3.4 Managerial decision making

Before we determine the steps of managerial decision making we must know:

		A decision is a choice made from available alternatives or a decision is a choice made between two or more available alternatives.
		Decision making: Is the process of identifying problems and opportunities and then resolving them. Management decisions typically fall into one of two categories programmed and non-programmed:

			Programmed decisions: A decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future.
			Non-programmed decision: A decision made in response to a situation that is unique is poorly defined and largely unstructured, and has important consequences for the organization.

The steps in managerial decision making process: It consists of six steps.

			Recognition of decision requirement.
			Diagnosis and analysis of causes.
			Development of alternatives.
			Selection of desired alternative.
			Implementation of chosen alternative.

3.4 Managerial decision making

Recognition of decision requirement

	Managers confront a decision requirement in the form of either a problem or an opportunity. A problem occurs when organizational accomplishment is less than established goals.
	Some aspect of performance is unsatisfactory. An opportunity exists when managers see potential accomplishment that exceeds specified current goals. Managers see the possibility of enhancing performance beyond current levels.
	Awareness of a problem or opportunity is the first step in the decision sequence and requires surveillance of the internal and external environment for issues that merit executive attention.
	This resembles the military concept of gathering intelligence. Managers scan the world around them to determine whether the organization is satisfactorily progressing toward its goals.
	Some information comes from periodic financial reports, performance reports, and other sources that are designed to discover problems before they become too serious.
	For example, sharply declining sales figures in the Oldsmobile and Buick divisions of General Motors signaled a problem that needed to be addressed.
	Managers could see that Oldsmobile and Buick had been on a downhill slide for years as the loyal buyers of these brands were aging and the cars failed to appeal to younger buyers.

3.4 Managerial decision making

	Recognition of the problem led managers to focus on decisions about the fate of these two divisions in their overall efforts to lead GM out of the downturn. Managers also take advantage of informal sources.
	They talk to other managers, gather opinions on how things are going, and seek advice on which problems should be tackled or which opportunities embraced.
	Recognizing decision requirements is difficult, because it often means integrating bits and pieces of information in novel ways.

Diagnosis and analysis of causes

Once a problem or opportunity has come to a manager's attention, the understanding of the situation should be refined. Diagnosis is the step in the decision-making process in which managers analyze underlying causal factors associated with the decision situation. Managers make a mistake here if they jump right into generating alternatives without first exploring the cause of the problem more deeply.

Kepner and Tregoe, who have conducted extensive studies of manager decision making, recommend that managers ask a series of questions to specify underlying causes, including the following:

		What is the state of disequilibrium affecting us?
		When did it occur?
		Where did it occur?

3.4 Managerial decision making

		How did it occur?
		To whom did it occur?
		What is the urgency of the problem?
		What is the interconnectedness of events?
		What result came from which activity?

	Such questions help specify what actually happened and why. Managers at Yahoo! Are struggling to diagnose the underlying factors in the company's recent troubles.
	The problem is an urgent one, as the stock price has fallen, advertising sales have plunged and numerous executives, including the heads of four international units have resigned.

Development of alternatives

	Once the problem or opportunity has been recognized and analyzed, decision makers begin to consider taking action.
	The next stage is to generate possible alternative solutions that will respond to the needs of the situation and correct the underlying causes.
	One study found that limiting the search for alternatives is a primary cause of decision failure in organizations.

3.4 Managerial decision making

	For a programmed decision, feasible alternatives are easy to identify and in fact usually are already available within the organization's rules and procedures.
	Non-programmed decisions, however, required developing new courses of action that will meet the company's needs.
	For decisions made under conditions of high uncertainty, managers may develop only one or two custom solutions that will satisfy for handling the problem.
	Decision alternatives can be thought of as the tools for reducing the difference between the organization's current and desired performance.
	At General Motors, executives considered alternatives such as attempting to revive the Oldsmobile and Buick divisions through increased marketing, closing down one or both divisions, or taking the risky step of authorizing one of the divisions to bring out a bold new vehicle model.

Selection of desired alternative

	Once feasible alternatives have been developed, one must be selected. The decision choice is the selection of the most promising of several alternative courses of action.
	The best alternative is one in which the solution best fits the overall goals and values of the organization and achieves the desired results using the fewest resources.
	The manager tries to select the choice with the least amount of risk and uncertainty. Because some risk is inherent for most non-programmed decisions, managers try to gauge prospects for success.

3.4 Managerial decision making

	Under conditions of uncertainty, they might have to rely on their intuition and experience to estimate whether a given course of action is likely to succeed. Basing choices on overall goals and values can also effectively guide selection of alternatives.
	Making choices depends on managers' personality factors and willingness to accept risk and uncertainty. For example, risk propensity is the willingness to undertake risk with the opportunity of gaining an increased payoff.
	The level of risk a manager is willing to accept will influence the analysis of cost and benefits to be derived from any decision.

Implementation of chosen alternative

	The implementation stage involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out. The ultimate success of the chosen alternative depends on whether it can be translated into action.
	Sometimes an alternative never becomes reality because managers lack the resources or energy needed to make things happen. Implementation may require discussion with people affected by the decision.
	Communication, motivation, and leadership skills must be used to see that the decision is carried out. If managers lack the ability or desire to implement decisions, the chosen alternative cannot be carried out to benefit the organization.

3.4 Managerial decision making

Evaluation and feedback

	In the evaluation stage of the decision process, decision makers gather information that tells them how well the decision was implemented and whether it was effective in achieving its goals.
	For example, Tandy executives evaluated their decision to open computer centers for businesses and feedback revealed poor sales performance.
	Feedback indicated that implementation was unsuccessful, and computer centers were closed so Tandy could focus on is successful Radio Shack retail stores.
	Feedback is important because decision making is a continuous, never ending process. Decision making is not completed when an executive or board of directors votes yes or no.
	Feedback provides decision makers with information that can precipitate a new decision cycle. The decision may fail, thus generating a new analysis of the problem, evaluation of alternatives, and selection of a new alternative,
	Many big problems are solved by trying several alternatives in sequence, each providing modest improvement. Feedback is the part of monitoring that assesses whether a new decision needs to be made.

3.4 Managerial decision making

Figure 3.5: Six steps in the managerial decision-making process