Managerial

Decision
Making
 Managerial Decision
Making
Decision making is not easy

It must be done amid ever-­‐changing

factors unclear information conflicting
points of view

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 Managerial Decision Making
• Decision Characteristics
• Decision-­‐making Models
• Steps Executives Take Making
Important Decisions
• Participative Decision Making
• Techniques for Improving Decision
Making in Today’s Organizations

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 Decisions and Decision
Making
• Decision = choice made from
available alternatives

• Decision Making = process of

identifying problems and
opportunities and resolving them

4
 Categories of Decisions
• Programmed Decisions
– Situations occurred oOen
enough to enable decision rules
to be developed and applied in
the future
– Made in response to recurring
organizational problems
• Nonprogrammed Decisions – in
response to unique, poorly defined and
largely unstructured, and have important
consequences to the organization

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 Decisions and Decision
Making
Many decisions that managers deal
with every day involve at least
some degree of uncertainty and
require nonprogrammed decision
making
■ May be difficult to make
■ Made amid changing factors
■ Information may be unclear
■ May have to deal with conflicting
6 points of view
 Certainty,
● Certainty Risk, Uncertainty, Ambiguity
● all the information the decision maker needs is
fully available
● Risk
● decision has clear-­‐cut goals
● good information is available
● future outcomes associated with each
alternative are subject to chance
● Uncertainty
● managers know which goals they wish to achieve
● information about alternatives and future events is
incomplete
● managers may have to come up with
creative approaches to alternatives
● Ambiguity
● by far the most difficult decision situation
● goals to be achieved or the problem to be solved is
unclear
● alternatives are difficult to define
7 ● information about outcomes is unavailable
Conditions that Affect the Possibility of
Decision Failure
Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
ti
Selecting a Decision Making
Model
• Depends on the manager’s
personal preference
• Whether the decision is
programmed or non-­‐
programmed
• Extent to which the decision
is characterized by risk,
uncertainty, or ambiguity
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 Three Decision-­‐Making
Models
Classical Model

Administrative Model

Political Model

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 Classical Model
l
A ssumptions
■ Decision maker operates to accomplish
goals that are known and agreed upon
■ Decision maker strives for condition of
certainty – gathers complete information
■ Criteria for evaluating alternatives are
known
■ Decision maker is rational and uses logic
Normative = describes how a manager
should and provides guidelines for
reaching an ideal decision

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 Administrative
Model Herbert A. Simon

ministrative model
● Bounded rationality: people have
limits or boundaries on how rational
they can be

● Satisficing: means that decision

makers choose the first solution
alternative that satisfies minimal
decision criteria
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Administrative Model
● e n a ma --
Managers actual yl make d ecis noi s in
u n ce rt
id ffi uc lt situa9ons characterized by non-­‐
programmed decisions, uncertainty, and ambiguity

● Decision goals often are vague, conflicting and

lack consensus among managers;
● Rational procedures are not always used
● Managers’ searches for alternatives are limited
● Managers sedle for a satisficing rather than a
maximizing solution
● intuition, looks to past experience

● Descriptive = how managers actually make decisions-­‐-­‐

not how they should

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 Political Model
● Closely resembles the real environment in
which most managers and decision makers
operate
● Useful in making non-­‐programmed decisions
● Decisions are complex
● Disagreement and conflict over problems
and solutions are normal

● Coalition = informal alliance

among manages who support a
specific goal
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 Characteristics of Classical,
Political, and Administrative
Decision Making Models
Classical Model Administrative Model Political Model

Clear-cut problem and goals Vague problem and goals Pluralistic; conflicting goals
Condition of certainty Condition of uncertainty Condition of uncertainty/ambiguity
Full information about Limited information about Inconsistent viewpoints;
ambiguous
alternatives and their outcomes Alternatives and their outcomes information
Rational choice by individual Satisficing choice for resolving Bargaining and discussion among
for maximizing outcomes problem using intuition coalition members

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 Six Steps in the
Managerial Decision-­‐
Making Process
6 1.
Evaluation Recognition of
and Decision
Feedback Requirement

2.
5. Diagnosis
Implementation Decision- and
of Chosen Making Analysis
Alternative Process of Causes

