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Managerial Decision Making - Coggle Diagram
Managerial Decision Making
Types of decisions
A decision is a choice made from available alternatives.
Decision making is the process of identifying problems and opportunities and then resolving them. 3 Decision making involves effort both before and after the actual choice.
Programmed decisions
Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future.
Nonprogrammed decisions
Non-programmed decisions are made in response to situations that are unique, poorly defined and largely unstructured, and have important consequences for the organisation.
Samson, Danny, et al.
Facing Uncertainty and Ambiguity
primary difference between programmed and non-programmed decisions relates to the degree of uncertainty, risk, or ambiguity that managers deal with in making the decision
Every decision situation can be organised on a scale according to the availability of information and the possibility of failure. The four positions on the scale are certainty, risk, uncertainty and ambiguity, as illustrated in EXHIBIT 9.1 . While programmed decisions can be made in situations involving certainty, many situations that managers deal with every day involve at least some degree of uncertainty and require non-programmed decision making.
Risk
A decision has clear-cut goals and good information is available, but the future outcomes associated with each alternative are subject to chance.
statistics : pass/fail
Ucertainity
Uncertainty means that managers know which goals they wish to achieve, but that information about alternatives and future events is incomplete. 10 Managers do not have enough information to be clear about alternatives or to estimate their risk. Factors that may affect a decision, such as price, production costs, volume or future interest rates, are difficult to analyse and predict.
Certainty
All the information the decision maker needs is fully available.
Ambiguity
The goals to be achieved or the problems to be solved are unclear, alternatives are difficult to define and information about outcomes is unavailable.
Decision Making Models
How managers actually make decisions
Administrative model
A decision-making model that describes how managers actually make decisions in situations characterised by nonprogrammed decisions, uncertainty and ambiguity.
2 concepts
bounded rationality
The concept that people have the time and cognitive ability to process only a limited amount of information on which to base decisions.
satisficing
settleing
assumptions
rational procedures are not always used and, when they are, they are confined to a simplistic view of the problem that does not capture the complexity of real organisational events
managers’ search for alternatives is limited because of human, information and resource constraints
decision goals often are vague, conflicting and lack consensus among managers; managers often are unaware of problems or opportunities that exist in the organisation
most managers settle for a satisficing rather than a maximising solution; partly because they have limited information and partly because they have only vague criteria for what constitutes a maximising solution.
Intuition represents quick comprehension of a decision situation based on past experience, but without conscious thought.
Political Model
A decision-making model that is useful for making non-programmed decisions when conditions are uncertain, information is limited and there is disagreement among managers.
Assumptions
Information is ambiguous and incomplete. The attempt to be rational is limited by the complexity of many problems as well as personal and organisational constraints. Managers do not have the time, resources or mental capacity to identify all dimensions of the problem and process all relevant information. Managers talk to each other and exchange viewpoints to gather information and reduce ambiguity. Managers engage in the push and pull of debate to decide goals and discuss alternatives. Decisions are the result of bargaining and discussion among coalition members.
Organisations are made up of groups with diverse interests, goals and values. Managers disagree about problem priorities and may not understand or share the goals and interests of other managers.
Classical Model : Rational Decision Making
A decision-making model based on the assumption that managers should make logical decisions that will be in the organisation’s best economic interests.
4 assumptions
◗◗ The decision maker strives for conditions of certainty, gathering complete information. All alternatives and the potential results of each are calculated.
Criteria for evaluating alternatives are known. The decision maker selects the alternative that will maximise the economic return to the organisation.
◗◗ The decision maker operates to accomplish goals that are known and agreed upon. Problems are precisely formulated and defined.
The decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives and make the decision that will maximise the attainment of organisational goals.
Decision Making Steps
Why do managers make poor judgments?