The
The Managerial
Managerial Decision-Making
Decision-Making
Process
Process
MGT 404
MANAGERIAL DECISION
MAKING
Chapter 1
An Overview
of
Decision
Making
Profile of a Decision
The
Decision-Making
Process
The
Decision Maker
The
Decision
Decision Making and
Problem Solving
Problem
solving is concerned
with overcoming obstacles in
the path toward an objective.
Problem
solving may or may
not require action.
decision is an act requiring
judgment that is translated
into action.
Decision Making and
Problem Solving (contd)
Decision
making is much
more comprehensive than
problem solving.
The
terms are interrelated,
but not interchangeable.
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 (contd)
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.
The Scope of Decision Making
Individual
Group
decision making
decision making
Organizational
decision
making
Metaorganizational
decision making
(Note: Refer to Figure 1.1)
Figure 1.1 The Scope of
Decision Making
Decisional Inputs
(Objectives,
information,
resources,
energy)
Metaorganization
Organization
Group
Interactional
Levels
Individual
Decisional
Outputs
Permeable
Boundaries
(Actions
transactions,
outcomes)
External Environment
A Typology of Decisions
Decision-making
(Fig. 1.2)
Computational
Judgmental
Compromise
Inspirational
strategies
A Typology of Decisions
(contd)
Decision categories
Category I - routine, recurring,
certainty with regard to the
outcome
Category II - nonroutine,
nonrecurring, uncertainty with
regard to the outcome
A Typology of Decisions
(contd)
Decision combinations
Category I / Computational
strategy
Category II / Judgmental
strategy
Table 1.1 A Categorization of
Decision Characteristics
Category I Decisions
Category II Decisions
Classifications
Programmable; routine;
generic; computational;
negotiated; compromise
Nonprogrammable; unique;
judgmental; creative;
adaptive; innovative; inspirational
Structure
Procedural; predictable;
certainty regarding
cause/effect relationships;
recurring; within existing
technologies; well-defined
information channels;
definite decision criteria;
outcome preferences may
be certain or uncertain
Novel, unstructured,
consequential, elusive, and
complex; uncertain cause/
effect relationships; nonrecurring; information
channels undefined, incomplete information; decision
criteria may be unknown;
outcome preferences may
be certain or uncertain
Strategy
Reliance upon rules and
principles; habitual
reactions; prefabricated
response; uniform
processing; computational
techniques; accepted
methods for handling
Reliance on judgment,
intuition, and creativity;
individual processing;
heuristic problem-solving
techniques; rules of thumb;
general problem-solving
processes
Figure 1.2 The Concept of DecisionMaking Strategies
Knowledge
Regarding
the Outcome
Preference for the Outcome
Strong Preference
Weak Preference
High Level
of Knowledge
Computational
Decision-Making
Strategy
Compromise
Decision-Making
Strategy
Low Level
of Knowledge
Judgmental
Decision-Making
Strategy
Inspirational
Decision-Making
Strategy
The Locus of Choice
Top
management makes
Category II decisions.
Operating management
makes Category I decisions.
Middle management
supervises the making of
Category I decisions and
supports the making of
Category II decisions.
Characteristics of Managerial
Decisions (Category II)
Long-range
organizational
objectives
Best choice from among a set
of alternatives
Decision involves
organizational change
Decision requires a
commitment of resources
Characteristics of Managerial
Decisions (Category II) (contd)
Choice
is a means to an end,
not an end to itself
Decision
maker tends to
overestimate success
Success
is measurable through
objectives attainment
Perspectives on Managerial
Decision Making
The
integrative perspective
The
interdisciplinary
perspective
The
The
interlocking perspective
interrelational
perspective
The Managerial
Decision-Making Process
Process
components are
decision-making functions.
Decision-making functions are
highly interrelated and
interdependent.
The process is highly dynamic
with several subprocesses.
The process can accommodate
several concurrent Category II
decisions.
Figure 2.1 The Decision-Making Process
Revise
objectives
Setting
managerial
objectives
Revise or
update
objectives
Follow-up
and
control
Take
corrective
action as
necessary
Searching
for
alternatives
Comparing &
evaluating
alternatives
Renew
search
Implementing
decisions
The act
of choice
Decision-Making Function
No. 1
Setting Managerial Objectives:
Objectives
constitute the
foundation for rational
decision making.
Objectives are the ends for the
means of managerial decision
making.
Attainment of the objective is
the ultimate measure of
decision success.
Decision-Making Function
No. 2
Searching for Alternatives:
The
limitations of time and
money
The
declining value of
additional information
The
rising cost of additional
information
Abort
the search in the zone of
cost effectiveness
Value and
cost of additional information
Figure 2.2 The Cost of Additional Information
Average
value
Point of
optimality
Zone of
cost
effectiveness
Perfection of information
Cost
Marginal
value
100%
Decision-Making Function
No. 3
Comparing and Evaluating
Alternatives:
Alternatives
result from the
search.
There are usually three to five
alternatives.
One alternative is to do nothing.
Alternatives are evaluated using
criteria derived from the objective.
Decision-Making Function No.
3 (contd)
Also:
Evaluation
should include an
anticipation of the likely
outcome for each alternative.
Evaluation should also
anticipate obstacles or
difficulties at the time of
implementation.
Decision-Making Function
No. 4
The Act of Choice:
The
choice is the culmination of
the process, not all of it.
The choice confronts the decision
maker with discernible constraints.
The best alternative may not be
readily apparent to the decision
maker.
Decision-Making Function No.
4 (contd)
Also:
The
best choice is likely to
ensue from the right
approach.
The
choice should be the
alternative most likely to
result in the attainment of
the objective.
Decision-Making Function
No. 5
Implementing Decisions:
Decision success is a function
of decision quality
and
decision implementation.
Decision-Making Function No.
5 (contd)
Areas contributing to decision
success:
Observance
of operating
constraints
Influence of the decision maker
Involvement of decision
implementers
Absence of conflict of interest
Decision-Making Function No.
5 (contd)
Areas detracting from decision
success:
Disregard
of timeliness
Unlimited
additional
information
Disregard
of risk/reward
relationships
Figure 2.3 Evaluation of Strategic
Decision Success
Strategic
Strategic
Decision = f Decision + f Strategic Decision
Implementation
Success
Quality
1. Compatibility with
operating constraints.
1. Conflict of interest.
2. Timeliness.
2. Risk-reward factor.
3. Optimum amount of
information.
3. Understanding the
decision.
4. Influence of the
decision maker.
Decision-Making Function
No. 6
Follow-Up and Control
Follow-up
and control is
essential to ensure that an
implemented decision meets its
objective.
Performance is measured by
observing the implemented
decision in relation to its
standard derived from the
objective.
Decision-Making Function No.
6 (contd)
Also:
Unacceptable
variance from standard
performance should elicit timely and
appropriate corrective action.
Corrective
action (subprocess no. 1)
may result in the implementation of
another alternative (subprocess no.
2), which, if not successful, may
result in a revision of the original
objective (subprocess no. 3).
