MGT 1113 - Principles of Management

Lesson 04 - Managerial Decision

Making

Year 1 Semester I
Faculty of Management Studies
Rajarata University of Sri Lanka
Lesson 04 - Managerial Decision
Making

Dr. Sampath Kappagoda

Department of Human Resource Management
Faculty of Management Studies
Rajarata University of Sri Lanka
Learning Objectives
• After studying this chapter, you should be able to:
• Explain why decision making is an important component of good
management.
• Discuss the difference between programmed and non-programmed decisions
• Discuss the decision characteristics of different decision conditions
• Describe the ideal, rational model of decision making and the political model
of decision making.
• Explain the process by which managers actually make decisions in the real
world.
• Identify the six steps used in managerial decision making.
• Identify and explain techniques for innovative group decision making.
Importance of Managerial decision making
• Managers often are referred to as decision makers, success of a manager
depends on how well he/she make decisions.
• Managers at all levels make decision
• Decision making involve with all the managerial function but special in
planning
• Every organization grows, prospers/ succeeds, or fails as a result of decisions
by its managers.
• Involving in the decision making process is motivational
 **To solve problems efficiently:** Managers use decision making to identify issues,
evaluate alternatives, and choose the best course of action to solve problems and
capitalize on opportunities.-

**Manages risks and uncertainties:** Effective decision-making involves assessing risks

and uncertainties, enabling managers to make informed choices that minimize potential
negative impacts.-

**Fosters innovation and creativity:** Decision making drives innovation by determining

which new projects, products, or processes to pursue, fostering a culture that values
creativity and new ideas.-

**Ensures efficient resource allocation:** Decisions about resource allocation ensure

that resources are utilized efficiently, maximizing productivity and minimizing waste.

- **Adapts to changing environments:** Decision making allows organizations to adapt

quickly to changes in the market, technology, or regulatory environment, maintaining
competitiveness and relevance.-

**Engages and motivates employees:** Involving employees in decision making can

enhance motivation and commitment, as they feel valued and contribute to the
organization's success.-

**Holds managers accountable:** Decision-making clarifies responsibilities and

expectations, ensuring that managers are accountable for their decisions and their
impact on organizational outcomes.
Decision
Decision and decision making
• 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.
Programmed and Non-programmed Decisions
Programmed decisions
oAre the decisions managers make in response to repetitive and
routine problems.
oManagers have made decision many times before.
oThere are rules or guidelines to follow

Examples
-Salary preparation
-Enroll students to the faculty
-Deciding how many raw materials to order
- anticipated production, existing stock, and anticipated length of time for the
delivery of the final product
Cont. …….
• Non programmed decisions
o When a problem has not arisen in exactly the same manner before,
or is complex or extremely important.
o No rules to follow since the decision is new.
o Complex and new
o Rational decision making and creative problem solving is needed.
o Examples
o Expand the business to foreign market
o Introduce new degree program
 TYPES OF PROBLEMS,TYPES OF DECISIONS AND
MANAGEMENT LEVEL

Non programmed
decisions
Broad,unstructured ,much
Top uncertainty

Management Both structured Type of

Middle and unstructured problem
Level

Frequent,structured,
Lower repetitive,routing,
much certainty
Programmed
decisions
Decision Making Conditions
 Cont. …….
• Certainty/ confidence means that all the information the decision maker
needs is fully available.
• Managers have information on operating conditions, resource costs or
constraints, and each course of action and possible outcome.
1.The manager has had to make similar decisions, the alternatives are
known, and the consequences of each alternative are fully understood.
2.In this situation, the manager chooses the alternative known to get the
best results.
3.Decisions made under conditions of certainty can mean that a manager can
rely on a policy or standing plan; the decision will be made routinely
• Example

• Person A has Rs 100,000 to invest. He hopes to deposit in a bank.

• There are two banks called X and Y
• X bank pays 10% per year
• Y bank pays 15% per year
• He can earn 10,000 by investing X bank
• He can earn 15,000 by investing Y bank
• He can deposit in bank Y.
 Cont. …….
• Risk means that a decision has clear-cut goals and that good information is
available, but the future outcomes associated with each alternative are
subject to change.
• However, enough information is available to allow the probability of a
successful outcome for each alternative to be estimated.
1. The manager knows what the problem is, knows what the alternatives are,
but does not know how each alternative will work out even though the
manager knows the odds (probabilities) of possible outcomes.
2. The manager must choose the best alternative available.
• Example
• Person A has Rs 100,000 to invest. He hopes to invest this amount in the
share market.
• There are two banks under the banking sector category in share market
• Sampath bank and commercial bank
• Past records of each bank is available
• But there is a risk of making the investment decision
• Can only predict the probability of success.
 Cont. …….
• Uncertainty means that managers know which goals they wish to
achieve, but information about alternatives and future events is
incomplete.
• Factors that may affect a decision, such as price, production costs,
volume, or future interest rates, are difficult to analyze and predict.
• Managers may have to make assumptions
• Managers face uncertainty every day.
• Many problems have no clear-cut solution, but managers rely on
creativity, judgment, intuition/perception, and experience to craft a
response.
Cont. …….

• Ambiguity is by far the most difficult decision situation.

