Managers face problems and opportunities constantly.

Some situations that require a decision are

relatively simple; others seem overwhelming. Some demand immediate action, while others take
months or even years to unfold. That is why, it is important to understand why decision making can be
so challenging. So this figure illustrates several characteristics of managerial decisions that contribute to
their difficulty and pressure. Most managerial decisions lack structure and entail risk, uncertainty and
conflict. Let’s deal with lack of Structure first.

Lack of Structure is the usual state of affairs in managerial decision making. Problems are novel and
unstructured, leaving the decision maker uncertain about how to proceed. So, an important distinction
of illustrating this point is between programmed and nonprogrammed decision.

Read Definition of Programmed Decision. This is frequently occurring, routine choices that are made by
following specific policies, rules and procedures.

Example: In deciding who to promote in a certain government agency. We are following set of
qualification standards and based on the said qualifications, the best candidate for promotion is chosen.

Read Definition of Nonprogrammed Decision. These are critical decisions without identifiable rules or
procedures to rely.

Example: Anticipating the impact of new technology like artificial intelligence on the business and
preparing for it; Reorganization of state government agencies

The second characteristic of managerial decision is Uncertainty. Let’s differentiate certainty with
uncertainty first. Read definition of Certainty and Uncertainty:

Certainty – meaning you are sure

Uncertainty - has insufficient information to know the consequences of different actions. For example,
a new local competitor can have unpredictable effects on your own sales. You cannot measure
uncertainty; you can only deal with it.

(Another Example is when online clothing introduces a new, unrelated product without research, such
as a new furniture line.)

The third characteristic is Risk. Read definition of Risk:

Risk – differs from Uncertainty since risks can be measured, and therefore, controlled. Example of this is
the “Build, Build, Build” Program of the current administration.

The fourth characteristic is Conflict. Read definition of Conflict Few decisions are without conflict.

Conflict occurs in two levels:

1. Psychological Conflict (Read definition) For example: a manager has three promising job
applicants for one position, but choosing one means she has to reject the other two.
 2. Conflict Between People. For example, in a certain company, the marketing department wants
more product lines to sell, and the engineers want higher quality products. But the production
people want to lower cost by having longer production runs of fewer products with no changes.

Faced with these challenges, how can we make good decision? This figure illustrates the six stages in
ideal decision making process.

The first stage is identifying and diagnosing the problem. So problems are recognize when a manager
realizes some discrepancy between the current state or the way things are and a desired state or the
way things ought to be. Answering questions like what is the difference between what is actually
happening and what should be happening; what specific goals should be met; what are the causes of the
deviation.

The second stage of decision making process is generating alternative solutions. After the problem is
diagnosed, we have to develop alternative courses of action aimed at solving it. Managers generate
some alternative solutions based on past experiences. Solutions range from ready –made solutions to
custom-made.

Read the definition of ready-made and custom-made solution.

The third stage of decision making process is evaluating alternatives. So in this stage, we have to
determine the value or adequacy of the alternatives that were generated. In other words, which
solution will be the best?

But result cannot be forecast with perfect accuracy. Sometimes decision makers can build safeguard
against uncertain future by considering the potential consequences of several different scenarios, and
that’s when they generate contingency plan. (Read contingency plan definition).

The fourth stage of decision making process is making the choice. Once you have considered the
possible consequences of your options, it’s time to make your decision. As you make your decision
important concepts include maximizing, satisficing and optimizing.

Maximizing (read definition) - results in the greatest benefit at the lowest cost, with the largest
expected total return. In maximizing, you search thoroughly for a complete range of alternatives, then
carefully assessing each alternative, comparing one to another, and then choosing or creating the very

Satisficing (read definition) – When you satisfice, you compare your choice against your goal, and not
against other options. It means that a search for alternatives stops after you find one that is okay.

Optimizing (read definition) – this one that achieves the best balance among multiple goals.

For example, you are going to buy certain equipment, and you goal is to avoid spending too much
money. You would be maximizing if you checked out all your options and their prices and then bought
the cheapest one that met your performance requirements. But you would be satisficing if you would
bought the first adequate option that was within your budget and failed to look for less expensive
options. In optimizing, instead of buying the cheapest piece of equipment, you buy the one with the
best combination of attributes.