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Chapter 9

The document discusses decision making and problem solving. It describes the decision making process as recognizing a decision situation, identifying alternatives, choosing the best alternative, and implementing it. Decisions can be programmed, which are structured, or non-programmed, which are less structured. Decision making can occur under certainty, risk, or uncertainty depending on how much is known about the alternatives. The rational model of decision making involves obtaining complete information, eliminating uncertainty, and choosing the logically best option, while the administrative model recognizes limitations and tends to satisfice.

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Moktasid Hossain
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34 views

Chapter 9

The document discusses decision making and problem solving. It describes the decision making process as recognizing a decision situation, identifying alternatives, choosing the best alternative, and implementing it. Decisions can be programmed, which are structured, or non-programmed, which are less structured. Decision making can occur under certainty, risk, or uncertainty depending on how much is known about the alternatives. The rational model of decision making involves obtaining complete information, eliminating uncertainty, and choosing the logically best option, while the administrative model recognizes limitations and tends to satisfice.

Uploaded by

Moktasid Hossain
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Principles of Management

Managing Decision Making and Problem


Solving
Chapter 09
The Nature of Decision Making
 Decision Making
 The act of choosing one alternative from among a set of
alternatives.
 Decision-Making Process
 The process of recognizing and defining the nature of a decision
situation, identifying alternatives, choosing the “best” alternative, and
putting it into practice.
 An effective decision is one that optimizes
some set of factors such as profits, sales,
employee welfare, and market share.
 Managers make decisions about both
problems and opportunities.
Types of Decisions
 Programmed Decisions
 A decision that is a fairly structured decision or recurs
with some frequency or both.
 Example: Starting your car in the morning.

 Non-programmed decisions
 A decision that is relatively unstructured
and occurs much less often a programmed
decision.
 Example: Choosing a vacation destination.
Decision-Making Conditions
 Decision Making Under Certainty
 A condition in which the decision maker knows with
reasonable certainty what the alternatives are and what
conditions are associated with each alternative.
 Decision Making Under Risk
 A condition in which the availability of each alternative and its
potential payoffs and costs are all associated with risks.
 Decision Making Under Uncertainty
 A condition in which the decision maker does not know all the
alternatives, the risks associated with each, or the
consequences of each alternative.
Rational Perspectives on
Decision Making
 The Classical Model of Decision Making

• obtain complete
. . . and end up with
When faced with a and perfect information
a decision that best
decision situation, • eliminate uncertainty
serves the interests
managers should . . . • evaluate everything
of the organization.
rationally and logically
Steps in the Rational
Decision-Making Process

Step Detail Example

1. Recognizing and Some stimulus indicates that a A plant manager sees that
defining the decision decision must be made. The employee turnover has in-
situation stimulus may be positive or creased by 5 percent.
negative.

2. Identifying alterna- Both obvious and creative The plant manager can in-
tives alternatives are desired. In crease wages, increase bene-
general, the more important fits, or change hiring stan-
the decision, the more alterna- dards.
tives should be considered.

3. Evaluating alterna- Each alternative is evaluated Increasing benefits may not be


tives to determine its feasibility, its feasible. Increasing wages and
satisfactoriness, and its changing hiring standards may
consequences. satisfy all conditions.
Steps in the Rational
Decision-Making Process (cont’d)
Step Detail Example

4. Selecting the best Consider all situational factors, Changing hiring standards will take
alternative and choose the alternative that an extended period of time to cut
best fits the manager’s turnover, so increase wages.
situation.

5. Implementing the The chosen alternative is The plant manager may need
chosen alternative implemented into the permission from corporate
organizational system. headquarters. The human resource
department establishes a new wage
structure.

6. Following up and At some time in the future, the The plant manager notes that, six
evaluating the manager should ascertain the months later, turnover has dropped
results extent to which the alternative to its previous level.
chosen in step 4 and
implemented in step 5 has
worked.
Behavioral Aspects of Decision Making
 The Administrative Model of Decision Making

• use incomplete and


. . . and end up with a
When faced with a imperfect information
decision that may or may
decision situation • are constrained by
not serve the interests
managers actually… bounded rationality
of the organization.
• tend to satisfice
Behavioral Aspects of
Decision Making (cont’d)
 Bounded Rationality
 The concept that decision makers are limited by their values
and unconscious reflexes, skills, and habits.
 Satisficing
 The tendency to search for alternatives only until one is found
that meets some minimum standard of sufficiency to resolve
the problem.
 Coalition
 A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a
goal.
Behavioral Aspects of
Decision Making (cont’d)
 Intuition
 An innate belief about something without conscious
consideration.
 Escalation of Commitment
 A decision maker is staying with a decision even when it appears
to be wrong.
 Risk Propensity
 The extent to which a decision maker
is willing to gamble when making
a decision.
Behavioral Aspects of
Decision Making (cont’d)
 Ethics and Decision Making
 Individual ethics (personal beliefs about right and wrong
behavior) combine with the organization’s ethics to create
managerial ethics.
 Components of managerial ethics:
 Relationships of the firm to employees
 Employees to the firm
 The firm to other economic agents
Decision-Making Conditions (cont’d)
The decision
maker faces
conditions of...

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher


Decision-Making Conditions (cont’d)
 Certainty
Little ambiguity
Singapore Only Two Conditions are and relatively little
airlines Producers fixed for both chance of making
bad decision

Guarantee
Wants to Boeing
Prices
purchase
Jumbo Jets Delivery
Airbus
Dates
Decision-Making Conditions (cont’d)
 Risk
Have to take
Manager & Conditions decision on the
Only Two basis of past
Labor are fixed
Producers experience,
Union for both
relevant
information,
the advice of
Union others, her own
Accept offer representative judgments
Company gets
“final” offer from may bluff
the union right
before a strike Moderate level
deadline Reject the offer Threat of strike of ambiguity
and chances of
bad decision

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