• Ambiguity means that the goals to be achieved or the problem
to be solved is unclear, alternatives are difficult to define, and
information about outcomes is unavailable
 Certainty Risk Uncertainty Ambiguity

Goal or problem has Clear Clear Clear Nor clear

to be solved

information on the available available Not available Not available

alternatives

Consequences of Fully Can predict Can not predict Not known

the alternatives understood the probability
of success
DECISION-MAKING MODELS
• The classical model/ The rational model
• The administrative model
• The political model

• The choice of model depends on the manager’s personal

preference, whether the decision is programmed or non-
programmed, and the degree of uncertainty associated with the
decision.
WHAT ARE STEPS IN THE
RATIONAL DECISION-MAKING
MODEL?
Identify &
define the
problem
Evaluate Develop
and control alternative
solutions
Making a Decision
Implement Evaluate
decision alternative
Select the solutions
best
alternative
 CONT…..

1. Identify and define the problem

-Identifying problems is not as easy as it may
seen.
-If the problem is incorrectly identified or
defined ,the whole process will direct toward
the incorrect decision.
(a) Analysis of the problem.
•While analyzing the problem, the nature of the problem that the organization
has to face, i.e. the causes of the problem, how the problem arose, how the
problem is currently presented, and the expected situation, etc. should be fully
understood.

(b) Identification of the problem.

•In identifying the problem, all data and information about the nature of the
problem should be provided through an accurate means of communication. It is
important to recognize this well because the real situation may be different
from the appearance of the problem and there is also room to mislead the
manager.
 CONT…..

Criteria for locate problems

i. Deviation from past performance
• Sudden change in some established pattern of performance
indicate some problem.

Examples -Employee turnover increases or absenteeism

-Sales decline
-Student enrolment decline
-Expenses increases
-More defective units are produced
-Tourist industry decline and decline the tourist
arrivals
-Financial losses
 CONT. ……….
ii. Deviation from the plan
When results do not meet planned objectives, it
indicates a problem.
Example
-A new product fails to meet its market
objectives
-Profit level are lower than planned
-The production department is exceeding its
budget.
 CONT. ……….
iii. Outside criticism
-Outsiders may identify problems
Example
-Customers may dissatisfied with a new product
or distribution channel
-Labour union may present grievances
-Investment firms may not recommended the
organization as a good investment opportunity
 CONT. ……….

2.Develop alternative solutions

-Potential strategies or solutions to the problem
3.Evaluate alternative solutions

• -Measuring and comparing the possible consequences of each

alternative solution
• The pros and cons of each option should be considered.
• The following criteria should be used in evaluating alternatives.
They are,
• a) Feasibility
• b) Quality
• c) Acceptability
• d) Cost
• e) Reversibility
• E) Ethics and Social Responsibility
4.Selecting the best
alternatives

• -Consider all situational factors and choose the

alternative that best fits the manager’s situation
 CONT. ……….
5. Implement decision
-Implementation is important as the selecting
alternatives
-Good decision can be damaged by poor
implementation
6. Evaluate & Control
-Compare the results with the established standard.
-If problem still exist, face new decisions
Administrative model
• Decision-making model that describes how managers actually make decisions
in situations characterized by non - programmed decisions, uncertainty, and
ambiguity.
• Bounded Rationality and Satisficing
Two concepts that were instrumental in shaping the administrative model
• Bounded rationality means that people have limits, or boundaries,
on how rational they can be. The organization is incredibly complex, and
managers have the time and ability to process only a limited amount of
information with which to make decisions.
• Satisficing means that decision makers choose the first solution alternative
that satisfies minimal decision criteria.
Cont. …….
• Intuition
Another aspect of administrative decision making is intuition.
• Intuition/sensitivity represents a quick apprehension/worry of a
decision situation based on past experience but without conscious
thought.
• it is based on years of practice and hands-on experience that
enable managers to quickly identify solutions without going
through painstaking/careful computations.
• found that nearly half of executives say they rely more on intuition
than on rational analysis to run their companies.
 Political Model
• The third model of decision making is useful for making non-programmed
decisions when conditions are uncertain, information is limited, and there
are manager conflicts about what goals to pursue or what course of action
to take.
• Most organizational decisions involve many managers who are pursuing
different goals, and they have to talk with one another to share
information and reach an agreement.
• Managers often engage in coalition /alliance building for making complex
organizational decisions.
• A coalition is an informal alliance among managers who support a specific
goal.
 Group decision making methods
Brainstorming
• a face-to-face interactive group to spontaneously/suddenly
suggest a wide range of alternatives for decision making.
•The keys to effective brainstorming are that people can build on
one another’s ideas; all ideas are acceptable, no matter how crazy
they seem; and criticism and evaluation are not allowed.
•The goal is to generate as many ideas as possible.
Cont. …….
• Electronic brainstorming
• sometimes called brain writing, brings people together in an interactive
group over a computer network.
• One member writes an idea, another reads it and adds other ideas, and
so on.
• Studies show that electronic brainstorming generates about 40 percent
more ideas than individuals brainstorming alone
• 25 to 200 percent more ideas than regular brainstorming groups,
Cont. …….
• Engage in Rigorous/hard Debate
• An important key to better decision making is to encourage a
rigorous debate of the issue at hand.
• Good managers recognize that constructive conflict based on
divergent/different points of view can bring a problem into
focus, clarify people’s ideas, stimulate creative thinking,
create a broader understanding of issues and alternatives,
and improve decision quality
- Thank you-