The Managerial Decision-Making Process

E. FRANK HARRISON

Fifth Edition

Copyright 1999 Houghton Mifflin Company. All rights reserved.

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The Managerial Decision-Making Process

Fifth Edition

Author: E. Frank Harrison, Ph.D. Slides by Monique A. Pelletier, Ph.D.

Copyright 1999 Houghton Mifflin Company. All rights reserved.

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Chapter 2

The Managerial Decision-Making Process

Copyright 1999 Houghton Mifflin Company. All rights reserved.

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The Managerial Decision-Making Process

n

Process components are decisionmaking functions.

Decision-making functions are highly interrelated and interdependent. The process is highly dynamic with several subprocesses.
The process can accommodate several concurrent Category II decisions.
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Figure 2.1 The Decision-Making Process

Setting managerial objectives
Revise or update objectives Revise objectives

Searching for alternatives

Renew search

Comparing & evaluating alternatives

Follow-up and control

Take corrective action as necessary

Implementing decisions

The act of choice

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Decision-Making Function No. 1

Setting Managerial Objectives:
n

Objectives constitute the foundation for rational decision making. Objectives are the ends for the means of managerial decision making. Attainment of the objective is the ultimate measure of decision success.
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Decision-Making Function No. 2

Searching for Alternatives:
n n

The limitations of time and money The declining value of additional information The rising cost of additional information Abort the search in the zone of cost effectiveness
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Figure 2.2 The Cost of Additional Information

Value and cost of additional information

Average value Point of optimality Cost

Zone of cost effectiveness

Marginal value

Perfection of information

100%
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Decision-Making Function No. 3 Comparing and Evaluating Alternatives:

n n

Alternatives result from the search.

There are usually three to five alternatives.

One alternative is to do nothing. Alternatives are evaluated using criteria derived from the objective.
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n n

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Decision-Making Function No. 3

(contd)

Also:
n

Evaluation should include an anticipation of the likely outcome for each alternative.

Evaluation should also anticipate obstacles or difficulties at the time of implementation.

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Decision-Making Function No. 4

The Act of Choice:
n

The choice is the culmination of the process, not all of it. The choice confronts the decision maker with discernible constraints. The best alternative may not be readily apparent to the decision maker.
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Decision-Making Function No. 4

(contd)

Also:
n

The best choice is likely to ensue from the right approach. The choice should be the alternative most likely to result in the attainment of the objective.

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Decision-Making Function No. 5

Implementing Decisions:

Decision success is a function

of decision quality
and

decision implementation.
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Decision-Making Function No. 5

(contd)

Areas contributing to decision success:

n n n

Observance of operating constraints

Influence of the decision maker

Involvement of decision implementers Absence of conflict of interest
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Decision-Making Function No. 5

(contd)

Areas detracting from decision success:

n n n

Disregard of timeliness

Unlimited additional information

Disregard of risk/reward relationships

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Figure 2.3 Evaluation of Strategic Decision Success

Strategic Strategic Decision = f Decision + f Success Quality 1. Compatibility with operating constraints. 2. Timeliness. 3. Optimum amount of information. 4. Influence of the decision maker.
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Strategic Decision Implementation

1. Conflict of interest. 2. Risk-reward factor. 3. Understanding the decision.

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Decision-Making Function No. 6

Follow-Up and Control
n

Follow-up and control is essential to ensure that an implemented decision meets its objective.
Performance is measured by observing the implemented decision in relation to its standard derived from the objective.
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Decision-Making Function No. 6

Also:
n

(contd)

Unacceptable variance from standard performance should elicit timely and appropriate corrective action. Corrective action (subprocess no. 1) may result in the implementation of another alternative (subprocess no. 2), which, if not successful, may result in a revision of the original objective (subprocess no. 3).
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