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Chapter 3
The Nature of Managerial Decision-Making

Definition of Decision Making

The process through which managers identify

and resolve problems and capitalize on opportunities. The process by which a course of action is selected as the way to deal with a specific problem.


Nature of decision making

Some decisions are critical and can

have a major impact on personal and organizational lives. Other decisions are more routine but still require that we select an appropriate course of action.

7 steps in the Decision-Making Process

1 2 Identifying objectives 4 Evaluating alternatives 5 Reaching decisions 6 3 Generating alternatives

Choosing implementation strategies

Monitoring and evaluating


Types of Decision Making Programmed Decisions

Decisions made in response to routine situations that have occurred in the past Identifying alternative courses of action in such situations is usually routine e.g. Functions of customer assistance operator.

Non-Programmed Decisions
Decisions made in response to situations that are unique and unstructured. Required creativity and innovative to elicit a list of reasonable alternatives courses of action e.g. New management tried to restructured company

Decision-Making Conditions

Managers have accurate, measurable and reliable information about the outcome of various alternatives under consideration. Decision-maker knows exactly what is happening :
The nature of the problem Possible alternatives Result of alternatives

~ ~ ~

Future conditions that are not always known Information is available but is not enough Condition under risk :

The nature of problem Possible alternatives Result of alternatives


Decision-Making Conditions
~ ~

Force unpredictable external conditions (Politics; Economy; Social; Technology; Environment; Legal @ PESTEL) Lack of information Little is known about the alternatives or their outcomes.

Models of Decision-Making
RATIONAL-ECONOMIC MODEL Prescriptive model (suggested how decision should be made) BASIC PREMISE Decision making will be rational, systematic and logical ASSUMPTIONS OF RATIONAL ECONOMIC MODEL Complete and accurate information is available Agreed-on objectives and list of alternative courses of action Decision makers work for the organizations best interest No ethical dilemmas arise in the decisionmaking process RATIONAL-ECONOMIC MODEL Descriptive model (suggested how decision are actually made) BASIC PREMISE Human limitations make rational decision making difficult to achieve ASSUMPTIONS OF RATIONAL ECONOMIC MODEL Bounded rationality affects decision-making process Experience-based intuition will affect the decision-making process Decision makers will accept a satisfactory decision Escalation of commitment may occur


Models of Decision-Making
In practice, the model may not always be a realistic depiction of

decision environments and managerial behavior.

Leaders rarely have access to perfect information Even if perfect information was available, decision makers are

limited in their ability to comprehend and process vast amounts of information. Decision makers seldom have adequate knowledge about future consequences of alternatives. Personal factors such as fatigue, emotions, attitudes, motives of behaviors intervene to prevent a decision maker from always acting in a completely rational manner. Individual culture and ethical values will influence the decision process.

What is Group?

Two or more persons interacting for some purpose and who influence one another in the process.


Group Decision-Making

Group decision-making is becoming more common as organizations focus on improving customer service and push decision-making to lower levels.

Pros and cons in Group DecisionMaking

Advantages Experience and expertise of several individuals available More information, data, and facts accumulated Problems viewed from several perspectives Higher member satisfaction Greater acceptance and commitment to decisions Disadvantages Greater time requirements Minority domination - Leader may talk to much leaving group members non-participative Compromise Concern for individual rather than group goals - Individuals sidetracked to win argument in order to achieve personal goals Social pressure to conform Groupthink***


An agreement-at-any-cost mentality that results in ineffective

group decision-making. Conformity in thought and behavior among the members of a group, especially an unthinking acceptance of majority opinions Occurs when group are :
~ Highly cohesive ~ Have highly directive leaders ~ Insulated so they have no clear ways to get objective

information ~ Because they lack outside information > have little hope that a better solution might be found than the one proposed by the leader or other influential group members

Characteristics Illusions of invulnerability Collective rationalization Belief in the morality of group-decisions Self-censorship Illusion of unanimity in decision-making Pressure on members who express arguments Types of Defective Decisions Incomplete survey of alternatives Incomplete surveys of goals Failure to examine risks of preferred decisions Poor information search Failure to reappraise alternatives Failure to develop contingency plans.


Techniques of Group Decision-Making

~ A technique used to enhance creativity that encourages group

members to generate as many more novel ideas as possible on a given topic without evaluating them. ~ Rules of Brainstorming
i. ii. iii. iv. v. vi.

Freewheeling is encouraged Group members will not criticize ideas as they are being generated Quality is encouraged The wilder the ideas the better Playback on previously stated ideas No ideas are evaluated until after all alternatives are generated.

Techniques of Group Decision-Making

Nominal Group Technique (NGT)
~ A structured process designed to stimulate creative group decision-

making where agreement is lacking or the members have incomplete knowledge concerning the nature of the problem
Delphi Technique
~ Uses experts to make predictions and forecasts about the future

events without meeting face-to-face.

Devils Advocacy Approach
~ An individual or subgroup appointed to critique a proposed course of

action and indentify problems to consider before the decision is final.

Dialectical Inquiry
~ Approaches a decision from two opposite points and structures a

debate between conflicting views.