FOUNDATIONS OF
DECISION MAKING
BSM 12
Planning involves decision-making
Analyzing alternatives and choosing the best
one
Examples of planning function
decisions:
 What are the organization’s long and short-
term objectives?
 What strategies will best achieve these
objectives?
 What is the most efficient means of
completing tasks?
 What budgets are needed to complete tasks?
The Decision-Making Process
STEPS
1.
2.
3.
Identify the problem—
compare existing
state with desired
state
Choose criteria or
factors that are
relevant in the
decision
Prioritize criteria
EXAMPLE
1.
Car doesn’t work or
needs to be replaced
2.
Manufacturer, price,
model, options, repair
records, fuel efficiency,
etc.
3.
Price, fuel, options
The Decision-Making Process
4.
List alternatives that
could resolve the
problem
Analyze the
alternatives—
strengths and
weaknesses—against
the criteria
6. Choose the best
alternative
5.
Identify vehicle
choices: Toyota
Camry, Honda Accord,
Chev Malibu
5. Compare vehicles
against criteria—test
drive, read reports
4.
6.
Toyota Camry
The Decision-Making Process
Implement the
decision—put into
action; communicate
with those affected
and get their
commitment
8. Evaluate the
effectiveness of the
decision to see if the
problem has been
corrected
7.
7.
Purchase the selected
vehicle
8.
Drive vehicle and
determine whether it
satisfies needs
TYPES OF PROBLEMS
 problems may be straightforward, familiar and easily
defined or well-structured

example: a supplier is late with an important delivery
OR
 ill-structured—new or unusual problems where
information is incomplete or ambiguous

example: a decision to purchase a new technology
TYPES OF DECISIONS
1.
programmed decisions: a repetitive
decision handled by a routine approach and
based on previous solutions
Example: If a mechanic breaks something
during repair service the part is replaced at
the company’s expense
continue
How do managers make programmed
decisions?
They use guidelines:
a. procedures – a series of steps a
manager can use when responding to
a well-structured problem. Decisionmaking is carrying out simple series of
sequential steps.
example
How do managers make
programmed decisions?
Guidelines
•
rule – an explicit (clear) statement that tells a
manager what he should or should not do.
Example: the $7500 cut-off rule simplifies the
manager’s decision about getting bids.
•
policy – a general guide to channel a
manager’s thinking in a specific direction.
Ethical standards come into play when
following a policy.
Example: “we promote from within”
Example
A request to purchase software for computers has
been received.
Procedure:




fill in requisition and approval
cost is estimated
if total is over $7500, 3 bids must be obtained
if total is less than $7500, a vendor is chosen
and the order placed
TYPES OF DECISIONS
2.
non-programmed decisions: decisions that
must be custom-made to solve unique and
non-recurring problems; there is no cut-anddried solution.
Example: creating a new organizational
strategy involves a different set of
environmental factors and other conditions
may have changed
How do you integrate problems, types of
decisions, and level in the organization?
 Well-structured problems are responded to with
programmed decision making
 Ill-structured problems require non-programmed
decision making
 Lower level managers usually face familiar and
repetitive problems and rely on procedures
 Higher level managers usually deal with unique
decisions
 Top management creates the policies,
procedures and rules to guide other managers in
their decision making
How do you integrate problems, types of decisions,
and level in the organization?
TOP
ILL
STRUCTURED
NONPROGRAMMED DECISIONS
LEVEL
TYPE OF
IN
PROBLEM
ORGANIZATION
PROGRAMMED DECISIONS
WELL
STRUCTURED
LOWER
DECISION-MAKING STYLES
Individuals differ in:
1.
the way they think
a.
b.
logical, rational, sequential
or
creative, intuitive, “big picture”
AND
2.
tolerance of ambiguity (uncertainty)
a.
b.
high need for consistency—no ambiguity
or
high levels of ambiguity—can process many
thoughts at once
DECISION-MAKING STYLES
There are four decision-making styles, although
managers will possess characteristics of more
than one.
1. directive
2. analytic
3. conceptual
4. behavioural
STYLE
THINKING
AMBIGUITY
CHARACTERISTICS
1. DIRECTIVE
RATIONAL
LOW
logical, efficient, fast decisions,
focused on short term
2. ANALYTIC
RATIONAL
HIGH
prefers to have complete
information, considers many
alternatives
3. CONCEPTUAL
CREATIVE
HIGH
very broad in outlook, looks at many
alternatives, focuses on long run and
creative solutions
4. BEHAVIOURAL
CREATIVE
LOW
works well with others, open to
suggestions, concerned about those
who work with them
Tolerance for Ambiguity
HIGH
LOW
ANALYTIC
CONCEPTUAL
DIRECTIVE
BEHAVIOURAL
RATIONAL
INTUITIVE
WAY OF THINKING
GROUP DECISION-MAKING
 Individual and group decisions have their own
set of strengths.
 Neither is ideal for all situations.
Advantages of Group
Decision-Making
 provide more complete information than
individual ones — “two heads are better than
one”
 a group brings diversity of experience and
perspectives to the process and will come up
with more alternatives
 increases the likelihood that the solution will be
accepted by all those concerned
 makes decisions more legitimate and
democratic
Disadvantages of
Group Decision-making
 more time-consuming to organize and reach
a solution
 a few members may have an undue influence
on final decision
 pressures to conform may result in
groupthink—the withholding by group
members of different views in order to appear
to be in agreement
When are groups most effective?
This depends on criteria:
 on average groups make better, more accurate
decisions than individuals
 groups are more creative but slower
 higher degree of acceptance of solutions
 size influences effectiveness:




larger is more heterogeneous
larger means more coordination and time and therefore
may be less efficient
minimum of five to maximum of 15 is best
having odd numbers prevents deadlocks