Planning: Managers

as Decision Makers

Dr. Wahid Bux Mangrio

Learning outcomes
• Describe the eight steps in the decision-making process.
• Explain the four ways managers make decisions.
• Classify decisions and decision-making conditions.
The Decision-Making Process
• Managers at all levels and in all areas of organizations make
decisions – make choices
• Top-level mangers
• Make decision about their organization’s goals
• Where to locate manufacturing facilities
• What new markets to move into
• Middle and lower-level managers
• Make decision about production schedules
• Product quality problems
• Pay raises
• Employee discipline

Focus of this lecture: how mangers make decision

The Decision-Making Process
• Decision-making is described as choosing alternatives, that
view is simplistic. Why?
• Because decision making is a process, not just a simple act of
choosing among alternatives
• Example: decide where to go for lunch
• Next slide shows the eight steps in the decision-making process
• This process is relevant to personal decisions as it is to
corporate decisions
 "My sales reps need new computers!"
Identifying a problem
• Memory and storage
Decision-making Identifying
•
•
Display quality
Battery life
Process decision criteria •
•
Warranty
Carrying weight
• Memory and storage 10
Allocating Weight • Display quality 8
to the criteria • Battery life 6
• Warranty 4
• Carrying weight 3
HP ProBook Toshiba Satellite
Developing Sony VAIO Sony NW
alternatives Lenovo IdeaPad Dell Inspiron
Apple Macbook HP Pavillion
HP ProBook Toshiba Satellite
analyzing Sony VAIO Sony NW
alternatives Lenovo IdeaPad Dell Inspiron
Apple Macbook HP Pavillion
Selecting an HP ProBook Toshiba Satellite
alternative Sony VAIO Sony NW
Lenovo IdeaPad Dell Inspiron
Apple Macbook HP Pavillion
Evaluating Decision Implementing the
Effectiveness alternative Dell Inspiron
Eight Steps in the decision-making process
• STEP 1: Identifying a problem
• Your team is dysfunctional,
• Your customers are leaving, or
• Your plans are no longer relevant
• Every decision start with a problem – a discrepancy between an existing
and a desired condition.
Example: Amanda is a sales manager whose reps need new laptops because their old ones are
outdated and inadequate for doing their job. To make it simple, assume it’s not economical to add
memory to the old computers and it’s the company’s policy to purchase, not lease. Now we have a
problem—a disparity between the sales reps’ current computers (existing condition) and their need
to have more efficient ones (desired condition). Amanda has a decision to make.

• Managers also have to be cautious not to confuse problems with

symptoms of the problem.
Eight Steps in the decision-making process
• STEP 2: Identifying decision criteria
• Must identify the decision criteria that are important or relevant to
resolving the problem
• Every decision maker has criteria guiding his or her decisions even if
they’re not explicitly stated
Example: Amanda decides after careful consideration that memory and
storage capabilities, display quality, battery life, warranty, and carrying
weight are the relevant criteria in her decision.
 Eight Steps in the decision-making process
• STEP 3: Allocating Weights to
the criteria
• If the relevant criteria aren’t equally
important, the decision maker must
weight the items in order to give
them the correct priority in the
decision.

• STEP 4: Developing alternatives

• To list viable alternatives that could
resolve the problem
• Decision maker need to be creative
 Eight Steps in the decision-making process
• STEP 5: Evaluating alternatives
• Once alternatives have been identified, a decision maker must evaluate
each one
• How? By using the criteria established in Step 2
 Eight Steps in the decision-making process
• STEP 6: Selecting an alternative
• Choosing the best alternative or the one that generated the highest total in step
5
• STEP 7: Implementing the alternative
• Put the decision into action by conveying it those affected and getting their
commitment to it
• Mangers need to do during implementation is reassess the environment for any
change
• STEP 8: Evaluating Decision Effectiveness
• Evaluating the outcome or result of the decision to see whether the problem was
resolve
• If the evaluation shows that the problem still exists, then the manager needs to
assess what went wrong
Managers Making Decisions
• Everyone in organization make decisions, decision making is
particularly important to managers
• It is part of all four managerial functions
• Decision making is the essence of management
• That’s why mangers – when they plan, organize, lead, and
control – are called decision makers
Managers Making Decisions
Functions Decision area
• What are the organization’s long-term objectives?
• What strategies will best achieve those objectives?
Planning
• What should the organization’s short-term objectives be?
• How difficult should individual goals be?
• How many employees should I have report directly to me?
• How much centralization should there be in the organization?
Organizing
• How should jobs be designed?
• When should the organization implement a different structure?
• How do I handle employees who appear to be unmotivated?
• What is the most effective leadership style in a given situation?
Leading
• How will a specific change affect worker productivity?
• When is the right time to stimulate conflict?
• What activities in the organization need to be controlled?
• How should those activities be controlled?
Controlling
• When is a performance deviation significant?
• What type of management information system should the organization have?
Four perspectives on how managers
make decisions
• Making Decisions: Rationality
• We assume that managers will use rational decision making – they will
make logical and consistent choices to maximize value
• They have all tools and techniques to help them be rational decision makers

Assumption of rationality
• A rational decision maker would be fully objective and logical.