4. Selection 3. Development
of Desired of
Alternative Alternatives

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 Diagnosis and Analysis of
Causes
• Diagnosis = analyze underlying
causal factors associated with the
decision situation

• Managers make a mistake if they

jump into generating alternatives
without first exploring the cause of
the problem more deeply

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 Underlying Causes ‐-­

• What is the state of disequilibrium

affecting us?
• When did it occur?
• Where did it occur?
• How did it occur?
• To whom did it occur?
• What is the urgency of the problem?
• What is the interconnectedness of
events?
• What result came from which activity?
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 Selection of Desired
Alternatives
• Risk Propensity = willingness to
undertake risk with the opportunity
of gaining an increased payoff

• Implementation = using managerial,

administrative, and persuasive
abilities to translate the chosen
alternative into action

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 Decision Styles
• Differences among people with
respect to how they perceive
problems and make decisions
• Not all managers make decisions
the same
– Directive style
– Analytical style
– Conceptual style
– Behavioral style
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 Personal Decision
Framework
Situation: Personal Decision Decision Choice:
· Programmed/non- Style: ·Best Solution to
programmed ·Directive Problem
· Classical, administrative, ·Analytical
political ·Conceptual

· Decision steps ·Behavioral

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 Directive Style
• People who prefer simple, clear-­‐cut
solutions to problems
• Make decisions quickly
• May consider only one or two
alternatives
• Efficient and rational
• Prefer rules or procedures

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 Analytical Style
• Complex solutions based on as
much data as they can gather
• Carefully consider alternatives
• Base decision on objective, rational
data from management control
systems and other sources
• Search for best possible decision
based on information available

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 Conceptual Style
• Consider a broad amount of information
• More socially oriented than analytical style
• Like to talk to others about the problem
and possible solutions
• Consider many broad alternatives
• Relay on information from people and
systems
• Solve problems creatively

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 Behavioral Style
• Have a deep concern for others as
individuals
• Like to talk to people one-­‐on-­‐one
• Understand their feelings about the
problem and the effect of a given decision
upon them
• Concerned with the personal development
of others
• May make decisions to help others achieve
their goals

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 Participation in Vroom-Jago
Decision Model
Making
Helps gauge the appropriate
amount of participation for
subordinates in process

Leader Par9cipa9on Styles

✓ Five levels of subordinate participation in
decision making ranging from highly
autocratic to highly democratic
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 Participation in DecisionVroom-Jago
Making Model

✓ Decision participation depends on

the responses to seven diagnostic
questions about

● the problem
● the required level of decision quality
● the importance of having
subordinates commit to the decision

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Decision Making
DECISION
MAKING
The Significance of Decision Making

■ Decision making is the one truly

distinctive characteristic of
managers.
■ Decisions made by top managers
commit the total organization toward
particular courses of action.
The Significance of Decision Making
(cont’d)

■ Decisions made by lower levels of

management implement the strategic
decisions of top managers in the
operating areas of the organization.
■ Decisions invariably involve
organizational change and the
commitment of scarce resources.
 Categories of Decisions/Types

Programmed Decisions (routine,

almost automatic process)
 Situations occurred often enough to enable decision
rules to be developed and applied in the future (There are
rules or guidelines to follow)
 Made in response to recurring organizational
problems (managers have made decision may times before)

Example: deciding to reorder office supplies

Ethical Dilemma: The No-Show Consultant

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 Categories of Decisions/Types
Non-programmed Decisions – (Unusual
situations that have not been often
addressed)
 In response to unique, poorly defined and largely unstructured, and have
important consequences to the organization
 No rules to follow, since the decision is new
 These decisions are made based on information, and a managers intuition
and judgment
Example: should the firm invest in a new technology?
 1.Define the problem
Identify the problem
Define the problem
Identify the problem separately from its
symptoms (A successful manager doesn’t just
attack symptoms; he works to uncover the factors that cause
these symptoms )

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 Eg: Symptoms and their real causes

Symptoms Underlying Problems

Low profits/declining sales Poor market research
High cost Poor design process, poorly
trained employees
Low morale Lack of communication
between management and
subordinates
High employee turnover Rate of pay too low, job design
not suitable
High rate of absenteeism Employees believe that they
are not valued

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 Identifying the limiting factor
 Realistically, managers operate in an environment that
normally doesn’t provide ideal resources. For example-
they may lack the proper budget or may not have the
most accurate information or extra time. So they must
choose to satisfice-to make the best decision possible
with the available information, resources and time
available.

