Decision Making: The Manager's Job

Decision Making

• Decision making is the process of choosing from two or more alternatives.
• All organizational members make decisions, and decision making is a pervasive aspect of organizations.
• The decision-making process involves eight steps: identifying a problem, identifying decision criteria, allocating weights to criteria, developing alternatives, analyzing alternatives, selecting an alternative, implementing the alternative, and evaluating decision effectiveness.

The Decision-Making Process

• Step 1: Identifying a problem - a discrepancy between an existing and a desired state of affairs that exerts pressure to act.
• Step 2: Identifying decision criteria - what's relevant in making a decision.
• Step 3: Allocating weights to criteria - giving appropriate priority to each criterion.
• Step 4: Developing alternatives - listing viable alternatives without evaluating them.
• Step 5: Analyzing alternatives - evaluating each alternative against the criteria.
• Step 6: Selecting an alternative - choosing the best alternative.
• Step 7: Implementing the alternative - conveying the decision to those affected and getting their commitment.
• Step 8: Evaluating decision effectiveness - determining whether the problem is resolved.

Rational Decision Making

• Rational decision making involves making consistent, value-maximizing choices within specified constraints.
• Assumptions of rationality include being objective and logical, defining a clear goal, selecting the alternative that maximizes the likelihood of achieving the goal, and making decisions in the firm's best economic interests.
• However, managerial decision making seldom meets all these tests.

Bounded Rationality

• Bounded rationality involves making decisions within a simplified decision-making process that is limited by an individual's ability to process information.
• Satisficing involves accepting solutions that are "good enough" rather than optimal.
• Escalation of commitment involves increased commitment to a previous decision despite evidence that it may have been wrong.

The Role of Intuition

• Intuition involves making decisions based on subconscious processing of experience and accumulated judgment.
• Intuition can complement a rational analysis, but does not rely on a systematic or thorough analysis of the problem.

Types of Problems and Decisions

• Well-structured problems are straightforward, familiar, and easily defined, and can be addressed using programmed decisions.
• Poorly-structured problems are new, unusual, and ambiguous, and require nonprogrammed decisions.
• Most decisions in the real world are neither fully programmed nor nonprogrammed.

Decision-Making Conditions

• Decision-making conditions can be categorized into three types: certainty, risk, and uncertainty.
• Certainty involves knowing the outcome of every alternative.
• Risk involves being able to estimate the probability of outcomes.
• Uncertainty involves being unable to estimate probabilities or predict outcomes.

Decision-Making Styles

• Decision-making styles can be categorized into four types: directive, analytic, conceptual, and behavioral.
• Directive decision makers are fast, efficient, and logical.
• Analytic decision makers are careful and able to adapt or cope with new situations.
• Conceptual decision makers are able to find creative solutions.
• Behavioral decision makers seek acceptance of decisions.

Managing Workforce Diversity in Decision Making

• Diversity in decision making can bring advantages, such as fresh perspectives and creative solutions, but also disadvantages, such as increased time to reach a decision and communication problems.
• Effective management of diversity can lead to better decision-making outcomes.

Learn about the decision-making process, its importance in organizations, and the different approaches to decision making, including the rational and boundedly rational approaches.