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
Low
Possibility of Failure
Certainty
Risk
Uncertainty
Programmed
Decisions
High
Ambiguity
Nonprogrammed
Decisions
Problem
Solution
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Selecting a
Decision Making Model
• Depends on the manager’s personal preference.
• Whether the decision is programmed or nonprogrammed.
• 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.
Vague problem and goals.
Pluralistic; conflicting goals.
Condition of certainty.
Condition of uncertainty.
Condition of uncertainty/ambiguity.
Full information about
alternatives and their outcomes.
Limited information about
alternatives and their outcomes.
Inconsistent viewpoints; ambiguous
information.
Rational choice by individual
for maximizing outcomes.
Satisfying choice for resolving
problem using intuition.
Bargaining and discussion among
coalition members.
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Six Steps in the Managerial
Decision 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
Situation:
· Programmed/non-programmed
· Classical, administrative,
political
· Decision steps
Personal Decision Style:
·Directive
·Analytical
·Conceptual
·Behavioral
Decision Choice:
·Best Solution to Problem
 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 Style:often 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 Making
Diagnostic 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, Don’t 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 of
High-Quality Information
Time
Timeliness
Currency
Frequency
Time Period
Form
Clarity
Detail
Order
Presentation
Media
Content
Accuracy
Relevance
Completeness
Conciseness
Scope
Performance
Source: Adapted from James A. O’Brien,
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 of
Management Information Systems
Operations
Information
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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Corporate
and
External
Databases
Decision
Support
Systems
Management
Information
Systems
Executive
Information
Systems
Reporting
Systems
Group
Decision
Support
System
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Strategies for Integrating
Bricks and Clicks
In-House
Division
Partnership
Spin-Off
Company
Integration
Separation
•Brand recognition
•Focus
•Purchasing leverage
•Flexibility
•Shared information
•Responsiveness
•Distribution efficiencies
•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.
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