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 2.Develop potential alternatives
A manager should think through and
investigate several alternatives solutions
to a single problem before making a quick
decision. one of the best methods for
developing alternatives is through
brainstorming(where a group works
together to generate ideas and alternative
solutions)

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  Although brainstorming is the most common technique
to develop alternative solutions, managers can use
several other ways to help develop solutions. Here are
some examples-
 nominal group technique (it’s a structured meeting, with
an agenda, restricts discussion during the decision
making process)
 Delphi technique- ( participants never meet, but a group
leader uses written questionnaire to conduct the
decision making
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 Advantages of group decision making
>Groups provide a broader perspective
>Employees are more likely to be satisfied and
to support the final decision
>opportunities for discussion help to answer
questions and reduce uncertainties for the
decision makers.

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 3. Analyze the alternatives

>Decide the relative merits of each idea

>Identify the advantages and disadvantages of each alternative
solutions
>Perform a cost benefit analysis for each alternative
>Rank/give weights/ to each alternative
>A manager needs to evaluate each alternative in terms of-
Feasibility (can it be done)
Effectiveness (how well does it resolve the problem situation?)
Consequences ( what will be its cost to the organization?)
 4. Select the best alternative
Decides which alternative is- the
most feasible and effective less cost
to the organization chances of
success

A manager simply selects the alternative

with
the highest probability of success
5. Implement the decision
6. Establish a control- Actions needs to
be monitored. An evaluation system
should provide feedback on how well the
decisions is being implemented, what are
the results, what adjustments are
necessary to get the results etc…
Decisions and Decision Making

Many decisions that managers deal with

every day involve at least some degree of
uncertainty and require non-programmed
decision making
■ May be difficult to make
■ Made amid changing factors
■ Information may be unclear
■ May have to deal with conflicting points
of view
 MODEL OF DECISION MAKING
D E C I S I O N

P R O G R A M M E D N O N P R O G R A M M E D

ON GOING / RULES REQUIRES THINKING UN-

STRUCTURED EMPRICAL STRUCTURED NOT UNIQUE

M O D E L

C L A S S I C A L A D M I N I S T R A T I V E

1. Approach Rational/Objective Satisficing Approach

2. Type Descriptive (Reality Based)

Prescriptive (Idealized situation)
3. Knowledge Fragmentary
Complete
4. Probability of risk High
Low Many Defined
Only a few Broad
5. Alternatives
available Spectrum
6. Goals
Selecting a Decision
Making Model
Depends on the manager’s
personal preference
Whether the decision is
programmed or non-programmed
Extent to which the decision is
characterized by risk, uncertainty,
or ambiguity
Rational decision making
model
Step Example
Recognizing & defining the A plant manager sees that
situation employee turnover has
increased by 5%
Identifying the alternatives The plant manager can
increase wages, increase
benefits, or change hiring
standards
Evaluating the alternatives Increasing the benefits may
not be feasible. Increasing
wages and changing hiring
standards may satisfy all
conditions
Selecting the best alternative Changing hiring standards will
take an extended period of
Implemen9ng the chosen The plant manager may
alterna9ves need permission from
corporate headquarters.
The HRD establishes a new
wage structure
Following up and evaluating The pant manager notes that
the results six months later turnover has
dropped to its previous level
 CONSTRAINTS OF
RATIONAL DECISION MAKING

1. PROBLEM
• Seldom consensus as to the definition of the problem.
• Differentiate fact from opinion.
• Identify what standard is violated.

2. GENERATE ALTERNATIVE SOLUTION

• The first acceptable solution is usually accepted.
• Alternatives are based on what was successful in the past.
• Specify alternatives that are consistent with goals
 CONSTRAINTS OF
RATIONAL DECISION MAKING

3. EVALUATE ALTERNATIVES
 Limited information available about each alternative.
 Satisfactory solutions, not optimal ones, are usually accepted.
 Do not evaluate main effects and side effects.

