Chapter 03 – Managerial Decision Making
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3
chapter
Managerial Decision Making
Learning Objectives 2
Key Student Questions 3
Class Roadmap 4
Bottom Line 12
Social Enterprise 13
Lecturettes 14
CHAPTER CONTENTS
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1 Describe the kinds of decisions you will face as a manager.
2 Summarize the steps in making “rational” decisions.
3 Recognize the pitfalls you should avoid when making decisions.
LEARNING OBJECTIVES
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Managerial decision making in textbooks is heavily theory driven, and most students want to know more
about the practical ins and outs of day-to-day decision making. Two questions drive a host of other con-
cerns:
1. “How can I make good decisions?”
2. “How can I make sure I don’t fall into the decision-making traps you are
describing when you talk about things like psychological biases and
time pressures?”
• To make “good” decisions, students have to master the art of rational decision making, as
well as learning to recognize and avoid common decision-making pitfalls. Point out that
KEY STUDENT QUESTIONS
Chapter 03 – Managerial Decision Making
Management in Action
How High-Stakes Decisions Make Boeing an Industry Leader
The development of Boeing’s 787 Dreamliner has been one of the business world’s high-drama
stories. Followers of the industry were captivated by the daring approach to outsource design and
production jobs to suppliers and Boeing facilities around the world. Airlines were intrigued by
LO 1: Describe the kinds of decisions you will face as a manager
A. Lack of Structure
1. Lack of structure is the usual state of affairs in managerial decision-making.
2. Programmed decisions are decisions encountered and made before having objective-
E.G.
Use Example 3.1 – Uncertainty and
Risk here
B. Uncertainty and Risk
1. Certainty exists when decision-makers have accurate and comprehensive infor-
mation.
CLASS ROADMAP
Chapter 03 – Managerial Decision Making
C. Conflict
1. Conflict –opposing pressures from different sources, occurring on the level of psy-
chological conflict or of conflict between individuals or groups
LO 2: Summarize the steps in making “rational” decisions
A. Identifying and Diagnosing the Problem
1. The first stage in the decision-making process is to recognize that a problem exists
and must be solved.
2. Questions to ask and answer in this stage include (Exhibit 3.4):
E.G.
Use Example 2.2 – Rational decision-making here
B. Generating Alternative Solutions
1. The second stage, problem diagnosis is linked to the development of alternative
C. Evaluating Alternatives
II. THE STAGES OF DECISION MAKING
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1. The third stage involves determining the value or adequacy of the alternatives that
were generated. Which solution will be the best?
2. Key questions to ask (Exhibit 3.5):
a. Which goals does each alternative meet and fail to meet?
D. Making the Choice
1. Maximizing is a decision realizing the best possible outcome.
E. Implementing the Decision
1. The decision-making process does not end once a choice is made.
2. Decision-makers must understand the choice and why it was made.
3. They must be committed to its successful implementation.
4. They must plan implementation carefully.
a. Determine how things will look when the decision is fully operational.
5. Decision-makers should assume that things will not go smoothly during implementa-
tion. Useful question to ask are (Exhibit 3.6):
a. What problems could this action cause?
F. Evaluating the Decision
1. The final stage in the decision-making process is evaluating the decision.
Chapter 03 – Managerial Decision Making
4. If the decision appears inappropriate, it’s back to the drawing board.
LO 3: Recognize the pitfalls you should avoid when making decisions
1. Vigilance is a process in which a decision-maker carefully executes all six stages of
E.G.
Use Example 3.3 – Best decision here
Management in Action –
Progress Report
At Boeing, Alan Mulally, as head of the commercial aircraft division, struggled to make the case
• Evaluate how well Boeing’s managers performed at each stage of the decision-making process.
How could they have improved the process?
Evaluations may vary, but students should correctly consider each stage of the process: identify-
• Do you think the board’s decision on the Dreamliner was the best decision it could have made?
Explain.
Points for students to weigh in arriving at an opinion include the value of a fuel-efficient jet (air-
A. Psychological Biases
III. THE BEST DECISION
IV. BARRIERS TO EFFECTIVE DECISION
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1. Illusion of control is a belief that one can influence events, even when one has no
control over what will happen.
B. Time Pressures
1. Instead of relying on long-range planning and futuristic forecasts, focus on real-time
information.
