Managerial Decision Making

Decision Making is not Easy

It must be done amid ever-changing factors:

Unclear information. Often conflicting points of view.

Types of Decisions

Decision making the process of identifying problems and opportunities, then resolving them.

Programmed decisions: situations that occur often enough to enable decision rules to be developed. Nonprogrammed decisions: are made in response to situations that are unique, are poorly defined and largely unstructured. many involve strategic planning.

Programmed and Nonprogrammed Decision Differences

Certainty all the information the decision maker needs is fully available. Risk decision has clear-cut goals. good information is available. future outcomes associated with each alternative are subject to chance. Uncertainty managers know which goals they with to achieve. information about alternatives and future events is incomplete. managers may have to come up with creative approaches to alternatives. Ambiguity by far the most difficult decision situation. goals to be achieved or the problem to be solved is unclear. alternatives are difficult to define. information about outcomes is unavailable.

Conditions that Affect the Possibility of Decision Failure

Organizational Problem Low Certainty Programmed Decisions Problem Solution Possibility of Failure Risk Uncertainty High Ambiguity

Nonprogrammed Decisions

Selecting a Decision Making Model

Depends on the managers personal preference. Whether the decision is programmed or nonprogrammed. Extent to which the decision is characterized by risk, uncertainty, or ambiguity.

Three Decision Making Models

Political Model

Administrative Model

Classical Model

Classical Model

Based on economic conditions Is considered to be normative

Classical Model

Accomplishes goals that are known and agreed upon. Strives for certainty by gathering complete information. Criteria for evaluating alternatives are known. Decision maker is rational and uses logic.

Administrative Model

How managers actually make decisions in situations characterized by non-programmed decisions, uncertainty, and ambiguity. Focuses on organizational, rather than economic. Two concepts are instrumental in shaping the administrative model. bounded rationality: means that 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. Is considered to be descriptive. It is considered intuitive.

Political Model

Closely resembles the real environment in which most managers and decision makers operate. Decisions are complex. Disagreement and conflict over problems and solutions are normal. Coalition building is important.

Comparisons of:
Classical, Political, & Administrative Models
Classical Model
Clear-cut problem and goals. Condition of certainty. Full information about alternatives and their outcomes. Rational choice by individual for maximizing outcomes.

Administrative Model
Vague problem and goals. Condition of uncertainty. Limited information about alternatives and their outcomes. Satisfying choice for resolving problem using intuition.

Political Model
Pluralistic; conflicting goals. Condition of uncertainty/ambiguity. Inconsistent viewpoints; ambiguous information. Bargaining and discussion among coalition members.

Six Steps in the Managerial Decision Making Process

Diagnosis Questions
(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 what activity?

Personal Decision Framework

Situation: Programmed/non-programmed Classical, administrative, political Decision steps

Personal Decision Style: Directive Analytical Conceptual Behavioral

Decision Choice: Best Solution to Problem

Directive Style: used by people who prefer simple, clear-cut solutions. Analytical Style: used by managers who like to consider complex solutions based on as much data as they can gather. Conceptual Style: used by people who like to consider a broad amount of information, more socially oriented. Behavioral Style:often the style adopted by managers having a deep concern for others.

Participation in Decision Making

Vroom-Jago Model Helps gauge the appropriate amount of participation for subordinates. Leader Participation Styles Five styles available, depending on the situation. Participation in decision making ranging from highly autocratic to highly democratic. Diagnostic Questions Decision participation depends on a number of situational factors. Questions deal with the problem, the required level of decision quality, and the importance of having subordinates commit to the decision.

Participation in Decision Making Diagnostic Questions

Decision significance Importance of commitment Leader expertise Likelihood of commitment Group support for goals Group expertise Team competence

New Decision Making Approaches

Lean, Dont Punish Know When to Bail Practice the Five Whys Build Collective Intuition Engage in Constructive Conflict

Information Technology

The hardware, software, telecommunications, database management, and other technologies used to store, process, and distribute information.

Characteristics of High-Quality Information

Time Timeliness Currency Frequency Time Period Form Clarity Detail Order Presentation Media Content Accuracy Relevance Completeness Conciseness Scope Performance
Source: Adapted from James A. OBrien, Introduction to Information Systems, 8th ed. (Burr Ridge, Ill, Irwin, 1997),284-285.

Types of Information Systems

Operations Information Systems  Transaction-processing systems.  Process control systems.  Office automation systems. Management Information Systems  Information-reporting systems.  Decision support systems.  Group decision support systems.  Executive information systems.

Basic Elements of Management Information Systems

Corporate and External Databases Decision Support Systems

Operations Information Systems

Management Information Systems

Executive Information Systems

SOURCE: Adapted from Ralph M. Stair and George W. Reynolds, Principles of Information Systems: A Managerial Approach, 4th ed. (Cambridge, Mass.: Course Technology, 1999), 391.

Reporting Systems

Group Decision Support System

Strategies for Integrating Bricks and Clicks

In-House Division
Integration
Brand recognition Purchasing leverage Shared information Distribution efficiencies

Partnership

Spin-Off Company
Separation
Focus Flexibility Responsiveness Entrepreneurial culture

SOURCE: Based on Ranjay Gulati and Jason Garino, Get the Right Mix of Bricks and Clicks, Harvard Business Review (May-June 2000), 107-114.

Management and Technology Implications

Improved employee effectiveness. Increased efficiency. Empowered employees. Information overload. Enhanced collaboration. Organizational learning.