4. IMPLEMENT AND FOLLOW UP

 Resistance to change is a universal phenomenon.
 Not always clear what part of the solution should be monitored
or measured in follow-up.
Case Study
 Case Study
Harish Bhatt, a very bright and ambitious
young executive, was born and raised in
Jaipur. He graduated from a local college
and married a girl who was his class-mate.
Harish then went to Mumbai where be
received an M.B.A. He was now in the
seventh year with Birla Steel Ltd. This was
located in Jaipur
•
 Case Study-contd…..

As part of an extension program, the board of directors of

Birla Steel decided to build a new branch plant. Bhatt
was selected to be the manager at the new plant. He
was also informed that if the new plant is a success he
would be promoted to a higher post. The location of the
new plant was to be decided by an ad hoc committee of
which Bhatt was made the chairman. In the committee’s
first meeting Bhatt explained to the members the ideal
requirements for the new plant and gave them one
month to come up with three choice locations
 Case Study- contd…..
When after a month the committee re-met,
it recommender the following cities in
order of preference: Gurgaon,?Chennai;
and Indore.Bhatt thanked the committee
members for their fine job and told them
he would like to study the report in more
depth before he made his final decision.
 Case Study-contd….
That evening he asked his lovely wife. “Honey, how would you like to
move to Gurgaon?” Her answer was quick and sharp. “Heavens
no!” she said. “I have lived in Rajasthan all my life and am not at all
inclined to move out to gurgaon- extent ion of Delhi. That kind of life
is not for me.” Bhatt weakly protested by saying that the committee
had ranked Gurgaon as the best location for the new plant. The
second was Chennai and the third was Indore, but if you insist on
Gurgaon, you will have to by yourself.”
 Case Study-contd….
The next day Bhatt, called his committee together and
said, “Gentlemen, you should all be commended for
doing an excellent job on this report. However, after
detailed study, I am convinced that Indore will meet the
needs of our new plant better than Gurgaon or
Chennai.Therefore,the decision will be to locate the new
plant in Indore,Thank you all again for a job well done”
•
 Case study-Questions
Did Bhatt make a rational decision?
 Decision Styles
Differences among people with respect to
how they perceive problems and make
decisions
Not all managers make decisions the
same
 Directive style
 Analytical style
 Conceptual style
 Behavioral style
 DECISION STYLES
High
Analytical Conceptual
Careful decision Broad outlook examine
makers Adapt to new more alternative long
situation range
find creative solution
Tolerance
for
Ambiguity
Directive Behavioral
Efficient,logical Work well with others
use less information, Receptive to
few alternative suggestions Avoid
make decision fast conflicts
focus on short-term
Rational Intuitive
Low Way of Thinking
 The Scope of Decision Making

■ Individual decision making

■ Group decision making
■ Organizational decision making
■ Metaorganizational decision
making
The Scope of Decision Making

External Environment
 TOYOTA DECISION MAKING METHODS

Preferred Group
Consensus
, with full
Group authority
Consensus,
Management
Seek
Approval
Group
Input, then Fallback (if
Seek
Decide consensus
Individual Fallback
Level of involvement

and not achieved)

Input, then
Announce
Decide
and
Announce
Decide
and
Announce

Time
 THE TOYOTA WAY

1. Thorough Consideration
 Quality of decision
 Asking why? 5 times
 Building Consensus
 Deming Cycle- PDCA
 PDCA CYCLE/DEMING
CYCLE
Problem identification
Problem selection
Problem analysis
Standardization Cause Verification
Future Plan Target Setting
Propose intervention
Management Consent

Training
Monitoring
Comparing Against Implement
TARGET Counter measures
 THE TOYOTA WAY

2. Considering Alternative Solution

 Follow set based Approach
 Different people-different set of alternatives
 Turn conflict into win / win situation
3. Presenting Decision on one page
 Proposal discussed with all
 Agreement before presentation
 One page – formal decision only formality
New Decision Approaches
for Turbulent Times

New e Whys
the Fiv
Brainsto Decision Pra ctice
rming
Approaches
for Turbulent
Times Kno
wW
hen
to Bail
7 Leader Diagnostic Questions
How significant is the decision?
How important is subordinate commitment?
What is the level of the leader’s expertise?
If the leader were to make the decision alone at
what level would subordinates be commided to
the decision?
What level is the subordinate’s support for the
team or organization’s objectives?
What is the member’s level of knowledge or
expertise relative to the problem?
How skilled or commided are group members to
working together?
6t
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