decision making chapter 9

8/9/2019 Decision Making Chapter 9

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Managerial Decision Making


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Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Managerial Decision Making

Decision making is not easy

It must be done amid

ever-changing factors

unclear information

conflicting points of view

Managers Challenge: Tupperware


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Decision 1

Walt Disney listened to his wife and named

his cartoon mouse Mickey instead ofMortimer. Entertainment was never the sameafter Mickey and Minnie debuted inStreamboat Willie in 1928


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Decision 2

Frank McNamara, in 1950, found himself

without money in a restaurant, prompting himto come up with the idea of the Diners ClubCard. This first credit card changed thenature of buying and selling throughout the

world.


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Decision 3

Thomas Watson, Jr., of IBM, decided in 1962

to develop the system/360 computer at acost of $5 billion. Although IBMs marketresearch suggested it would sell only twounits worldwide, the result was the first

mainframe computer.


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Robert Woodruff was president of Coca-Cola

during World War II when he committed toselling bottles of Coke to members of thearmed services, for a nickel bottle, startingaround 1941. The decision led to enormous

customer loyalty, including the fact thatreturning soldiers influenced family membersand friends.

Decision 4


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Decision 5

A Hewlett Packard engineer discovered in

1979 that heating metal in a specific waycaused it to splatter. The managementdecision to exploit this discovery launchedthe ink-jet printer business and laid the

groundwork for more than $6 billion inrevenue for HP.


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Decision 6

Ray Kroc liked the McDonald brotherss

stand that sold hamburgers, french fries, andmilk shakes so much that he decided to openhis own franchised restaurant in 1955 andform McDonalds Corp. Kroc soon created a

giant global company and a vast market forfast food.


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Decision 7

Bill Gates, in 1981, decided to license

MS/DOS to IBM, but IBM did not requirecontrol of the license for all non-IBM PCs.The decision laid the foundation forMicrosofts huge success and a downturn in

IBMs prestige and prominence.


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Decisions and Decision Making

Decision = choice made from availablealternatives

Decision Making = process of identifyingproblems and opportunities and resolvingthem


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Categories of Decisions

Programmed Decisions

Situations occurred often enough to enabledecision rules to be developed and applied inthe future

Made in response to recurring organizationalproblems

Nonprogrammed Decisions in responseto unique, poorly defined and largelyunstructured, and have important consequencesto the organization

Ethical Dilemma: The No-Show Consultant


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Conditions that Affect the Possibility

of Decision FailureOrganizational

Problem

Problem

Solution

Low HighPossibility of Failure

Certainty Risk Uncertainty Ambiguity

Programmed

Decisions

Nonprogrammed

Decisions


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Certainty, Risk, Uncertainty, Ambiguity

Certainty 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 tochance 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 information about outcomes is unavailable


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Selecting a Decision Making Model

Depends on the managers personalpreference

Whether the decision is programmed ornon-programmed

Extent to which the decision ischaracterized by risk, uncertainty, orambiguity


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Three Decision-Making Models

Classical Model

Administrative Model

Political Model


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Classical Model

Assumptions

Decision maker operates to accomplish goals thatare 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 andprovides guidelines for reaching an ideal decision

Logical decision in the organizations best economic interests


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AdministrativeModel

Two concepts are instrumental in shaping

the administrative model Bounded rationality: people have limits or

boundaries on how rational they can be

Satisficing: means that decision makers choosethe first solution alternative that satisfies minimaldecision criteria

Herbert A. Simon

How nonprogrammed decisions are made--uncertainty/ambiguity


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Administrative Model

Managers actually make decisions in difficult situationscharacterized by non-programmed decisions, uncertainty,

and ambiguity

Decision goals often are vague, conflicting and lack consensusamong managers;

Rational procedures are not always used Managers searches for alternatives are limited

Managers settle for a satisficing rather than a maximizing solution intuition, looks to past experience

Descriptive = how managers actually make decisions--not howthey should

How nonprogrammed decisions are made--uncertainty/ambiguity


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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 andsolutions are normal

Coalition = informal alliance amongmanages who support a specific goal

Closely resembles the real environment


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Characteristics of Classical, Political,and Administrative Decision MakingModels

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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Steps in decision making

Identify and diagnose the problem

Develop alternatives Evaluate alternative solutions

Choose one alternative

Implement the decision Evaluate and control


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Decision Making Process

SRK works in the human resource department atAirtel Communications. He believes he is seeing an

increase in drinking problems among the workforce.He thinks he needs to investigate further. He is atwhat stage of the managerial decision makingprocess?a. Diagnosis and analysis of causes

b. Development of alternativesc. Recognition of decision requirementd. Evaluation and feedbacke. Selection of desired alternatives


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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: Programmed/non-

programmed

Classical, administrative,

political

Decision steps

Decision Choice:

Best Solution to

Problem

Personal Decision

Style:

Directive

Analytical

Conceptual

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 datafrom 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 theeffect of a given decision upon them

Concerned with the personal development of others

May make decisions to help others achieve theirgoals

Experiential Exercise: Whats Your Personal Decision Style?

decision making chapter 9

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