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Chapter 9

Chapter 9. Managerial Decision Making. Types of Decisions and Problems. Decision making is the process of identifying opportunities. Decision is a choice made from available alternatives. Programmed and Nonprogrammed Decisions. Programmed Decisions Recurring problems Apply rule

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Chapter 9

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  1. Chapter 9 Managerial Decision Making

  2. Types of Decisions and Problems Decision making is the process of identifying opportunities Decision is a choice made from available alternatives

  3. Programmed and Nonprogrammed Decisions • Programmed Decisions • Recurring problems • Apply rule • Nonprogrammed Decisions • Unique situations • Poorly defined • Unstructured • Important consequences

  4. Facing Certainty and Uncertainty • Difference between programmed and unprogrammed decisions • Certainty – Situation in which all information is fully available • Risk – Future outcomes associated with an alternative are subject to chance • Uncertainty - Depends on the amount and value of information available

  5. 9.1 Conditions that Affect the Possibility of Decision Failure

  6. Ambiguity and Conflict • Ambiguity - Making decisions in difficult situations • The goals and the problem are unclear • Wicked decisions involve conflict over goals and have changing circumstances, fuzzy information, and unclear links • There is often no “right” answer

  7. The Ideal, Rational Model • Rational economic assumptions drive decisions • Operates to accomplish established goals, problem is defined • Decision maker strives for information and certainty, alternatives evaluated • Criteria for evaluating alternatives is known; select alternative with maximum benefit • Decision maker is rationale and uses logic • Normative─ how a decision maker should make a decision

  8. How Managers Actually Make Decisions • Administrative/descriptive approach • How managers really make decisions • Recognize human and environmental limitations • Bounded rationality – People have limits or boundaries on how rational they can be • Satisficing – Decision makers choose the first solution that satisfies minimal decision criteria

  9. Steps in the Administrative Model • Goals are often vague • Rational procedures are not always used • Managers’ searches for alternatives are limited • Most managers settle for satisficing • Intuition – Quick apprehension of situation based on practice and experience

  10. Decision-Making Model: Political • Decisions involve managers with diverse interests • Managers must engage in coalition building • Informal alliance to support specific goal • Without a coalition, powerful groups can derail the decision-making process • Political model resembles the real environment

  11. Decision-Making Model: Political • Assumptions of the political model • Organizations are made up of groups with diverse interests, goals, and values • Information is ambiguous and incomplete • Lack of time, resources, or mental capacity to process all information regarding a problem • Decisions are the result of bargaining and discussion among coalition members

  12. 9.2 Characteristics of Classical, Administrative, and Political Decision-Making Models

  13. Decision-Making Steps • Recognition of Decision Requirement – Identify problem or opportunity • Diagnosis and Analysis – Analyze underlying causal factors • Develop Alternatives – Define feasible alternatives • Selection of Desired Alternative – Alternative with most desirable outcome • Implementation of Chosen Alternative – Use of managerial, administrative, and persuasive abilities to execute chosen alternative • Evaluation and Feedback – Gather information about effectiveness

  14. 9.3 Six Steps in the Managerial Decision-Making Process

  15. 9.4 Decision Alternatives with Different Levels of Risk

  16. 9.5 Personal Decision Framework

  17. Personal Decision Framework • Directive style – People who prefer simple, clear-cut solutions to problems • Analytic style – Managers prefer complex solutions based on a lot of data • Conceptual style – Managers like a broad amount of information • Behavioral style – Managers with a deep concern for others

  18. Why Do Managers Make Bad Decisions? • Being influenced by initial impressions • Justifying past decisions • Seeing what you want to see • Perpetuating the status quo • Being influenced by problem framing • Overconfidence

  19. Innovative Decision Making • Mechanisms to help reduce bias-related decision errors: • Start with brainstorming • Use hard evidence • Engage in rigorous debate • Avoid groupthink • Know when to bail • Do a postmortem

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