Chapter 9 Uncertainty Means Managers Know Which Goals They

CHAPTER 9

MANAGERIAL DECISION MAKING

CHAPTER OUTLINE

How Do You Make Decisions?

I. Types of Decisions and Problems

A. Programmed and Nonprogrammed Decisions

B. Facing Certainty and Uncertainty

New Manager Self-Test: Intolerance of Ambiguity

II. Decision-Making Models

D. Selection of the Desired Alternative

E. Implementation of the Chosen Alternative

F. Evaluation and Feedback

IV. Personal Decision Framework

V. Why Do Managers Make Bad Decisions?

VI. Innovative Decision Making

ANNOTATED LEARNING OBJECTIVES

After studying this chapter, students should be able to:

1. Explain why decision making is an important component of good management.

Every organization grows, prospers, or fails as a result of decisions made by its managers.

Managers are often referred to as decision makers. Good decision making is a vital part of good

• Chapter 9

148

2. Discuss the difference between programmed and nonprogrammed decisions and the decision

characteristics of certainty and uncertainty.

Programmed decisions involve situations that have occurred often enough to enable decision

rules to be developed and applied in the future. Once managers formulate decision rules,

3. Describe the ideal, rational model of decision making and the political model of decision

making.

The classical model of decision making is considered to be normative, which means it defines

how a decision maker should make decisions. It is based on rational economic assumptions and

4. Explain the process by which managers actually make decisions in the real world.

The administrative model describes how managers actually make decisions such as those

characterized by nonprogrammed decisions, uncertainty, and ambiguity. The administrative

Managerial Decision Making •

149

5. Identify the six steps used in managerial decision making.

Whether a decision is programmed or nonprogrammed, and regardless the manager follows the

classical, political, or administrative model of decision making, six steps typically are associated

6. Describe four personal decision styles used by managers, and explain the biases that

frequently cause managers to make bad decisions.

The directive style is used by people who prefer simple, clear-cut solutions to problems.

Managers with an analytical style like to consider complex solutions based on as much data as

they can gather. People who tend toward a conceptual style also like to consider a broad amount

• Chapter 9

150

7. Identify and explain innovative techniques for decision making, including brainstorming,

evidence-based management, and after-action reviews.

One of the best known techniques for rapidly generating creative alternatives is brainstorming.

Brainstorming uses a face-to-face interactive group to spontaneously suggest a broad range of

alternatives for decision making. The keys to effective brainstorming are that people can build

Avoiding groupthink helps groups make better decisions. Groupthink refers to the tendency of

people in groups to suppress contrary opinions. When people slip into groupthink, the desire for

harmony outweighs concerns over decision quality. Group members emphasize maintaining

unity rather than realistically challenging problems and alternatives. Some disagreement and

conflict is much healthier than blind agreement.

Managerial Decision Making •

151

LECTURE OUTLINE

HOW DO YOU MAKE DECISIONS?

Most of us make decisions automatically and without realizing that people have diverse decision-

making behaviors, which they bring to management positions. New managers typically use a

I. TYPES OF DECISIONS AND PROBLEMS

A decision is a choice made from available alternatives. Decision making is the process of

identifying problems and opportunities and then resolving them. Decision making involves

effort both before and after the actual choice.

A. Programmed and Nonprogrammed Decisions

1. Programmed decisions involve situations that have occurred often enough to enable

2. Nonprogrammed decisions are made in response to situations that are unique,

B. Facing Certainty and Uncertainty Exhibit 9.1

1. One difference between programmed and nonprogrammed decisions relates to the

degree of certainty or uncertainty that managers deal with in making the decision. In

a. Certainty means that all the information the decision maker needs is fully

available. Few decisions are certain in the real world. Most contain risk or

uncertainty.

• Chapter 9

152

c. Uncertainty means managers know which goals they wish to achieve, but

information about alternatives and future outcomes is incomplete. Factors that

d. Ambiguity means that the goals to be achieved or the problem to be solved is

unclear, alternatives are difficult to define, and information about outcomes is

Discussion Question #3: Explain the difference between risk and ambiguity. How might

decision making differ for a risky versus an ambiguous situation?

NOTES________________________________________________________________________

______________________________________________________________________________

NEW MANAGER SELF-TEST: Intolerance of Ambiguity

This exercise helps students to determine how comfortable they are when dealing with

ambiguity.