• Making decisions rationally would consistently lead to selecting the

alternative that maximizes the likelihood of achieving that goal

• Decisions are made in the best interests of the organization

 Four perspectives on how managers
make decisions
• Making Decisions: Bound Rationality
• A more realistic approach to describing how managers make decisions is
the concept of bounded rationality - managers make decisions
rationally, but are limited (bounded) by their ability to process information
• Because they can’t possibly analyze all information on all alternatives
• managers satisfice (they accept solutions that are “good enough.”), rather than
maximize.
• They’re being rational within the limits (bounds) of their ability to process
information.
Example: Suppose that you’re a finance major and upon graduation you want a job, preferably as a personal
financial planner, with a minimum salary of $35,000 and within a hundred miles of your hometown. You accept a
job offer as a business credit analyst—not exactly a personal financial planner but still in the finance field—at a
bank 50 miles from home at a starting salary of $34,000. If you had done a more comprehensive job search, you
would have discovered a job in personal financial planning at a trust company only 25 miles from your
hometown and starting at a salary of $38,000.
Four perspectives on how managers
make decisions
• Making Decisions: The Role of Intuition
• Managers often use their intuition to help their decision making.

• What is intuitive decision making? It’s making decisions on the

basis of experience, feelings, and accumulated judgment

• five different aspects of intuition, which are described in next slide

• Intuitive decision making can complement both rational and bounded

rational decision making
Four perspectives on how managers
make decisions
• Making Decisions: The Role of Evidence-Based Management
• Decisions also to be based on the best available evidence
• “Any decision-making process is likely to be enhanced through the use of relevant and
reliable evidence, whether it’s buying someone a birthday present or wondering which
new washing machine to buy.”

• Evidence-based management (EBMgt), which is the “systematic use of the

best available evidence to improve management practice.”

• The four essential elements of EBMgt are:

• the decision maker’s expertise and judgment;
• external evidence that’s been evaluated by the decision maker;
• opinions, preferences, and values of those who have a stake in the decision; and
• relevant organizational (internal) factors such as context, circumstances, and
organizational members.
Types of decisions
• Managers in all kinds of organizations face different types of
problems and decisions as they do their jobs.

• Depending on the nature of the problem, a manager can use

one of two different types of decisions.

• Structured problems and programmed decisions

• Unstructured problems and unprogrammed decisions

Types of decisions: Structured problems and
programmed decisions (1)
• Some problems are straightforward.
• The decision maker’s goal is clear, the problem is familiar, and
information about the problem is easily defined and complete
• For example
• When a customer returns a purchase to a store
• when a supplier is late with an important delivery
• Such situations are called structured problems because they’re
straightforward, familiar, and easily defined.
• A programmed decision - a repetitive decision that can be
handled by a routine approach.
• Example: server spills a drink on a customer’s coat.
 Types of decisions : Structured problems and
programmed decisions (2)
• The manager relies on one of three types of programmed decisions:
procedure, rule, or policy.
• A procedure is a series of sequential steps a manager uses to respond to a
structured problem.
• The only difficulty is identifying the problem. Once it’s clear, so is the procedure
• A rule is an explicit statement that tells a manager what can or cannot be
done.
• Rules are frequently used because they’re simple to follow and ensure consistency.
• Example: rules about lateness and absenteeism permit supervisors to make disciplinary
decisions rapidly and fairly.
• A policy – which is a guideline for making a decision.
• In contrast to a rule, a policy establishes general parameters for the decision maker
rather than specifically stating what should or should not be done
• Example: The customer always comes first and should always be satisfied.
 Types of decisions : Unstructured problems &
unprogrammed decisions
• Not all the problems managers face can be solved using
programmed decisions.
• Many organizational situations involve unstructured problems,
which are problems that are new or unusual and for which
information is ambiguous or incomplete.
• When problems are unstructured, managers must rely on
nonprogrammed decision making in order to develop unique
solutions.
• Nonprogrammed decisions are unique and nonrecurring and involve
custom-made solutions.
Programmed Vs Nonprogrammed Decisions
Decision-making conditions