SU 5: Managerial Decision Making

Question 1

What is a decision

Answer 1

A choice made from available alternatives

Question 2

Explain decision-making

Answer 2

Is the process of identifying problems and opportunities and then resolving them

Question 3

Differentiate between programmed decisions and non-programmed decisions

Answer 3

Programmed decisions - are made in response to recurring organization problems. For examples reorder when inventories drop at a certain level.

Non-programmed decisions - are made in response to situations that are unique. They are defined weekly, largely unstructured and have important consequences for the organization. For example, whether to acquire another organization.

Question 4

What are the primary differences between programmed and non-programmed decisions

Answer 4

Certainty - the information the decision-maker needs is fully available

Risk - decision maker has clear cut goals and good information. Future outcomes associated with alternative are subject to chance, loss or failure.

Uncertainty - managers know which goals they wish to achieve. Information about alternatives and future events are incomplete.

Question 5

What are the conditions that affect the possibility of decision failure (pg 267)

Answer 5

Certainty - Risk - Uncertainty - Ambiguity

Question 6

Explain ambiguity

Answer 6

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

Question 7

What are the decision-making models/approach

Answer 7

1. Classical model
2. Administrative model
3. Political model

Question 8

Explain the classical model

Answer 8

It is based on rational economic assumptions and managerial beliefs about what ideal decision-making should be.

Question 9

Explain the administrative model

Answer 9

Administrative model is descriptive in nature - describes how managers actually make decisions in complex situations and recognize human and environmental limitations.

Two concepts shaping the administrative model:

1. Bounded rationality - people have limits or boundaries on how rational they can be
2. Satisficing - decision makers choose the first solution that satisfies minimal decision criteria

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

Question 10

Explain the political model

Answer 10

-Managers must engage in coalition building
-Useful when conditions are uncertain.
-Decisions involves managers with diverse interest

Question 11

The choice of model depends on:

Answer 11

• managers personal preference
• wether the decision is programmed or non-programmed
• degree of uncertainty associated with the decision

Question 12

What are the six steps in the managerial decision-making process (pg 277) also known as the decision-making steps

Answer 12

1. Recognition of decision requirement - identify problem or opportunity
2. Diagnosis and analysis of causes - analyze underlying casual factors
3. Development of alternatives - define feasible alternatives
4. Selection of desired alternatives - alternative with most desirable outcome
5. Implementation of chosen alternative - use of managerial, administrative and persuasive abilities to execute chosen alternative
6. Evaluation and feedback - gather information about effectiveness

Question 13

What are the assumptions/characteristics of the classical model

Answer 13

Assumptions of the classical model:

• the decision maker operate to accomplish established goals, problem is defined
• decision maker strives for conditions of high certainty, gathering complete information
• criteria for evaluating alternatives is known; decision maker select alternative with maximum benefits for the organization
• decision maker is rational and uses logic

Question 14

What are the assumptions/characteristics of the administrative model

Answer 14

Assumptions of the administrative model:

• goals are often vague - managers are often unaware of problems/opportunities
• rational procedures are not always used - does not capture the complexity of real organizational events
• managers’ searches for alternatives are limited - human, resource and information constraints
• most managers settle for satisficing

Question 15

What are the assumptions/ characteristics of the political model

Answer 15

Assumptions/characteristics of the political model:

• organizations are made up of groups with diverse interests, goals and values
• information is ambiguous and incomplete
• lack of time, resources or mental capacity to process all information regarding a problem
• decisions are the result of bargaining and discussion among coalition members

Question 16

What are the four major decisions/personal styles (pg 281-282)

Answer 16

• director style: people who prefer simple, clear cut solutions to problems
• analytic style: managers prefer complex solutions based on a lot of data
• conceptual style: managers like a broad amount of information, have a dialogue with others about the problem and possible alternatives
• behavioral style: managers with a deep consent for others like to engage with people on a one-on-one basis and understand their feelings about the problem

Question 17

Why do managers make poor decisions

Answer 17

• overconfidence: managers have unrealistic expectations on their ability to understand risk and make the right choice
• being influenced by emotions: making a decision when angry, happy or over influenced by emotions
• perpetuating the status quo: basing decisions on what has worked in the past and ignoring new options
• see what you want to see: look for information that supports their instincts or pov and avoid information that contradicts it
• justifying past decisions: making choices that justify their past decisions

Question 18

What are mechanisms to help reduce bias related decision errors (pg 286)

Answer 18

-start with brainstorming
-use hard evidence
-engage in rigorous debate
-avoid group think
-know when to bail
-do a postmortem