Managerial Decision Making

and Problem Solving

Chapter 8
The Nature of Decision Making
 Decision making can refer to either a specific
act or a general process.
 Decision making is the act of choosing one
alternative from among a set of alternatives
 Decision making is a process that involves
recognizing and defining the nature of a
decision situation, identifying alternatives,
choosing the “best” alternative, and putting
it into practice.
 The mangers make decisions about both
problems and opportunities.

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Types of Decisions
 Programmed decision: A decision that is fairly
structured or recurs with some frequency (or
both), e.g. starting your car in the morning.

 Non programmed decisions: A decision that is

relatively unstructured; occurs much less often
than a programmed decision, e.g. choosing a
vacation destination.

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Decision Making Conditions
 State of certainty: A condition in which the decision
maker knows with reasonable certainty what the
alternatives are and what conditions are associated
with each alternative.
 State of risk: A condition in which the availability of
each alternative and its potential payoffs and costs
are all associated with probability estimates.
 State of uncertainty: A condition in which the
decision maker does not know all the alternatives,
the risks associated with each, or the consequences
of each alternative.

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 Distinguishing Between
Decision Making Conditions

November
Source: Barney, Jay14, 2009
B. and S. ofM.
Ricky W. Griffin. The Management TowhidurCopyright
Organizations. Rahman 5
© 1992 by Houghton Mifflin Company. Used with permissions.
Decision-making conditions and
its impact on decision making.
 Figure 8.1
The decision
maker faces
conditions
of...

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

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Rational Perspectives on Decision
Making
 Classical decision model: A prescriptive approach
to decision making.
 Assumption:
 Managers are logical and rational
 Managers have complete information
 Decisions are made in the best interest of the
organization.

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Continued…
 The Classical Model of Decision
Making

• obtain complete
. . . and end up with
When faced with a and perfect information
a decision that best
decision situation, • eliminate uncertainty
serves the interests
managersshould. . . • evaluate everything
of the organization.
rationally and logically

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 Steps in the Rational Decision-
Making Process Evaluating
alternatives.ppt
Step Detail
1. Recognizing and Some stimulus indicates
defining the dec ision that a decision must be
situation made. The stim ulus may be
positive or negative.
2. Identifying altern a- Both obvious and creative
tives altern atives are desired. In
general, the more impo rtant
the decision, the more
altern atives should be
considered.
3. Evaluating al tern a- Each alternative is eval u-
tives ated to determine its
feas ibility, its
satisfactoriness, and its
cons equences.
November 14, 2009 S. M. Towhidur Rahman
Example
A plant manager sees that
employee turnover has
increased by 5 percent.
The plant manager can
increase wages, increase
ben efits, or change hiring
standards.
Increasing benefits may not
be feas ible. Increasing
wages and changing hiring
standards may satisfy all
conditions.
9
 Continued…
Step Detail
4. Selecting the best Consider all situational
alternative factors, and choose the
alternative that best fits the
manager’s situation.
5. Implementing the The chosen alternative is
chosen implemented into the
alternative organizational system.
6. Following up and At some time in the future,
evaluating the the manager should ascertain
results the extent to which the
alternative chosen in step 4
and implemented in step 5
has worked.
November 14, 2009 S. M. Towhidur Rahman
Example
Changing hiring standards will
take an extended period of time
to cut turnover, so increase
wages.
The plant manager may need
permission from corporate
headquarters. The human
resource department establishes
a new wage structure.
The plant manager notes that, six
months later, turnover has
dropped to its prev ious level.
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Behavioral Aspects of Decision
Making
 The Administrative Model (Herbert A Simon)

• use incomplete and

. . . and end up with a
When faced with a imperfect information
decision that may or may
decision situation • are constrained by
not serve the interests
managers actually… bounded rationality
of the organization.
• tend to satisfice

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Other Behavioral Forces
Influencing Decision
 Organizational politics and coalition
 Intuition
 Escalation of commitment
 Risk propensity
 Ethical standards

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Group Decision Making in
Organization
 Forms of group decision making
 Interacting group
 Delphi group
 Nominal group

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Continued…
 Advantages  Disadvantages
1. Availability of more 1. Time consuming and
information and costly
knowledge 2. Compromise decisions
2. More alternatives are resulting from
likely to be generated indecisiveness may
3. More acceptance of emerge
the final decision 3. One person may
4. Enhanced dominate the group
communication of the 4. Group think may
decision occur.
5. Better decisions
generally emerge.

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