Managerial Decision Making: Process, Types of Problems, and Decision-making Models

1. Lecture # 10 & 11 Chapter 5 – Managerial Decision Making

2. Steps in Decision-making Process Decision-making: the process by which managers identify organizational problems and try resolving them. • Identify the problem • Generate alternative solutions • Evaluate and choose among alternative solutions • Implement and monitor the chosen solution

3. Types of Problems • Crisis problem: a serious problem requiring immediate action. • Non-crisis problem: an issue requiring resolution but without taking immediate action. • Opportunity problem: a situation offering strong potential for significant organizational gain if appropriate actions are taken.

4. Decision-making Situations • Programmed decisions: decisions made in routine, well-structured situations by use of pre-determined decision rules. • Non-programmed decisions: decisions for which pre-determined decision rules are impractical. Uncertainty and risk is involved in this.

5. Managers as Decision Makers • Rational model: in this model managers make rational decisions, they possess and understand all information relevant to their decisions at that time. • Non-rational model: model suggesting information gathering and processing limitations making it difficult for managers to make optimal decisions.

6. 3 Models of Decision-making under Non-rational framework • Satisficing model: model stating managers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision. • Incremental model: model stating managers make the smallest response possible to reduce the problem to at least a tolerable level. • Rubbish-bin model: model stating managers behave in virtually a random way in making non-programmed decisions.

7. Decision-making Models • Descriptive decision-making model: this model shows how managers actually make decisions. • Normative decision-making model: this model prescribes how managers should make decisions.

8. Steps in an Effective Decision-making process • Identify the problem • Scanning stage • Categorization stage • Diagnosis stage 2. Generate alternative solutions • Restrict criticism • Brainstorming • Combine and improve on ideas

9. 3. Evaluate and choose among alternatives • Evaluate feasibility • Quality • Acceptability • Costs • Reversibility • Ethics 4. Implement the chosen solution and then monitor it

10. Overcoming Barriers to Effective Decision-making • Accepting the problem challenge • Complacency: condition in which individuals do not see signs of danger or opportunity or they see and they ignore them. • Defensive avoidance: condition in which individuals deny the importance of a danger or an opportunity or deny any responsibility for taking action.

11. Panic: conditions in which individuals become so upset that they frantically seek a way to solve the problem. • Deciding to decide: response in which decision makers accept the challenge of deciding what to do about a problem and follow an effective decision making process.

12. Searching for sufficient alternatives • Recognizing common decision-making biases • Avoiding the decision-escalation phenomenon

13. Stages of Creativity • Preparation: gathering initial information, defining the task requiring creativity, generating alternatives, carefully analyzing data. • Incubation: involves subconscious mental activity and divergent thinking to explore unusual alternatives. • Illumination: new insight is achieved. • Verification: testing of ideas