STRATEGIC DECISION

MAKING
What is Decision Making?
Decision making
The act of choosing one alternative
from among a set of alternatives


Dimensions of Strategic
Decisions
Top management Decisions
Are future oriented
Require Large amount of resources
Affect long term prosperity of the
firm
Usually have multifunctional
consequences

Characteristics of Strategic
Decisions
They are elusive problems that are difficult to define precisely.
They require an understanding of the problem to find a viable solution.
They rarely have one best solution, but often a series of possible solutions.
Questions about trade-offs and priorities appear in the solutions.
Solution benefits are difficult to assess as to their effectiveness, in part because
they lack a clear final end point against which effectiveness can be judged.
Other problems in the organization are connected to solutions for a focal
problem.
High levels of ambiguity and uncertainty are associated with solutions.
Realizing hoped for benefits has considerable risk.
Strategic decisions have competing interests that prompt key players to use
political pressure to ensure that a choice aligns with their preferences.

Types of Decision Making
1.Programmed decision
A decision that is fairly structured or
Recurs with some frequency (or both)
2.Non programmed decision
A decision that is relatively
unstructured and occurs much less
often than a programmed decision
Decision Making Conditions
The decision
maker faces
conditions of.
Certainty Risk Uncertainty
Level of ambiguity and chances of making a bad decision
Perspectives/models of Decision
Making
1. Classical or Rational Model-
Managers are logical and rational and
that they make decisions that are in
the best interests of the organization.
2. Behavioral Model :-
Managers are not always logical and
they use intuition, and personal
judgements in making decisions
Assumptions of Rational Model
1. Decision makers have complete
information about the decision
situation and possible alternatives.
2. They can effectively eliminate
uncertainty to achieve a decision
condition of certainty.
3. They evaluate all aspects of the
decision situation logically and
rationally.
Steps in Rational Decision
Making Process
Objectives to be achieved are
determined.
Alternative ways of achieving these
objectives are identified.
Each alternative is evaluated.
The best alternative is chosen

Behavioral Model of Decision
Making
1. Administrative Model:- Managers
(1) use incomplete and imperfect
information,
(2) constrained by bounded rationality,
(3) tend to satisfice when making
decisions
Bounded rationality
A concept suggesting that decision
makers are limited by their values and
unconscious reflexes, skills, and habits
Satisfying
The tendency to search for alternatives
only until one is found that meets
some minimum standard of
sufficiency
Because of the inherent imperfection of
information, bounded rationality, and satisficing,
the decisions made by a manager may or may
not actually be in the best interests of the
organization. A manager may choose a particular
location for the new plant because it offers the
lowest price and best availability of utilities and
transportation. Or she may choose the location
because it is located in a community where she
wants to live.
Intuition
An innate belief about something,
without conscious consideration
Escalation of commitment

A decision makers staying with a
decision even when it appears to be
wrong
Scope of Strategic Decision
Making