Management Chapter 6 Homework Every organization grows, prospers, or fails as a result

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CHAPTER 6

MANAGERIAL DECISION MAKING

CHAPTER OUTLINE

Are You Ready to Be a Manager?

I. Types of Decisions and Problems

A. Programmed and Nonprogrammed Decisions

B. Facing Certainty and Uncertainty

II. Decision-Making Models

A. The Ideal, Rational Model

B. How Managers Actually Make Decisions

C. The Political Model

III. Decision-Making Steps

A. Recognition of Decision Requirement

B. Diagnosis and Analysis of Causes

C. Development of Alternatives

D. Selection of Desired Alternative

E. Implementation of Chosen Alternative

F. Evaluation and Feedback

IV. Personal Decision Framework

V. Why Do Managers Make Bad Decisions?

VI. Innovative Group Decision Making

A. Start with Brainstorming

B. Engage in Rigorous Debate

C. Avoid Groupthink

D. Know When to Bail

E. Act with Speed

F. Don’t Ignore a Crisis

ANNOTATED LEARNING OBJECTIVES

After studying this chapter, students should be able to:

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

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

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

characteristics of certainty and uncertainty.

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. Management decisions typically are either

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

making.

Managers usually make decisions using the ideal, rational model or the administrative model.

The choice of model depends on the manager’s preference, whether the decision is programmed

or nonprogrammed, and the decision characteristics of risk, uncertainty, and ambiguity.

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

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

Whether a decision is programmed or nonprogrammed, or the manager follows the classical or

administrative model of decision making, six steps typically are associated with effective

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

7. Identify and explain techniques for innovative group decision making.

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

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

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

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LECTURE OUTLINE

INTRODUCTION

Managers scout for problems, make decisions for solving them, and monitor the consequences to

see whether additional decisions are required. Good decision making is a vital part of good

management because decisions determine how the organization solves its problems, allocates

resources, and accomplishes its goals. The business world is full of evidence of both good and

bad decisions. For example, CEO Robert Iger is revamping Disney’s “Old Media” image with

Are You Ready to Be a Manager?

This questionnaire helps students better understand the ability to make decisions and gain insight

to their decision-making styles.

I. TYPES OF DECISIONS AND PROBLEMS

INSTRUCTOR’S NOTES___________________________________________________________

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New Manager Self-Test: How Do You Make Decisions?

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

making behaviors that they bring to management positions. This exercise helps students

determine whether they use behavior typical of a new manager, behavior consistent with top

managers, or flexible and balanced behavior in making decisions.

A. Programmed and Nonprogrammed Decisions

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

decision rules to be developed and applied in the future. Programmed decisions are

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

poorly defined, largely unstructured, and likely to have important consequences for

Discussion Question #2: Why do you think decision making is considered a fundamental part of

management effectiveness?

B. Facing Certainty and Uncertainty

Exhibit 6.1: Conditions That Affect the Possibility of Decision Failure

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

degree of certainty or uncertainty that managers have in making the decision. In a

2. Every decision situation can be organized on a scale according to the availability of

information and the possibility of failure. The four positions on the scale are

certainty, risk, uncertainty, and ambiguity.

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.

b. Risk means a decision has clear-cut objectives and good information available,

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

decision making differ for a risky versus an “ambiguous” situation?

II. DECISION-MAKING MODELS

INSTRUCTOR’S NOTES___________________________________________________________

______________________________________________________________________________

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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:

a. The decision maker operates to accomplish goals that are known and agreed upon.

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

decisions, and providing guidelines for reaching an ideal outcome for the

organization.

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

unattainable by real people in real organizations.

B. How Managers Actually Make Decisions

1. Bounded Rationality and Satisficing

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

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b. Herbert A. Simon proposed two concepts instrumental in shaping the

administrative model: bounded rationality and satisficing.

(1) Bounded rationality means people have limits, or boundaries, on the amount

(2) Satisficing means that decision makers choose the first solution alternative

c. According to the administrative model:

(2) Rational procedures are not always used, and when they are, they are confined

(3) Managers’ searches for alternatives are limited because of human,

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2. Intuition

a. 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; it is based on years of practice and hands-on experience.

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Discussion Question #9: Do you think intuition is a valid approach to making decisions in an

organization? Why or why not? How might intuition be combined with a rational decision

approach?

New Manager Self-Test: Making Important Decisions

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

C. The Political Model

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

3. A coalition is an informal alliance among managers who support a specific goal.

4. Coalition building is the process of forming alliances among managers.

Exhibit 6.2: Characteristics of Classical, Administrative, and Political Decision-Making

Models

5. The political model closely resembles the real environment in which most managers

and decision makers operate. It begins with four basic assumptions.

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

Discussion Question #4: Analyze three decisions you have 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 make each

decision?

III. DECISION-MAKING STEPS

INSTRUCTOR’S NOTES___________________________________________________________

______________________________________________________________________________

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 sequence and

Exhibit 6.3: Six Steps in the Managerial Decision-Making Process

B. Diagnosis and Analysis of Causes

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

associated with the decision situation. Studies recommend that a series of questions

be asked.

a. What is the state of disequilibrium affecting us?

b. When did it occur?

c. Where did it occur?

d. How did it occur?

e. To whom did it occur?

f. What is the urgency of the problem?

g. What is the interconnectedness of events?

h. What result came from which activity?

C. Development of Alternatives

1. The next step is to develop possible alternative solutions that will respond to the

needs of the situation and correct the underlying causes.

3. Nonprogrammed decisions require developing new courses of action that will meet

D. Selection of Desired Alternative

Exhibit 6.4: Decision Alternatives with Different Levels of Risk

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

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

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E. Implementation of Chosen Alternative

1. The implementation of a chosen alternative involves the use of managerial,

administrative, and persuasive abilities to ensure that the chosen alternative is carried

out. The success of the chosen alternative depends on whether or not it is translated

into action.

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F. Evaluation and Feedback

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

2. Feedback provides decision makers with information that can start a new decision

IV. PERSONAL DECISION FRAMEWORK

INSTRUCTOR’S NOTES___________________________________________________________

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