Managerial Decision-Making Concepts

Learning Objectives

• Understanding managerial decision-making involves differentiating between programmed and nonprogrammed decisions, explaining why nonprogrammed decision-making is complex and uncertain.
• Managers should take six steps to make good decisions.
• Cognitive biases can lead managers to make poor decisions.
• Group decision-making has advantages and disadvantages. Techniques can improve group decision-making.
• Organizational learning and creativity are vital for improving managerial decisions.

The Nature of Managerial Decision Making

• Decision-making is the process where managers respond to opportunities or threats, analyzing options and determining specific organizational goals and action plans.
• Managers respond to opportunities and threats by making decisions to improve the business and its stakeholders, like customers, employees, and other stakeholders.
• Managers use decisions to respond to threats, which may be internal or external, adversely impacting business performance. Actions are taken to increase organizational performance.

Programmed and Non-Programmed Decisions

• Programmed decisions follow established rules and guidelines. They involve recurring situations for which managers have made similar decisions in the past.
• Non-programmed decisions are made in response to unusual or unpredictable situations, such as developing a new technology or entering a new market. They lack clear guidelines and involve significant risks.

Nonprogrammed Decision Types

• Intuitive decisions rely on feelings, beliefs, and hunches. They are quick decisions, and information gathering is minimal.
• Reasoned judgments involve careful information gathering, generating alternatives, and evaluating them before a decision. They take more time.

The Classical Model

• A prescriptive model assumes the decision-maker can evaluate all possible alternatives and their consequences, choosing the optimal course of action.
• This model assumes that managers have complete information and are rational in making decisions to achieve optimum results for the organization.

The Administrative Model

• This approach explains that decision-making is uncertain and risky. Managers often make satisfactory, not optimum, choices.
• Three key concepts underpin this model: bounded rationality( cognitive constraints), incomplete information(unknowable alternatives and uncertain outcomes), and satisficing( choosing acceptable rather than optimum options).

Why Information Is Incomplete

• Uncertainty and Risk: Decision-making involves uncertain or unknown future outcomes and risks.
• Ambiguous Information: Information could be interpreted in multiple, often-conflicting ways.
• Time Constraints and Information Costs: Limited time and resources often mean not all information is gathered or considered.

Causes of Incomplete Information

• Risk: Probability of various possible outcomes. Outcomes might not be known with certainty.
• Uncertainty: Probabilities of outcomes cannot be determined, and future outcomes are unknown.
• Ambiguity: Information can be interpreted in many different ways.

Steps in the Decision-Making Process

• Recognizing the need for a decision.
• Generating alternatives.
• Assessing alternatives.
• Choosing among alternatives.
• Implementing the chosen alternative.
• Learning from feedback.

General Criteria for Evaluating Possible Courses of Action

• Economic feasibility: Is it affordable?
• Practicality: Is it doable?
• Ethical considerations

Learn from Feedback

• Compare actual outcomes to expected outcomes.
• Identify reasons for any unmet expectations.
• Develop guidelines to improve future decisions.

Cognitive Biases and Decision Making

• Heuristics: Rules of thumb that simplify the decision-making process, often based on past experiences.
• Systematic errors: Recurring mistakes in decision-making.

Group Decision Making

• Group decision-making is superior to individual decision-making.
• Groups draw on diverse skills and perspectives, avoiding individual biases.
• Groups can generate a wider variety of alternatives.
• Effective group decisions involve processing more information.
• Group members need to cooperate to arrive at decisions,

Group Decision Making Techniques

• Groupthink: A pattern of faulty decision-making caused by group pressure.
• Devil's Advocacy: A technique where a group member plays the opposing role to critically assess an idea.
• Diversity among decision makers: Involves considering diverse perspectives to reduce the negative effect of groupthink.

Organizational Learning and Creativity

• Organizational learning: Managers seek to improve employee abilities to understand and manage the organization and its environment.
• Learning organization: Individuals and groups are encouraged to be creative, maximizing organizational learning potential.

Promoting Individual Creativity

• Encourage opportunities and freedom for new ideas.
• Provide opportunities for experimentation and learning from mistakes.
• Avoid punishing outlandish ideas; instead, focus on constructive feedback.

Promoting Group Creativity

• Brainstorming: Generating a multitude of ideas without criticizing each, then evaluating them later.
• Production blocking: Loss of productivity when team members can't contribute to brainstorming simultaneously, or are not allowed to evaluate each other's ideas during the generation stage.
• Nominal group technique: Writing down ideas, sharing ideas, and then ranking them.
• Delphi technique: Group members respond to questions in writing without face-to-face interaction.

Intrapreneurship and Organizational Learning

• Product champion: A manager who takes ownership of a project.
• Skunkworks: A separate group focused on developing new products or ideas

Glossary (where applicable)

• Terms are included in the notes above.