Decision Making: The Manager's Job

Study Notes

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.

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 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 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.

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.

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 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 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.

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.