Managerial Decision Making

Characteristics of
Managerial Decisions

Risk
Uncertainty
Lack of structure
Conflict
 Lack of Structure
Programmed decisions are those that are
repeated over time and for which an existing set
of rules can be developed to guide the process.
Non-Programmed Decision - Problems or
situations that don’t have a concrete set of rules
or guidelines to follow rely on non-programmed
decision-making. These are complex and have a
long-term impact.
Uncertainty and Risk
CERTAINT
Y
A condition of certainty exists
when the decision-maker
knows with reasonable
certainty.
Uncertainty and Risk
RISK
Under a state of risk, the decision
maker has incomplete information
about available alternatives but has a
good idea of the probability of
outcomes for each alternative.
Uncertainty and Risk

UNCERTAINT
Y
Conditions of uncertainty exist
when the future environment is
unpredictable and everything is
in a state of flux.
Uncertainty and Risk
CONFLIC
T
Opposing pressures from different
sources, occurring on the level of
psychological conflict or of conflict
between individuals or groups.
 The Phases of Decision Making

IDENTIFY AND GENERATE EVALUATE

DIAGNOSE THE ALTERNATIVE ALTERNATIVES
PROBLEM SOLUTIONS

EVALUATE IMPLEMENT MAKE

THE THE THE
DECISION DECISION CHOICE
Identifying and Diagnosing the Problem

Why is it important to identify the

problem in decision-making?

It's important to understand the issue

before you start thinking about
potential solutions and decisions.
Generating Alternative Solutions
• Ready-made solutions.

Ideas that have been seen or tried

before.
• Custom-made solutions.

New, creative solutions designed

specifically for the problem.
 Evaluating Alternatives
Which solution will be the best?
What consequences will occur?
How will you measure success?
• Contingency plans.

Alternative courses of action that can

be implemented based on how the
future unfolds.
Making the Choice
Maximizing
A decision realizing the best possible
outcome.
Satisficing
Choosing an option that is acceptable,
although not necessarily the best or perfect.
Optimizing
Achieving the best possible balance among
several goals.
Implementing the Decision
• Determine how things will look
when the decision is fully
operational.
• Estimate the time needed for each
step.
• Assign responsibility for each step
to specific individuals.
 Evaluating the Decision
Positive feedback Negative feedback
• Suggests the • Implementation
decision is will require more
working. time, resources,
• Implies that the effort, or thought.
decision should be • Solution wasn’t
continued and good enough.
applied elsewhere.
 The Best Decision

Two types of decision-making processes:

1. Reflexive: done quickly and without

thought.
2. Reflective: slow and deliberate.
Vigilance
A process in which a decision maker carefully
executes all stages of decision making.
Barriers to Effective Decision Making

Psychological Biases
• Illusion of control

• Framing effects

• Discounting the future

Barriers to Effective Decision Making

Time Pressures
• The most conscientiously made
business decisions can become
irrelevant and even disastrous
if managers take too long to
make them.
 Barriers to Effective Decision Making

Social Realities

• Many decisions are the result of

intensive social interactions,
bargaining, and politicking.
 Pros and Cons of Using Groups to Make
Decisions
Advantages Disadvantages
• Diversity in • Consumption of
opinions
Time
• Participation and
interest of the
• Different ideas and
individuals opinions
• Positive and • Being silent in
understanding
disagreement
members
Decision Making in Groups

Groupthink

Occurs when people choose not to

disagree or raise objections
because they don’t want to break
up a positive team spirit.
 Decision Making in Groups

Goal displacement

A condition that occurs when a

decision-making group loses sight
of its original goal and a new, less
important goal emerges.
Managing Group Decision Making
 Leadership Style

Leader must:
• Attempt to minimize process-
related problems.
• Avoid dominating discussions or
allowing others to.
Constructive Conflict

Cognitive conflict
• Issue-based differences in
perspectives or judgments.
Affective conflict
• Emotional disagreement directed
toward other people.
 Constructive Conflict
Devil’s advocate
• A person who has the job of criticizing
ideas to ensure that their downsides
are fully explored.
Dialectic
• A structured debate comparing two
conflicting courses of action.
 Encouraging Creativity

How do you become more creative?

• Read widely and try new experiences.

• Exchange ideas and give feedback.

 Encouraging Creativity
How do you encourage creativity in
others?
• Give creative efforts credit.
• Don’t punish creative failures.
• Avoid extreme time pressure.
• Stimulate and challenge people
intellectually.
Creative Actions
 Brainstorming

A process in which group

members generate as many
ideas about a problem as they
can; criticism is withheld until
all ideas have been proposed.
Improving Brainstorming Effectiveness

• Choose participants based on

their expertise and knowledge
of the challenge
• Use well-thought-out questions
as a platform to spark new
ideas.
 Organizational Decision Processes

Bounded rationality

A less-than-perfect form of rationality in

which decision makers cannot be
perfectly rational because decisions are
complex and complete information is
unavailable or cannot be fully
processed.
 Organizational Decision Processes

Incremental model

Model of organizational decision

making in which major solutions
arise through a series of smaller
decisions.
Organizational Decision Processes

Coalition model

Model of decision making in which

groups with differing preferences
use power and negotiation to
influence decisions.
 Organizational Decision Processes

Garbage can model

Model of organizational decision

making depicting a chaotic
process and seemingly random
decisions
 Decision Making in a
Crisis

• What kinds of crisis could

your company face?
• Can your company detect a
crisis in its early stages?
 Decision Making in a
Crisis
• How will it manage a crisis if one
occurs?
• What team inside the company
would lead the response effort?
• What can it learn from a crisis to
improve its response next time?
Elements in an Effective Crisis Plan

Strategic actions such as integrating crisis management (CM)

into strategic
. planning and official policies.
Evaluation and diagnostic actions such as conducting audits
of threats, and establishing tracking systems for early warning
signals.
Technical and structural actions such as creating a CM team
and dedicating a budget to CM.
Elements in an Effective Crisis Plan

Communication
. actions such as providing training for dealing
with the media, local communities, and police and government
officials.
Psychological and cultural actions such as providing training
and psychological support services regarding the human and
emotional impacts of crises.
 IN REVIEW
1. Describe the kinds of decisions you will face as a manager.
2. Summarize the steps in making “rational” decisions.
3. Recognize the pitfalls you should avoid when making decisions.
4. Evaluate the pros and cons of using a group to make decisions.
5. Identify procedures to use in leading a decision-making group.
6. Explain how to encourage creative decisions.
7. Discuss the processes by which decisions are made in
organizations.
8. Describe how to make decisions in a crisis.
THANK YOU