Managers as decision makers

•Managers have to make decisions, whether they are

simple or extremely complex.
•Making a good decision is a difficult exercise. It is the
product of deliberation, evaluation and thought.
•To make good decisions, managers should invariably
follow a sequential set of steps.
•Decision making is a process involving a series of
steps as shown in the Figure on the next page
First Step:

The first step is recognition of the problem.

The manager must become aware that a problem exists and that it is
important enough for managerial action.

Identification of the real problem is important; otherwise, the manager may

be reacting to symptoms and fire fighting rather than dealing with the root
cause of the problem.

In order to monitor the problem situation(decision-making environment),

managers may have to look into management reports, check progress against
budgets, compare the results against industry competitors, and assess factors
contributing to employee efficiency or inefficiency, etc.

They have to use judgement and experience in order to identify the exact
nature of the problem. In other words, the manager must determine what is
to be accomplished by the decision.
Second Step:

The second step in the decision-making process is gathering information

relevant to the problem.

A successful manager must have the ability to weed out the wheat from the
chaff before deciding on a specific course of action.

Once aware of a problem, he must state the real problem.

He must try to solve the problem, not the symptoms.

The manager must pull together sufficient information about why the problem
occurred.

This involves conducting a thorough diagnosis of the situation and going on a

fact-finding mission.
Third Step:

The third step is listing and evaluating alternative courses of action.

Developing alternative solutions (to the problem) guarantees adequate

focus and attention on the problem.

It helps managers to fully test the soundness of every proposal before it

is finally translated into action.

During this step, a thorough "what if" analysis should also be conducted
to determine the various factors that could influence the outcome.
Fourth Step:

Next, the manager selects the alternative that best meets the decision objective.
If the problem has been diagnosed correctly and sufficient alternatives have been
identified, this
step is much easier. Peter Drucker has offered the following four criteria for making
the right
choice among available alternatives:

1. The manager has to weigh the risks of each course of action against the
expected gains.

2. The alternative that will give the greatest output for the least inputs in terms of
material
and human resources is obviously the best one to be selected.
3. If the situation has great urgency, the best alternative is one that dramatizes the
decision
and serves notice on the organisation that something important is happening. On
the
other hand, if consistent effort is needed, a slow start that gathers momentum
may be
preferable.

4. Physical, financial and human resources impose a limitation on the choice of

selection. Of
these, the most important resources whose limitations have to be considered are
the
human beings who will carry out the decision.
Final Step:

Finally, the solution is implemented. The manager must seek feedback

regarding the effectiveness of the implanted solutions.

Feedback allows managers to become aware of the recent problems

associated with the solution. It permits managers to monitor the effects of
their acts to gauge their success.

They can evaluate their own decision-making abilities. Consistent

monitoring and periodic feedback is an essential part of the follow-up
process.
What is Rational Decision-Making Process?

Rational decision making is considered logical and consistent with the intent to maximize
the value, quality, or likelihood of achieving the intended outcome.

Rational decision-making can be explained as several procedural steps:

Identify Problem - Problems or potential problems may present themselves or become

evident through appropriate monitoring. In carrying out this process, managers should
identify goals at the outset of the decision-making process.

Decision Criteria - Managers should identify criteria for potential solutions - as this will
help you avoid bias in choosing an alternative.
Allocate Weights - Some criteria will be more important to some stakeholders than others.
The decision-making process necessary includes considering the interest of stakeholders. In
some instances, it involves seeking stakeholder input.

Develop Alternatives - Its important to develop as wide an array of potential solutions as

possible.

Analyze Alternatives - You will need to determine which criteria are most important and to
what extent it is necessary to sacrifice one for another.

Select an Alternative - After diligent evaluation of the alternatives, the manager must select
an option to deal with the problem or situation.

Implement the Decision - Selecting an approach is only part of the managers responsibility.
Then comes the process of overseeing the implantation of the solution.
Evaluate the Effect - Finally, the manager must evaluate the progress and effectiveness of
the approach.
What is Intuitive Decision Making?

Intuitive decision making, as the name implies, relies on intuition in making a

decision. That is, managers often arrive at a decision to address a problem or
situation without conscious reasoning.

Instead, decisions are based on experience, feeling, and accumulated judgment.

