Managerial Decision Making
Profile of a Decision
The Decision-Making Process
The Decision Maker
The Decision
Decision Making and Problem Solving
Problem solving is concerned with
overcoming obstacles in the path toward an objective.
Problem solving may or may not
require action.
A decision is an act requiring
judgment that is translated into action.
Decision Making and Problem Solving (contd)
Decision making is much more
comprehensive than problem solving.
The terms are interrelated, but
not interchangeable.
The Significance of Decision Making
Decision making is the one truly
distinctive characteristic of managers.
Decisions made by top
managers commit the total organization toward particular courses of action.
The Significance of Decision Making
(contd)
Decisions made by lower levels of
management implement the strategic decisions of top managers in the operating areas of the organization. Decisions invariably involve organizational change and the commitment of scarce resources.
The Scope of Decision Making
Individual decision making Group decision making Organizational decision making Meta organizational decision
making
Decisional Inputs
(Objectives, information, resources, energy)
Metaorganization Organization Group Individual
Interactional Levels
Permeable Boundaries
Decisional Outputs
(Actions transactions, outcomes)
External Environment
A Typology of Decisions
Decision-making strategies
Computational Judgmental
Compromise
Inspirational
A Typology of Decisions
Decision categories
(contd)
Category I - routine, recurring, certainty with regard to the outcome
Category II non routine,
nonrecurring, uncertainty with regard to the outcome
A Typology of Decisions
Decision combinations
(contd)
Category I / Computational strategy Category II / Judgmental strategy
A Categorization of Decision Characteristics
Category I Decisions Category II Decisions
Nonprogrammable; unique; judgmental; creative; adaptive; innovative;
Novel, unstructured, consequential, elusive, and complex; uncertain cause/ effect relationships; nonrecurring; information channels undefined, incomplete information; decision criteria may be unknown; outcome preferences may be certain or uncertain Reliance on judgment, intuition, and creativity; individual processing; heuristic problem-solving techniques; rules of thumb; general problem-solving processes
Classifications
inspirational
Programmable; routine; generic; computational; negotiated; compromise
Procedural; predictable; certainty regarding cause/effect relationships; recurring; within existing technologies; well-defined information channels; definite decision criteria; outcome preferences may be certain or uncertain Reliance upon rules and principles; habitual reactions; prefabricated response; uniform processing; computational techniques; accepted methods for handling
Structure
Strategy
Knowledge Regarding the Outcome
High Level of Knowledge
Preference for the Outcome
Strong Preference
Computational Decision-Making Strategy
Weak Preference
Compromise Decision-Making Strategy
Low Level of Knowledge
Judgmental Decision-Making Strategy
Inspirational Decision-Making Strategy
The Locus of Choice
Top management makes Category II
decisions. Operating management makes Category I decisions. Middle management supervises the making of Category I decisions and supports the making of Category II decisions.
Characteristics of Managerial Decisions (Category II)
Long-range organizational objectives Best choice from among a set of
alternatives
Decision involves organizational
change
Decision requires a commitment of
resources
Characteristics of Managerial Decisions (Category II) (contd)
Choice is a means to an end, not
an end to itself
Decision maker tends to
overestimate success
Success is measurable through
objectives attainment
The Managerial Decision-Making Process
Process components are decision-
making functions. Decision-making functions are highly interrelated and interdependent. The process is highly dynamic with several sub processes. The process can accommodate several concurrent Category II decisions.
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
Decision-Making Function No. 1 Setting Managerial Objectives:
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.
Decision-Making Function No. 2 Searching for Alternatives:
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
Decision-Making Function No. 3 Comparing and Evaluating Alternatives:
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.
Decision-Making Function No. 3
(contd)
Also:
Evaluation should include an
anticipation of the likely outcome for each alternative.
Evaluation should also anticipate
obstacles or difficulties at the time of implementation.
Decision-Making Function No. 4 The Act of Choice:
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.
Decision-Making Function No. 4
(contd)
Also:
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.
Decision-Making Function No. 5
Implementing Decisions:
Decision success is a function of decision quality and decision implementation.
Decision-Making Function No. 5
(contd)
Areas contributing to decision success:
Observance of operating
constraints Influence of the decision maker Involvement of decision implementers Absence of conflict of interest
Decision-Making Function No. 5
(contd)
Areas detracting from decision success:
Disregard of timeliness
Unlimited additional information
Disregard of risk/reward
relationships
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. Strategic Decision Implementation
5. Conflict of interest. 6. Risk-reward factor. 7. Understanding the decision.
Decision-Making Function No. 6 Follow-Up and Control
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.
Decision-Making Function No. 6
Also:
corrective action.
(contd)
Unacceptable variance from standard performance should elicit timely and appropriate Corrective action (sub processes)
may result in the implementation of another alternative which, if not successful, may result in a revision of the original objective.
