniques that Enhance Quality in Decision
Making

• The manner in which the information in the payoff
  table is analyzed is a function of the
  decision-making environment.
• Types of decision-making
• Decision-making under certainty
• Decision-making under risk
• Decision-making under uncertainty

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Decision Making Under Certainty

• Decision making under certainty
• In decision making under certainty, the decision
  maker knows with certainty what conditions will
  subsequently occur and affect the decision
  outcomes.

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Decision Making Under Risk

• Decision making under risk
• In decision making under risk, the probabilities
  are used to obtain expected values of outcomes
  for each decision alternative.
• Expected Value The product of a payoff and its
  probability of occurrence.
• Expected Monetary Value (EMV) The sum of each
  expected value for an alternative.
• Decision Tree A branching diagram that
  illustrates the alternatives and states of nature
  for a decision situation.

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Decision-Making Under Uncertainty

• In some cases a decision maker cannot assess the
  probability of occurrence for the various states
  of nature.
• When no probabilities are available, the
  situation is referred to as decision making under
  uncertainty.

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Quantitative Decision-Making Aids

• Breakeven Analysis
• Linear Programming
• PERT (Program Evaluation and Review Technique)

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Breakeven Analysis

• A graphic display of the relationship between
  volume of output and revenue and costs.

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Linear Programming

• A quantitative analysis that helps managers
  decide how to allocate limited resources among
  competing users in a manner that optimizes some
  objective.
• Computer programs are available to perform linear
  programming analysis.

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PERT (Program Evaluation and Review Technique)

• A network approach for scheduling project
  activities.
• In the PERT approach, four preliminary steps must
  be performed before the project analysis can
  begin
• Activity identification, precedence
  identification, activity time estimation, and
  network construction.

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Implications for Leaders Decision Making Tools
slide 1 2

• Be able to recognize quickly problems and
  opportunities that call for a decision.
• Be able to recognize the different timeframes and
  scopes of strategic decisions versus operational
  decisions.
• Be equipped with all the tools and techniques
  that can aid in making strategic decisions.

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Implications for Leaders Decision Making Tools
slide 2 of 2

• Be familiar with the framework for operational
  decision making as well as the structural
  components for displaying operational decisions.
• Be able to recognize the different
  decision-making environments in which
  operational decisions will be made.
• Have an awareness and understanding of the
  various quantitative tools that can aid in making
  the operational decisions.