Managerial Decision Making

Managerial Decision Making

Types of Decisions

Managers face decisions that vary in structure and certainty:

• Programmed decisions — encountered before, with objectively correct answers solvable using rules or policies
• Nonprogrammed decisions — new, novel, and complex decisions with no proven answers

Conditions under which decisions are made:

• Certainty — decision makers have accurate, comprehensive information
• Uncertainty — decision makers have insufficient information
• Risk — probability of success is less than 100%; losses may occur
• Conflict — opposing pressures from different sources (individual or between groups)

The Six Phases of Decision Making

1. Identify and diagnose the problem — recognise the gap between current and desired state
2. Generate alternative solutions — ready-made (tried before) or custom-made (creative, new)
3. Evaluate alternatives — assess consequences, use contingency plans
4. Make the choice — maximising (best possible), satisficing (acceptable), or optimising (best balance)
5. Implement the decision — plan steps, assign responsibilities, estimate time and resources
6. Evaluate the decision — use feedback to determine if it worked or needs adjustment

Barriers to Effective Decision Making

Key psychological biases include:

• Motivated reasoning — deciding based on desire rather than evidence
• Confirmation bias — accepting information that confirms existing beliefs
• Illusion of control — believing one can influence uncontrollable events
• Framing effects — how options are presented influences choices
• Discounting the future — overweighting short-term costs and benefits

Additional barriers: time pressures and social realities (bargaining, politicking).

Group Decision Making

Groups can provide more perspectives and information, but also create problems:

• Groupthink — people avoid disagreement to preserve team harmony
• Goal displacement — the group loses sight of its original goal
• Social loafing — some members contribute less when in a group

Effective group leadership involves encouraging less vocal members, avoiding domination, and using cognitive conflict (issue-based disagreement) while minimising affective conflict (emotional disagreement). Tools include the devil's advocate and dialectic methods.

Organisational Decision Models

• Bounded rationality — managers cannot be perfectly rational; decisions are complex and information is incomplete
• Incremental model — major solutions arise through a series of smaller decisions
• Coalition model — groups with differing preferences use power and negotiation
• Garbage can model — chaotic process with seemingly random decisions