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Chapter 6:
Decision Making
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Learning Objectives

• Explain why decision making is an important component of good

management.
• Explain the difference between programmed and nonprogrammed
decisions and the decision characteristics of risk, uncertainty, and
ambiguity.
• Describe the classical, administrative, and political models of
decision making and their applications.
• Identify the six steps used in managerial decision making.
• Explain four personal decision styles used by managers.
• Discuss the advantages and disadvantages of participative decision
making.
• Identify techniques for improving decision making in today’s
turbulent environment.
• Describe the importance of information technology (IT) for
organizations and the attributes of quality information.
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Decisions and Decision Making

Decision Making –
Decision - the process of
choice made Identifying problems
from available And opportunities and
alternatives Then resolving them.

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Categories of Decisions

• Programmed Decisions
– Rules developed from frequent
occurrences
– Response to recurring organizational
problems
• Nonprogrammed Decisions
– Unique, poorly defined and
unstructured
– Important consequences
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Certainty, Risk, Uncertainty,
Ambiguity
• Certainty
– all the information is fully available
• Risk
– decision has clear goals
– information is available
– future outcomes are subject to chance
• Uncertainty
– managers know which goals they wish to achieve
– information is incomplete
– may need to develop creative alternatives
• Ambiguity
– goals to be achieved or the problem to be solved
is unclear
– alternatives are difficult to define
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Conditions that Affect the Possibility of
Decision Failure

Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution Exhibit 6.1
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Three Decision-Making Models

 Classical Model

 Administrative Model

 Political Model

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Classical Model

Assumptions:
 Operates to accomplish goals that are
known and agreed upon
 Strives for condition of certainty – gathers
complete information
 Criteria for alternatives are known
 Decision maker is rational and uses logic

Normative - describes how a manager should and provides

guidelines for reaching an ideal decision
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Administrative Model

How managers make “difficult” decisions

Bounded rationality: people have limits or
boundaries on how rational they can be

Satisficing: means that decision makers

choose the first solution alternative that
satisfies minimal decision criteria

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Administrative Model (contd.)

 Decision goals often are vague, conflicting and

lack consensus among managers
 Rational procedures are not always used
 Managers’ searches for alternatives are limited
 Managers settle for a satisficing rather than a
maximizing solution

Descriptive is how managers actually make decisions--not how

they should.
Intuition is when managers lean on past experiences.
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Political Model

 Closely resembles the real environment

in which most managers and decision
makers operate
 Useful in making non-programmed
decisions
 Decisions are complex and involve
people and information
 Disagreement and conflict over
problems and solutions are normal
Coalition - informal alliance among manages who
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Characteristics of Classical, Political, and
Administrative Decision Making Models

Exhibit 6.2

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Six Steps in the Managerial Decision Making Process

Picture 12

06/19/09 Exhibit 9.3 13

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Diagnosis and
Analysis of Causes

Diagnosis - analyze underlying

causal factors

Managers make a mistake if they jump into

generating alternatives without first exploring
the cause of the problem more deeply

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Underlying Causes
Kepner /Tregoe

 What is the state of disequilibrium affecting us?

 When did it occur?
 Where did it occur?
 How did it occur?
 To whom did it occur?
 What is the urgency of the problem?
 What is the interconnectedness of events?
 What result came from which activity?
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Selection of
Desired Alternatives

• Evaluate Risk Propensity - willingness to

undertake risk with the opportunity of gaining an
increased payoff
• Implement Alternative - using managerial,
administrative, and persuasive abilities to
translate alternative into action
• Evaluation and Feedback – how well was the
decision implemented? Was it effective in
achieving the goal?

