Managerial
Decision
Making
Chapter 03
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
LO1 Describe the kinds of decisions you will face
as a manager
LO2 Summarize the steps in making “rational”
decisions
LO3 Recognize the pitfalls you should avoid
when making decisions
LO4 Evaluate the pros and cons of using a group
to make decisions
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Learning Objectives (cont.)
LO5 Identify procedures to use in leading a
decision-making group
LO6 Explain how to encourage creative decisions
LO7 Discuss the process by which decisions are
made in organizations
LO8 Describe how to make decisions in a crisis
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Characteristics of Managerial Decisions
Figure 3.1
3-4
Lack of Structure
 Programmed decisions  Non programmed
decisions
 Decisions encountered
and made before, having
objectively correct
answers, and solvable by
using simple rules,
policies, or numerical
computations.
 New, novel, complex
decisions having no
proven answers.
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Comparison of Types of Decisions
Table 3.1
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Uncertainty and Risk
 Certainty
 The state that exists when decision makers have
accurate and comprehensive information.
 Uncertainty
 The state that exists when decision makers have
insufficient information.
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Uncertainty and Risk
 Risk
 The state that exists
when the probability
of success is less
than 100 percent and
losses may occur.
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Conflict
 Conflict
 Opposing pressures from different sources,
occurring on the level of psychological conflict or
of conflict between individuals or groups.
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Two Levels of Conflict
 Individual decision makers experience
psychological conflict when several options
are attractive, or when none of the options is
attractive
 Conflict arises between people
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The Stages of Decision Making
Identifying and
diagnosing the
problem
Evaluating the
decision
Generating
alternative
solutions
Implementing
the decision
Evaluating
alternative
solutions
Making the
choice
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Identifying and Diagnosing the Problem
 Typically, a manager realizes some
discrepancy between the current state (the
way things are) and a desired state (the way
things ought to be).
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Identifying and Diagnosing the Problem
 Such discrepancies may be detected by
comparing current performance against (1)
past performance, (2) the current
performance of other organizations or units,
or (3) future expected performance as
determined by plans and forecasts.
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Generating Alternative Solutions
 Ready-made
solutions
 Ideas that have been
seen or tried before
 Custom-made
solutions
 New, creative
solutions designed
specifically for the
problem
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Evaluating Alternatives
 Evaluating alternatives
 Involves determining the value or adequacy of the
alternatives that were generated
 Which solution will be the best?
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Evaluating Alternatives
 Contingency plans
 Alternative courses
of action that can be
implemented based
on how the future
unfolds.
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Making the Choice
 Maximizing
 A decision realizing
the best possible
outcome
3-17
Question
___________ is achieving the best possible
balance among several goals
A.
B.
C.
D.
Maximizing
Satisficing
Optimizing
Minimizing
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Making the Choice
 Satisficing
 Choosing an option that is acceptable, although
not necessarily the best or perfect
 Optimizing
 Achieving the best possible balance among several
goals
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Implementing the Decision
1. Determine how things will look when the decision is
fully operational.
2. Chronologically order the steps necessary to
achieve a fully operational decision.
3. List the resources and activities required to
implement each step.
4. Estimate the time needed for each step.
5. Assign responsibility for each step to specific
individuals.
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Implementing the Decision
 What problems could this action cause?
 What can we do to prevent the problems?
 What unintended benefits or opportunities could
arise?
 How can we make sure they happen?
 How can we be ready to act when the opportunities
come?
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Evaluating the Decision
 Feedback that suggests the decision is
working implies that the decision should be
continued and applied elsewhere in the
organization.
 Negative feedback means that either (1)
implementation will require more time,
resources, effort, or thought or (2) the
decision was a bad one
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Question
___________ is the process in which a decision
maker carefully executes all stages of decision
making.
A. Innovation
B. Quality
C. Satisficing
D. Vigilance
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The Best Decision
 Vigilance
 A process in which a decision maker carefully
executes all stages of decision making
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Barriers to Decision Making
Psychological biases
Time pressure
Social realities
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Psychological Biases
 Illusion of control
 People’s belief that they can influence events,
even when they have no control over what will
happen
 Framing effects
 A decision bias influenced by the way in which a
problem or decision alternative is phrased or
presented.
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Psychological Biases
 Discounting the
future
 A bias weighting
short-term costs and
benefits more heavily
than longer-term
costs and benefits.
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Pros and Cons of Using a
Group to Make Decisions
Table 3.2
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Potential Problems of Using a Group
 Groupthink
 A phenomenon that
occurs in decision
making when group
members avoid
disagreement as they
strive for consensus
 Goal displacement
 A condition that
occurs when a
decision-making
group loses sight of
its original goal and a
new, less important
goal emerges.
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Managing Group Decision Making
3-30
Constructive Conflict
 Cognitive conflict
 Issue-based
differences in
perspectives or
judgments.
 Affective conflict
 Emotional
disagreement
directed toward
other people.
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Constructive Conflict
 Devil’s advocate
 A person who has
the job of criticizing
ideas to ensure that
their downsides are
fully explored.
 Dialectic
 A structured debate
comparing two
conflicting courses of
action.
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Encouraging Creativity
Creation
Synthesis
Modification
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Brainstorming
 Brainstorming
 A process in which group members generate as
many ideas about a problem as they can; criticism
is withheld until all ideas have been proposed.
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Models of Organizational Decision
Processes
 Bounded rationality
 A less-than-perfect form
of rationality in which
decision makers cannot
be perfectly rational
because decisions are
complex and complete
information is
unavailable or cannot be
fully processed
 Incremental model
 Model of organizational
decision making in which
major solutions arise
through a series of
smaller decisions
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Models of Organizational Decision
Processes
 Coalitional model
 Model of organizational
decision making in which
groups with differing
preferences use power
and negotiation to
influence decisions.
 Garbage can model
 Model of organizational
decision making
depicting a chaotic
process and seemingly
random decisions.
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Two Disasters
Table 3.3
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Decision Making in a Crisis
 What kinds of crises could your company
face?
 Can your company detect a crisis in its early
stages?
 How will it manage a crisis if one occurs?
 How can it benefit from a crisis after it has
passed?
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Elements of a Crisis Plan
1.
2.
3.
4.
5.
Strategic actions
Technical and structural actions
Evaluation and diagnostic actions
Communication actions
Psychological and cultural actions
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Destination CEO: Allstate
 What do you think
would be the most
challenging part of
being CEO of
Allstate?
 Do you agree with
Liddy’s decision not
to write or renew
homeowners’
policies in hurricaneprone areas? Why or
why not?
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