Managerial Decision Making
Chapter 7
Copyright Atomic Dog Publishing, 2003
Management Decision Making

Management decision making is a complex mix of
knowledge, experience, creative thinking, and risk
taking. It is often a rapid-fire, fragmented process

More and more companies are pushing critical
decision making down to the level of the organization
most affected by the decision

A decision can be defined as a conscious choice
among alternatives followed by action to implement
the decision

Decision-making process is a series of steps that is
followed, either consciously or unconsciously, to make
a choice and undertake action
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Copyright Atomic Dog Publishing, 2003
Management Decision Making (cont.)

Managers must learn how to deal with a decisionmaking environment that emphasizes communicating,
working with others, and working with incomplete
information

Decisions are often based on impressions, estimates,
and personal experience

Management researchers have developed a set of
useful concepts to understand the phenomenon

Individual decision making differs from group decision
making
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Copyright Atomic Dog Publishing, 2003
Types of Managerial Decisions
Copyright Atomic Dog Publishing, 2003
Types of Managerial Decisions

Programmed and Non-Programmed
Decisions

Proactive and Reactive Decisions

Intuitive and Systematic Decisions
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Copyright Atomic Dog Publishing, 2003
Programmed and Non-Programmed
Decisions

Programmed Decisions
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One that would be made if a particular situation
occurs and a routine procedure or policy has been
established to handle it
Repetitive and routine
A large number in daily operations
Although they should be made with care and
concern about effectiveness, they should be made
efficiently without needlessly tying up
organizational resources
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Copyright Atomic Dog Publishing, 2003
Programmed and Non-Programmed
Decisions (cont.)

Non-Programmed Decisions
 No pre-existing structure or decisionmaking procedure in place
 Have significant implications for the future
of the organization and must be made only
after careful analysis
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Proactive and Reactive Decisions

Proactive Decision
 Made in anticipation of an external change
or other conditions
 Can prevent many common problems

Reactive Decision
 Made in response to changes that have
already occurred
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Copyright Atomic Dog Publishing, 2003
Intuitive and Systematic Decisions

Intuitive Decision Making




Use of estimates, guesses, or hunches to decide
among alternative courses of action
“Voice of experience” that speaks to managers
when faced with a decision situation
Don’t rely on intuition alone; supplement intuition
with systematic information gathering and analysis
Systematic Decision Making


Organized, exacting, data-driven process
Requires a clear set of objectives, a relevant
information base, and a sharing of ideas among
key managers and other employees
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Copyright Atomic Dog Publishing, 2003
The Decision-Making Process
Copyright Atomic Dog Publishing, 2003
The Decision-Making Process

Clarify the problem or opportunity

Develop alternative courses of action

Evaluate and select a course of action

Implement the decision

Monitor its effectiveness
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Copyright Atomic Dog Publishing, 2003
Step 1: Clarify the Problem or
Opportunity

Problems are defined as the realization that a
discrepancy exists between a desired state and
current reality

Several common biases or mistakes managers make
when identifying and clarifying a problem:

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Perceptual inaccuracies
Defining problems in terms of solutions
Identifying symptoms as problems

Consider an issue from a variety of perspectives

Consult various perspectives before making decisions
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Step 2: Develop Alternative Courses
of Action

Examine the organization’s internal and external
environments for information and ideas that may lead
to creative solutions to a problem

A popular approach to this is known as benchmarking
(identify and study firms who are leaders in a given
area of business)

Managers should encourage creativity and innovation
among employees

Encourage a diversity of approaches to problem
solving can lead to better solutions and courses of
action
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Copyright Atomic Dog Publishing, 2003
Step 3: Evaluate Alternatives and
Select a Course of Action

Select the alternatives that will produce the most
favorable outcomes and the least unfavorable
outcomes