2. Involve people more effectively and efficiently.
C. Social Realities
1. Interpersonal factors decrease decision-making effectiveness.
LO 4: Evaluate the pros and cons of using a group to make decisions
A. Potential Advantages of Using a Group
1. More information is available when several people are making the decision.
2. There are a greater number of perspectives on the issues, or different approaches to
B. Potential Problems in Using a Group
1. Sometimes one group member dominates the discussion.
2. Satisficing is more likely with groups.
3. Pressure to avoid disagreement can lead to a phenomenon called groupthink.
V. DECISION MAKING IN GROUPS
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Teaching Tip:
A widely recommended tool to help students understand how decisions are made in groups is the movie “12 Angry
E.G.
Use Example 3.4 – Groupthink here
LO 5: Identify procedures to use in leading a decision-making group.
A. Leadership style
1. The leader of a decision-making body must attempt to minimize process-related prob-
lems.
B. Constructive Conflict
1. The most constructive type of conflict is cognitive conflict, or issue-based differences
in perspectives or judgments about issues.
E.G.
Use Example 3.5 – Problems with group decision-making here
LO 6: Explain how to encourage creative decisions
VI. MANAGING GROUP DECISION MAKING
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C. Encouraging Creativity
1. You are being creative if you (Exhibit 3.7):
a. bring a new thing into being (creation)
D. Brainstorming
1. Brainstorming is a process in which group members generate as many ideas about a
problem as they can; criticism is withheld until all ideas have been proposed.
E.G.
Use Example 3.6 – Thinking creatively here
LO 7: Discuss the processes by which decisions are made in organizations.
A. Constraints on decision-makers are financial, legal, market, human, or organizational.
Multiple Generations at Work
When faced with a difficult work problem to solve, a Baby Boomer manager’s first impulse is
to seek the opinion of experts who have significant experience and a proven track record in the
B. Bounded Rationality is a less-than-perfect form of rationality in which decision makers
cannot be perfectly rational because decisions are complex and complete information is
unavailable or cannot be fully processed
C. Models of organizational decision processes
1. Incremental model is a model of organizational decision-making in which major so-
lutions arise through a series of smaller decisions.
VII. ORGANIZATIONAL DECISION MAKING
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LO 8: Describe how to make decisions in a crisis.
D. Decision Making in a Crisis
1. Managers must make decisions under pressure in a crisis.
2. An effective plan for crisis management includes:
a. Strategic actions
3. Ultimately, management should be able to answer the following:
a. What kinds of crises could your company face?
E.G.
Use Example 3.8 – Decision-making in a crisis here
Management in Action –
Onward
Just when the Dreamliner seemed destined for success, disaster struck in the form of battery fires
• Compare Boeing’s decision making during a crisis (the battery fire) with its process of decid-
ing to make the Dreamliner. How does a crisis make the process harder?
• What principles of group decision making could help Boeing make decisions during this crisis?
Relevant principles include the need to hear different viewpoints, avoid pressure to conform be-
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p. 80: What qualities or results of a management decision make it a “good” decision?
A good management decision maintains or improves the company’s value and profitability. This
p. 88: What could be the negative consequences of making decisions that maximize only innova-
tion?
Decisions that are merely innovative may ignore quality, service, speed, costs, sustainability, or
p. 91: What might be the long-term consequences of not investing in energy efficiency?
Not investing in efficiency would save money in the present in exchange for spending more on
p. 92: When you are under time pressure, what can you do to avoid mistakes?
The chapter suggests three methods: monitoring real-time information to keep decisions realistic
p. 93: When you’re meeting with a group, how can you help to make sure everyone is contrib-
uting?
One basic approach is to make sure you are listening carefully and not taking over the whole dis-
p. 97: Why is listening a part of stimulating creativity?
p. 99: Say you’re a manager who dreamed up a great process for cutting costs. Whose buy-in
might you need to implement this innovation?
Students might think someone in a powerful position in an organization can merely dictate ideas
BOTTOM LINE
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Saul Garlick’s Social Enterprise: Nonprofit or For-Profit?
1. What are the advantages and disadvantages of market-based solutions to problems in de-
veloping countries?
Market-based solutions are advantageous in your ability to raise money and strategize in
2. Would you consider attending a ThinkImpact learning program in an international loca-
tion? Why or why not?
