Groupthink refers to the tendency of people in groups to suppress contrary opinions.

Chapter 6

Managerial Decision Making

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of Decisions and Problems

A decision is a choice made from available alternatives.

Decision making is the process of identifying problems and opportunities and then resolving them.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Programmed and Nonprogrammed Decisions

Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future.

Nonprogrammed decisions are made in response to situations that are unique, are poorly defined and largely unstructured, and have important consequences for the organization.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Facing Uncertainty and Ambiguity (1 of 2)

Certainty: All the information the decision maker needs is fully available.

Risk: A decision has clear-cut goals and good information is available, but future outcomes associated with each alternative are subject to some chance of loss or failure.

Uncertainty: Managers know which goals they wish to achieve, but information about alternatives and future events is incomplete.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Facing Uncertainty and Ambiguity (2 of 2)

Ambiguity: The goal to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable.

Wicked decisions: associated with conflicts over goals and decision alternatives, rapidly changing circumstances, fuzzy information, unclear links among decision elements, and the inability to evaluate whether a proposed solution will work

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6.1 Conditions That Affect the Possibility of Decision Failure

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Ideal, Rational Model of Decision Making

The classical model of decision making is based on rational economic assumptions and managers’ beliefs about what ideal decision making should be.

Normative means that it defines how a decision maker should make decisions.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Administrative Model (1 of 2)

The administrative model is considered to be descriptive meaning that it describes how managers actually make decisions in complex situations.

Bounded rationality means that people have limits, or boundaries, on how rational they can be.

Satisficing means that decision makers choose the first solution alternative that satisfies minimal decision criteria.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Administrative Model (2 of 2)

Intuition represents a quick apprehension of a decision situation based on past experience but without conscious thought.

Quasirationality means combining intuitive and analytical thought.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Political Model

Useful for making nonprogrammed decisions when conditions are uncertain, information is limited, and there are manager conflicts about what goals to pursue or what course of action to take

A coalition is an informal alliance among managers who support a specific goal.

Coalition building is the process of forming alliances among managers.

Closely resembles the real environment

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6.2 Characteristics of Major Decision-Making Models

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6.3 Six Steps in the Managerial Decision-Making Process

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Decision-Making Steps: Recognition of Requirement

A problem occurs when organizational accomplishment is less than established goals.

An opportunity exists when managers see a potential accomplishment that exceeds specified current goals.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Decision-Making Steps: Diagnosis and Analysis

Diagnosis is the step in which managers analyze underlying causal factors associated with the decision situation.

The 5 Whys is a question-asking method used to explore the root cause underlying a particular problem.

The first why generally produces a superficial explanation and each subsequent why probes deeper into the causes of the problem and potential solutions.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Decision-Making Steps: Development of Alternatives

For a programmed decision, feasible alternatives are easy to identify.

Nonprogrammed decisions require developing new courses of action that will meet the company’s needs.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Decision-Making Steps: Selection of the Desired Alternative

The best alternative solution is the one that best fits the overall goals and values of the organization and achieves the desired results using the fewest resources.

Risk propensity is the willingness to undertake risk with the opportunity of gaining an increased payoff.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6.4 Decision Alternatives with Different Levels of Risk

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Decision-Making Steps: Implementation

The implementation stage involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Decision-Making Steps: Evaluation and Feedback

Decision makers gather information that tells them how well the decision was implemented and whether it was effective in achieving its goals.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Personal Decision Framework (1 of 2)

Decision styles refer to significant differences in the ways in which individual managers may approach problems and make decisions concerning them.

The directive style is used by people who prefer simple, clear-cut solutions to problems.

Managers with an analytical style like to consider complex solutions based on as much data as they can gather.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Personal Decision Framework (2 of 2)

People who tend toward a conceptual style like to consider a broad amount of information but are more socially oriented than those with an analytical style and like to talk to others about the problem and possible alternatives for solving it.

The behavioral style is often adopted by managers who have a deep concern for others as individuals and involves one-on-one discussions.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6.5 Personal Decision Framework

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Why Do Managers Make Bad Decisions? (1 of 2)

Being influenced by initial impressions

Anchoring bias occurs when we allow initial impressions, statistics, and estimates to act as anchors to our subsequent thoughts and judgments.

Justifying past decisions

Sunk cost effect refers to managers who often stick with a decision because they’ve invested a lot of resources in it, even though they’d be better off cutting their losses and moving on.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Why Do Managers Make Bad Decisions? (2 of 2)

Seeing what you want to see

Confirmation bias: when a manager puts too much value on evidence that is consistent with a favored belief or viewpoint and discounts evidence that contradicts it

Perpetuating the status quo

Being influenced by emotions

Being overconfident

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Innovative Decision Making (1 of 3)

Brainstorming uses a face-to-face interactive group to spontaneously suggest as many ideas as possible for solving a problem.

Electronic brainstorming brings people together in an interactive group over a computer network.

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Innovative Decision Making (2 of 3)

Use hard evidence

Evidence-based decision making means a commitment to make more informed and intelligent decisions based on the best available facts and evidence

Engage in rigorous debate

Avoid groupthink (the tendency of people in groups to suppress contrary opinions)

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Innovative Decision Making (3 of 3)

Know when to bail

Escalating commitment: Managers and organizations often continue to invest time and money in a solution even when there is strong evidence that it is not appropriate.

Do a postmortem

After-action review: a disciplined procedure whereby managers invest time in reviewing the results of decisions on a regular basis and learn from them

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© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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