Two cautions should be kept in mind

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Keep this step distinct from the previous step—especially in a
group context
Be wary of solutions that are evaluated as being “perfect”
Rather than being an optimizer, the decision maker is
said to be a “satisficer” —a person who accepts a
reasonable alternative course of action that isn’t
necessarily the optimum course of action
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Copyright Atomic Dog Publishing, 2003
Step 4: Implement the Selected
Alternative Course of Action

A decision is an abstraction if it isn’t implemented

Actions must be implemented effectively if it is to
achieve an objective

Implementing decisions involves delegating
responsibilities to people

Here are six steps to effective delegation:
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Define the task clearly
Give guidelines to begin to follow
Give authority to accomplish the task
Monitor the tasks, but don’t hover
Give feedback along the way
Reward and recognize effort as well as results
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Step 5: Control and Assess the
Consequences of the Action

Periodic assessment of the results of the
chosen course of action

If actual results aren’t meeting planned
results, changes must be made

Two types of feedback that managers use to
gather the necessary information:


Formative
Summative
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Influences on Individual Decision
Making
Copyright Atomic Dog Publishing, 2003
Influences on Individual Decision
Making

Importance of the decision

Time pressures

Manager’s values

Manager’s propensity for risk
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Copyright Atomic Dog Publishing, 2003
The Importance of the Decision

Numerous yardsticks for measuring the
importance of a decision exist, including the
amount of resources involved, the number of
people influenced by the decision, and the
time required to make the decision

Managers must allot more time and attention
to significant problems
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Copyright Atomic Dog Publishing, 2003
Time Pressures

Managers must make the most of their
decisions in others’ time frames

When time pressures are significant,
managers may be unable to gather enough
information

Time management is a priority

Managers who effectively manage their time
feel less stress and tend to make better
decisions than their stress-filled counterparts
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Copyright Atomic Dog Publishing, 2003
The Manager’s Values

An individual’s values become guidelines when s/he
confronts a choice

Values are one of the most important influences on
human behavior

Values are the likes, dislikes, shoulds, oughts,
judgments, and prejudices that determine how the
world is viewed

Value-based decision making is methodical and
ensures that organizational values enter into all major
decisions

Although people don’t think consciously about their
values and rarely arrange them in any kind of order,
managers should be very aware of their values

Serious conflicts can occur among values
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Copyright Atomic Dog Publishing, 2003
The Manager’s Propensity for Risk

People vary greatly in their propensity to take
risks

The issue for managers is not whether to take
risks, but how to take reasonable risks
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Copyright Atomic Dog Publishing, 2003
Group Decision Making
Copyright Atomic Dog Publishing, 2003
Group Decision Making

A great deal of decision making is achieved
through committees, teams, task forces,
“virtual teams,” etc.

Decisions made on non-programmed
problems being made by one individual on a
regular basis are unusual

Use of the collective approach to a decisionmaking process is increasing

Many managers spend as much as 80% of
their working time in committee meetings
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Copyright Atomic Dog Publishing, 2003
Individual vs. Group Decision Making

Groups usually take more time to reach a
decision

Consensus decisions with five or more
participants are superior to individual decision
making, majority vote, and leader decisions

Problems with group decision making:
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Pressure to conform
Influence of a dominant personality
Status incongruity
Attempt of certain participants to influence others
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Copyright Atomic Dog Publishing, 2003
Individual vs. Group Decision Making
(cont.)

Non-programmed decisions appear to be
better suited to group decision making

As we move from “individual” to “consensus,”
the quality of the decision improves

For a complex problem requiring pooled
knowledge, the quality of the decision is likely
to be higher as the group moves toward
achieving consensus
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Copyright Atomic Dog Publishing, 2003
Creativity in Group Decision Making

If groups are better suited to non-programmed
decisions than individuals, then it is important
that an atmosphere fostering group creativity
be created
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Copyright Atomic Dog Publishing, 2003
Techniques for Stimulating Creativity

Brainstorming

The Delphi Technique

The Nominal Group Technique
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Copyright Atomic Dog Publishing, 2003
Brainstorming

