Chapter 9 Managerial Decision Making. Types of Decisions and Problems Decision making is the process of identifying opportunities A decision is a choice

Chapter 9Managerial Decision Making

Types of Decisions and Problems

Decision making is the process of

identifying opportunities

A decision is a choice made

from available alternatives

Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 2

Programmed and Nonprogrammed Decisions

Programmed Decisions– Recurring problems– Apply rule

Nonprogrammed Decisions– Unique situations– Poorly defined– Unstructured– Important consequences


Facing Certainty and Uncertainty

• Difference between programmed and unprogrammed decisions

• Uncertainty depends on the amount and value of information available

• Certainty – situation in which all information is fully available

• Risk – the future outcomes associated with an alternative are subject to chance


9.1 Conditions That Affect the Possibility of Decision Failure


• Ambiguity makes decisions difficult

– The goals and the problem are unclear

• Wicked Decisions involve conflict over goals and have changing circumstances, fuzzy information, and unclear links

– There is often no “right” answer

Ambiguity and Conflict


The Ideal, Rational Model

Rational economic assumptions drive decisions Operates to accomplish established goals, problem

is defined

Decision maker strives for information and certainty, alternatives evaluated

Criteria for evaluating alternatives is known, select alternative with maximum benefit

Decision maker is rationale and uses logic


How Managers Actually Make Decisions

• Administrative/descriptive approach – Simon Model

– How managers really make decisions

– Recognize human and environmental limitations

• Bounded rationality – people have limits or boundaries

• Satisficing – decision makers choose the first solution that satisfies minimal decision criteria


• Goals are often vague• Rational procedures are not always used• Managers’ searches for alternatives are limited• Most managers settle for satisficing

Intuition – quick apprehension of situation based on practice and experience

Steps in the Administrative Model


Decision-Making Model: Political

• Decisions involve managers with diverse interests

• Managers must engage in coalition building

– Informal alliance to support specific goal

• Without a coalition, powerful groups can derail the decision-making process

• Political model resembles the real environment


9.2 Comparing the Models


Decision-Making Steps

1. Recognition of Decision Requirement – identify problem or opportunity

2. Diagnosis and Analysis – analyze underlying causal factors

3. Develop Alternatives – define feasible alternatives

4. Selection of Desired Alternative – alternative with most desirable outcome

5. Implementation of Chosen Alternative – use of management persuasive abilities to execute

6. Evaluation and Feedback – gather information about effectiveness


9.3 Six Steps in Managerial Decision-Making Process


9.4 Decision Alternatives with Different Levels of Risk


9.5 Personal Decision Framework


Many managers depend on their own decision-making style to make decisions

Personal Decision Framework

• Directive style – people who prefer simple, clear-cut solutions to problems

• Analytic style – managers prefer complex solutions based on a lot of data

• Conceptual style – managers like a broad amount of information

• Behavioral style – managers with a deep concern for others


Why Do Managers Make Bad Decisions?

Being influenced by initial impressions Justifying past decisions Seeing what you want to see Perpetuating the status quo Being influenced by emotions Overconfidence


Innovative Group Decision Making

• Start with brainstorming – spontaneous suggestions in a group

• Engage in rigorous debate – use divergent points of view to focus problems

• Avoid groupthink – acknowledge disagreement as value instead of blind agreement: Kennedy Administration’s invasion of Cuba (1961)

• Act with speed – some decisions have to be made incredibly quickly: Barnes & Noble (1995) on the E-Commerce decision-making

• Don’t ignore crisis – managers should expect and plan for crises (with speed)

• Know when to bail – good managers must know when to pull the plug!: Lehman Brothers vs. Merrill Lynch (2008)


• Less than 10 people• Less than 30 min.• Focus on one topic (subject)• Encourage everyone to participate• Prohibit criticism.• Leader writes the ideas on the board• Alternative Electronic Brainstorming

Effective Brainstorming


• Explain why decision making is an important component of good management.• Discuss the difference between programmed and nonprogrammed decisions and the

decision characteristics of certainty and uncertainty.• Describe the ideal, rational model of decision making, and the political model of

decision making.• Explain Bounded Rationality, Satisficing in Simon Model. • Explain the process by which managers actually make decisions in the real world.• Identify the six steps used in managerial decision making.• Describe four personal decision styles used by managers, and explain the biases that

frequently cause managers to make bad decisions.

Review Questions


• Explain briefly why managers make bad decisions.• Identify and explain techniques for innovative group decision making.• Barnes & Nobles (1995) demonstrates a case of bad decision-making. Explain briefly

how Barnes & Nobles could have avoided such bad decision-making, in terms of innovative decision-making.

• Lehman Brothers (2008) presents a case of bad decision-making. Explain briefly how Lehman Brothers could have avoided such bad decision-making, in terms of innovative decision-making.

• Kennedy Administration (1961) shows a case of bad decision-making. Explain briefly how President Kennedy could have avoided such bad decision-making, in terms of innovative decision-making.

• Explain briefly how you can run an effective brainstorming session.

Review Questions (continued)


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Chapter 9 Managerial Decision Making. Types of Decisions and Problems Decision making is the process of identifying opportunities A decision is a choice