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Personal Decision Framework

Not all managers make decisions

the same.
⇒ Directive style
⇒ Analytical style
⇒ Conceptual style
⇒ Behavioral style

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Personal Decision Framework

Situation: Personal Decision Style: Decision Choice:

· Programmed/non-programmed · Directive
· Classical, administrative, · Analytical Best Solution to
political · Conceptual Problem
· Decision steps · Behavioral

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Directive Style

⇒ People who prefer simple, clear-

cut solutions to problems
⇒ Make decisions quickly
⇒ May consider only one or two
alternatives
⇒ Efficient and rational
⇒ Prefer rules or procedures
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Analytical Style

⇒ Complex solutions based on as

much data as they can gather
⇒ Carefully consider alternatives
⇒ Base decision on objective,
rational data
⇒ Search for best possible decision
based on information available

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Conceptual Style

⇒ More socially oriented

⇒ Consider others about the
problem and possible solutions
⇒ Consider many broad
alternatives and information
⇒ Rely on information from people
and systems
⇒ Solve problems creatively
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Behavioral Style

⇒ Deep concern for others

⇒ Talk to people one-on-one
⇒ Understand individual feelings about
the problem and possible effects
⇒ Concerned with the personal
development of others
⇒ Decisions to help others achieve their
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 Participation in 0

Decision Making

• Vroom-Jago Model - Helps gauge the

appropriate amount of participation for
subordinates in process

• Leader Participation Styles

• Five levels of subordinate participation in
decision making

Highly Autocratic to Highly Democratic

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Participation in
Decision Making
Vroom-Jagon Diagnostic Questions
 Decision Significance
 Importance of Commitment
 Leader Expertise
 Likelihood of Commitment
 Group Support of Goals
 Group Expertise
 Team Competence
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 Multiple Decision Styles

• The Vroom-Jago model is criticized

• The model is useful and has supporting
research
• Overall, today’s managers are increasing
participation in decision-making
• Broad participation contributes to
organizational learning

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New Decision Approaches
for Turbulent Times

Wh ys
New i v e
theF
Brainsto Decision r ac tice
rming P
Approaches
for Turbulent
Times
Kno
te w Whe
e ba n to
sD Bail
orou Le
R i g ar
in n
a ge ,D
g on
En ’
tP
un
is
h
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 Information Technology
Has Changed Everything

• Boundaries Dissolve,
Collaboration Reigns

Information • People Do Better Work

Technology
• Things are More Efficient
• Employers are Engaged

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 Information Overload

• Information is required for good decision making

• But a major problem in technology advances is
to much information
• Information Fatigue Syndrome
• Organizations must work to define information
quality
• Focus on key strategies and critical questions

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 Data versus Information

Data
raw facts

Information
Meaningful, useful

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 The Evolving World of IT

– Power has shifted to

individuals
• Blogs
– Social Networking
• MySpace
• Facebook
• Friendster
• TagWorld

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 Types of Information Systems

• Operations Information Systems

– Supports day-to-day operations
– Transaction-processing systems record and process
transactions
– Process control systems record and monitor changes
– Office automation include software like word
processing, spreadsheets, databases….
• Management Information Systems
– Information and support for decision making

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 Management Information
Systems

06/19/09 Exhibit 6.9 32

 Internet and E-Business

World Wide Web

Internet
user friendly
global collection
interface for
of computer
communicating on
networks linked
the internet
together
E-business
E-Business any digital
electronic processes
business exchanges
or transactions
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 Key Components of E-Business

Intranet – an internal
communications
Extranet– an external
systems that uses
communications system
the technology
shared by organizations
of the Internet.
hat uses Internet
technology
Electronic data interchange –
networks link computers
of buyers and sellers for
ordering, distribution, payables
and receivables.
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 E-Business Strategies

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 E-Marketplaces

• More companies are positioning their website for

the international market
• The biggest growth in e-commerce has been B2B

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 Managing Knowledge

• Companies are using technology to

manage knowledge through:
– Corporate Intranets
– Business intelligence software
– Networks
• And companies are managing knowledge
about customers through Customer
Relationship Management (CRM) systems

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