II. DECISION-MAKING MODELS Exhibit 9.2

Decisions are usually made using the classical, the administrative, or the political decision

A. The Ideal, Rational Model

1. The classical model of decision making is based on assumptions that managers

should make logical decisions that will be in the organization’s best economic

interests. The four assumptions include:

Managerial Decision Making •

153

2. The classical model is normative, defining how a decision maker should make

3. The classical model represents an “ideal” model of decision making that is often

Discussion Question #8: List some possible advantages and disadvantages to using computer

technology for managerial decision making.

NOTES________________________________________________________________________

______________________________________________________________________________

B. How Managers Actually Make Decisions

1. The administrative model is considered to be descriptive, meaning that it describes

2. Bounded Rationality and Satisficing

a. Bounded rationality means people have limits, or boundaries, on the amount of

information they can process in making a decision. Because managers do not

3. According to the administrative model:

• Chapter 9

154

• Decision goals often are vague, conflicting, and lack consensus among

managers.

4. Intuition

a. Intuition is another aspect of administrative decision making. Intuition

represents a quick apprehension of a decision situation based on past experience

but without conscious thought. Intuitive decision making is not arbitrary or

irrational because it is based on years of practice and hands-on experience.

Discussion Question #9: Can intuition and evidence-based decision making coexist as valid

approaches within an organization? How might managers combine their intuition with a

rational, data-driven, evidence-based approach?

NOTES________________________________________________________________________

______________________________________________________________________________

C. The Political Model

1. This model is for nonprogrammed decisions when conditions are uncertain,

information is limited, and there is disagreement about the goals to pursue or the

action to take. Managers often engage in coalition building for making complex

a. Organizations are made up of groups with diverse interests, goals, and values.

Managerial Decision Making •

155

b. Information is ambiguous and incomplete.

2. Recent research has found rational, classical procedures to be associated with high

performance for organizations in stable environments. Administrative and political

Discussion Question #4: Analyze three decisions you made over the past six months. Which of

these were programmed and which were nonprogrammed? Which model—the classical,

administrative, or political—best describes the approach you took to making each decision?

NOTES________________________________________________________________________

______________________________________________________________________________

III. DECISION-MAKING STEPS Exhibit 9.3

Whether a decision is programmed or nonprogrammed, and regardless of whether the manager

follows the classical, political or administrative model of decision making, six steps typically are

associated with effective decision-making processes. These six steps are:

A. Recognition of Decision Requirement

1. Managers confront a decision requirement in the form of either a problem or an

2. Awareness of a problem or opportunity is the first step in the decision-making

B. Diagnosis and Analysis of Causes

1. Diagnosis is the step in which managers analyze the underlying causal factors

associated with the decision situation. Managers make a big mistake if they jump

• Chapter 9

156

a. What is the state of disequilibrium affecting us?

b. When did it occur?

C. Development of Alternatives

1. Once the problem or opportunity has been recognized and analyzed, decision makers

2. For a programmed decision, feasible alternatives are often available within the

D. Selection of the Desired Alternative

1. The best alternative is one in which the solution best fits the firm’s overall goals and

values and achieves the desired results using the fewest resources. The manager tries

E. Implementation of Chosen Alternative Exhibit 9.4

1. The implementation stage involves the use of managerial, administrative, and

persuasive abilities to ensure that the chosen alternative is carried out. The success of

F. Evaluation and Feedback

Managerial Decision Making •

157

1. In the evaluation step, decision makers gather information or feedback to determine

how well the decision was implemented and whether it achieved its goals. Feedback

2. By learning from decision mistakes, managers can turn problems into opportunities.

Discussion Question #1: You are a busy partner in a legal firm, and an experienced

administrative assistant complains of continued headaches, drowsiness, dry throat, and

occasional spells of fatigue and flu. She tells you she believes that the air quality in the building

is bad and would like something to be done. How would you respond?

NOTES________________________________________________________________________

______________________________________________________________________________

IV. PERSONAL DECISION FRAMEWORK Exhibit 9.5

Not all managers make decisions in the same way. These differences can be explained by the

concept of personal decision styles. Personal decision style refers to differences between people

with respect to how they perceive problems and make decisions. Research has identified four

major decision styles.

• The directive style is used by people who prefer simple, clear-cut solutions to problems.

Discussion Question #10: What do you think is your dominant decision style? Is your style

compatible with group techniques such as brainstorming and engaging in rigorous debate?

Discuss.

NOTES________________________________________________________________________

______________________________________________________________________________

V. WHY DO MANAGERS MAKE BAD DECISIONS?

Even the best manager will make mistakes, but managers can increase their percentage of good