The program seems intriguing whereas students and faculty could study social entrepre-
neurship, which is a growing area of business. By having a hands-on approach to learn-
SOCIAL ENTERPRISE
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LECTURETTE 3.1 – The Eco-Cars
The Decision to Catch-up
1. Japanese automakers have kicked their eco-car efforts into high gear by selling adaptations of current-
2. Where’s Detroit? Playing catch-up again. The hybrid decision by U.S. automakers to fight environ-
mentalists’ efforts to toughen federal gas-mileage rules has been the plan of management to become
more competitive. U.S. manufacturers are being squeezed by regulations and by competitors who
Hybrid Pickups
1. Ford, GM, and DaimlerChrysler are all scrambling to match Honda and Toyota. Ford plans to intro-
duce a gas-and-electric version of its new Escape SUV that would get 40 mpg, nearly twice the mile-
2. Managers of the big three American automobile manufacturers are hedging that by the time its hy-
brids are available on a mass scale that technology will be more developed and Washington will sup-
3. Critics state the popularity of the Honda and Toyota cars makes it appear that U.S. automakers may
be fumbling a huge opportunity. Managerial decision making by the big three has missed it in the
past and there’s a good possibility they can make the wrong decision this time as well. Hybrids may
LECTURETTE 3.2 – Eight Steps to Success in Negotiating
1 Adapted from David Welch “The Eco–Cars”, Business Week, August 14, 1999, p 63-68
LECTURETTES
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According to Mintzberg, an important managerial role is one of decision-making. This role is analyzed
and broken into four steps. One step involves the manager’s responsibility for negotiating contractual
agreements, for example with labor unions.
tactics is more important than ever. Following are eight fundamental steps to winning at the negotiating
game:
1. Take stock of your weaknesses.
2. Determine your bottom-line goal.
You have to identify the one thing you must come away with. It should be one tangible, concrete ob-
jective. If you can’t tell whether or not your goal has been achieved, then it’s not solid enough.
3. Learn as much as possible about the other party.
4. Establish a relationship before the negotiation begins.
The worst place for the first meeting with the individual with whom you’re negotiating is the negotia-
5. Create and stick to an agenda.
6. Don’t let the talks get personal.
7. If there’s a stalemate, find the underlying cause.
“Stalemates usually develop over small things, not the large matters. Fear and uncertainty are often
what kills the deal,” says Michael Hoesly.
8. When a deadlock looks hopeless, buy time.
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1. Discuss Boeing’s Dreamliner in terms of risk, uncertainty, and how its managers han-
dled the company’s challenges. What is the current news on this company?
Boeing faced many of the typical risks of a major investment in a complex and innovative product.
The project would require a major amount of financial capital, and errors were possible in every ele-
ment of the product and processes. There were also many areas of uncertainty in terms of customers’
2. Identify some risky decisions you have made. Why did you take the risks? How did
they work out? Looking back, what did you learn?
Students may have problems relating to this question since they may not see themselves as having
made very many “risky decisions.”
3. Identify a decision you made that had important unintended consequences. Were the
consequences good, bad or both? Should you and could you have done anything differ-
ently in making the decision?
Very seldom do managers have all the information they need to precisely predict all the consequences
of a decision. Even when a manager can assess the likelihood of various consequences, risk exists if
4. What effects does time pressure have on your decision making? In what ways do you
handle it well and not so well?
DISCUSSION QUESTIONS
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Time pressure both enhances and inhibits decision making. Students who are procrastinators are like-
5. Recall a recent decision that you had difficulty making. Describe it in terms of the
characteristics of managerial decisions.
Students probably will answer this question in very different terms. For example, they might discuss
the problems inherent in buying a secondhand car:
Lack of structure There is no specific or structured decision-making process for buying a
secondhand car.
6. What do you think are some advantages and disadvantages to using computer technolo-
gy in decision-making?
The advantage of utilizing computers in executing decisions would be that the computer not only
makes more information available to the manager for decision-making but also enables him or her to
apply statistical methodologies to this information. The manager can, for example, input a mass of
7. Do you think that when managers make decisions they follow the decision-making steps
as presented in this chapter? Which steps are apt to be overlooked or given inadequate
attention? What can people do to make sure they do a more thorough job?
Exhibit 3.3 illustrates a six-step process which decision makers should take, beginning with (1) iden-
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is “should.” Only rarely does a decision-maker have perfect information and unlimited time in which
to make a decision. Most decisions are made under pressure with limited information.
As to which steps are apt to be overlooked or given inadequate attention, an argument can be made
for each step—under different circumstances:
➢ Identifying and diagnosing the problem. While the problem is usually easy to identify, the diag-
➢ Making the choice. A manager bases his or her decision on the information available at the point
in time when a decision has to be made, even if delaying the decision would allow for the gather-
ing of more information and thus a better decision.
➢ Implementation of the decision. One often sees wide variations between the original decision and
the way it was implemented for two reasons:
Managers can do a lot to make sure they do a thorough job. A group meeting, for example, may re-
sult in a far better understanding and diagnosis of the problem, and a brainstorming session may result
in a far wider, more creative set of alternatives. An analysis of the data needed to make a rational de-
8. Discuss the potential advantages and disadvantages of using a group to make decisions.
Give examples in your experience.