Managers routinely face decisions in challenging contexts, such as environmental
uncertainty, stakeholder interests, time pressures, and the fallout from the
decision.
This reality can limit the ability to follow the rational decision-making process.
Intuitive decision-makers will use environmental scanning to identify patterns
based upon prior experience or knowledge.

This allows the decision-maker to develop a course of action. The decision-making

process is replaced by the individuals understanding of the situation.

Importantly, the decision-maker evaluates one choice at a time.

Generally, a decision-maker who lacks sufficient experience or acquired knowledge

is unable to make such intuitive decisions.
A policy:

It provides a broad guideline for managers to follow when dealing with

important areas of decision making.

Policies are general statements that explain how a manager should

attempt to handle routine management responsibilities.

Typical human resources policies, for an instance, address such matters

as employee hiring, terminations, performance appraisals, pay increases,
and discipline.
A procedure:

Because it explains how activities or tasks are to be carried out. Most

organisations have procedures for purchasing supplies and equipment, for example.

This procedure usually begins with a supervisor completing a purchasing requisition.

The requisition is then sent to the next level of management for approval. The
approved requisition is forwarded to the purchasing department.

Depending on the amount of the request, the purchasing department may place an
order, or they may need to secure quotations and/or bids for several vendors before
placing the order.

By defining the steps to be taken and the order in which they are to be done,
procedures provide a standardized way of responding to a repetitive problem
A rule:

Because it tells an employee what he or she can and cannot do.

Rules are “do” and “don’t” statements put into place to promote the
safety of employees and the uniform treatment and behavior of
employees.

For example, rules about tardiness and absenteeism permit supervisors

to make discipline decisions rapidly and with a high degree of fairness
Decision making styles
 Managers who follow this style assess few
alternatives and consider limited information while
Directive or Autocratic Decision taking any decision.
Making They do not find it important to consult with others
or seek information in any form and use their logic
and idea while taking decisions.

Managers using analytic decision making

style would like to have more information and
consider more alternatives before coming to a
conclusion.

Analytical Decision Making

They seek relevant information from their sources
and consider factual and detailed information
before taking any decision. Such managers are
careful decision makers as they have the ability to
adapt or cope with unique situations.
 Leaders who follow this model believe in
participative management and consider the
achievement of subordinates and always take
suggestions from them.
They try to get inputs from subordinates
Behavioral Decision Making
through meetings and discussions. They try to
avoid/resolve conflicts as acceptance by others
is important to them.

Managers using conceptual decision making

style are intuitive in their thinking and have high
Conceptual Decision Making tolerance for ambiguity.
They look at many alternatives and focus on
long run outcomes.
Common Biases And Errors In Decision-Making
Let’s look at some common decision-making biases and errors
that have a powerful influence on how we think, feel and
behave.

Confirmation Bias
We tend to favor information that conforms to previously held
beliefs. We don’t want to change our opinions and rethinking
something is uncomfortable and difficult. For example, a hiring
manager wants to hire employees only from premier institutes of
the country because they’re considered to have the smartest and
most talented candidates.
Availability Heuristic
We estimate the probability of something happening by placing
importance on the first thing that comes to our minds. We judge
something by how we remember certain information.
For example, you may be afraid of speaking up in group meetings
because your suggestions were heavily criticized in the previous
one.

Hindsight Bias
One of the most common decision-making biases, hindsight bias
is the tendency to look back at past events and say “I knew it all
along”.
For example, if a manager is uncertain about an employee’s ability
to meet a deadline but the employee manages to do so, the
manager is likely to behave as if they had faith in the employee all
along.
Optimism Bias
This psychological bias is rooted in the availability heuristic. The
tendency to be extremely optimistic and overestimate the likelihood
of good things happening is known as optimism bias. For example,
many of us procrastinate because we’re certain of finishing our
projects just on time. While it may not be necessarily bad, optimism
bias can give us a false sense of hope—affecting our mental and
emotional well-being in the absence of desirable outcomes.

Halo Effect
Human brains get lazy sometimes and rely on the first impression
they have of others. The halo effect bias encourages us to focus on
certain attributes (mostly outward appearance) to form the initial
impression about a person. For example, you’re more likely to team
up with someone who can present themselves well and make a
positive impression with their thoughts and ideas.