Brainstorming promotes the generation of
ideas while at the same time avoiding the
inhibitions many people feel in group settings

The basic rules are:


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No idea is too ridiculous
Each idea presented belongs to the group, not to
the person stating it
No idea can be criticized
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Copyright Atomic Dog Publishing, 2003
The Delphi Technique

The Delphi technique comprises the
solicitation and comparison of anonymous
judgments on the topic of interest through a
set of sequential questionnaires that are
interspersed with summarized information and
feedback of opinions from earlier responses
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Copyright Atomic Dog Publishing, 2003
The Delphi Technique (cont.)

The advantage is having several judges while
removing the biasing effects that might occur
during face-to-face interaction

Basic approach is to collect anonymous judgments
from group members by mail questionnaire

A process administrator then summarizes the
responses as the group consensus, and feeds this
summary back along with a second questionnaire
for reassessment

Respondents independently evaluate their earlier
responses

Underlying belief is that the consensus estimate
will result in a better decision after several rounds
of anonymous group judgment
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Copyright Atomic Dog Publishing, 2003
The Nominal Group Technique (NGT)

The NGT comprises processes that bring
people together but do not allow them to
communicate verbally. Thus, the collection of
people is a group “nominally,” or “in name
only”
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Copyright Atomic Dog Publishing, 2003
The Nominal Group Technique (NGT)
(cont.)

A structured group meeting proceeds as
follows:
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A group of individuals (7 to 10) sit around a table
but do not speak to one another
Each person writes ideas on a pad of paper
A recorder writes the ideas on a flip chart in full
view of the entire group
This continues until all of the participants indicate
that they have no further ideas to share
Each idea receives attention before a vote is taken
Each participant, in private, selects priorities by
ranking or voting
The group decision is the mathematically pooled
outcome of the individual votes
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Copyright Atomic Dog Publishing, 2003
Information Technology and
Decision Making
Copyright Atomic Dog Publishing, 2003
Information Technology and Decision
Making

In decision-making situations, managers can’t
possibly use “all available information”

The challenge for managers is to collect, process, and
warehouse the most relevant information to make
effective decisions in the present and future

Tools for warehousing and retrieving information for
use throughout their firms:
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Data warehousing
Data mining
Data marts
Search engines
Software agents
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Copyright Atomic Dog Publishing, 2003
Attributes of Useful Information

Accessible

Timely relevant

Accurate

Verifiable

Complete

Clear
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Copyright Atomic Dog Publishing, 2003
Information Sharing

Organizations that train people in the value of
information and how to use it and share it gain
competitive advantage over those who don’t
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Copyright Atomic Dog Publishing, 2003
Decision Support Systems (DDS)
Copyright Atomic Dog Publishing, 2003
Decision Support Systems (DDS)

DDS is an interactive information system that
enables managers to gain instant access to
information in a less structured format than a
traditional management information system or
database

Must obtain information about the firm,
competitors, and the business environment

May include links to the World Wide Web, and
have built-in artificial intelligence that adjusts
to group behaviors and needs

DDS is inherently user friendly
Copyright Atomic Dog Publishing, 2003
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Decision Support Systems (cont.)

Supports managerial skills at all levels of
decision making by providing instant response
to managers’ information needs

An executive information system (EIS) is a
user-friendly DDS designed specifically for
executives

Consolidate the analysis provided by a DDS,
interpret it considering the firm’s strategic
goals, and present the results of executives in
an easily understandable format
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Copyright Atomic Dog Publishing, 2003
Expert Systems and Artificial
Intelligence

Artificial intelligence allows computers to solve
problems involving imagination, abstract
reasoning, and common sense

Expert systems refers to computer systems
that can make decisions without human
interaction, by imitating human thinking and
offer advice or solutions to complex problems
in much the same way as a human expert
would
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Copyright Atomic Dog Publishing, 2003
End of Chapter 7
Copyright Atomic Dog Publishing, 2003