1. Programmed decision making involves making a routine decision that has been made before many times. Can use rules and guidelines.
2. Nonprogrammed decision making involves making a decision in response to novel opportunities or threats. Rules usually don't exist or apply.
B. The Classical Model – specifies how decisions should be made when one has all the information needed for an optimum (most appropriate) decision.
C. The Administrative Model –decision making is always risky and uncertain, requiring judgement and intuition. March & Simon developed a model based on three concepts:
1. Bounded rationality – the amount of information and the number of possible alternatives is so large that the manager cannot evaluate all of them before making a decision.
2. Incomplete information – the full range of alternatives is unknowable and the consequences are uncertain, for three reasons:
3. Risk and Uncertainty – the probabilities of different outcomes are unknown, and the future outcomes are unknown.
4. Ambiguous information – the meaning of the information can be interpreted in a number of conflicting ways.
5. Time and cost constraints on research
6. Satisficing – exploring a limited range of alternatives and choosing a satisfactory decision, rather than the best decision.
D. Managers must rely on intuition and judgment.
II. Steps in the Decision-making Process
A. Recognize the Need for a Decision – diagnose the problem, identify factors
B. Generate Alternatives
C. Assess Alternatives using specific criteria
1. Practicality – can we implement these alternatives?
2. Economic feasibility – what are the costs and benefits of this decision?
3. Ethicalness – will this decision harm anyone?
4. Legality – is this course of action legal?
D. Choose Among Alternatives
E. Implement the Chosen Alternative by making the many needed subsequent decisions with the participation of middle managers.
F. Learning from Feedback after the decision
III. Biases in Decision Making
Managers use heuristics (rules of thumb) that can lead to systematic errors that result in cognitive biases which can lead to poor decisions.
A. Prior Hypothesis Bias –seek and use information that is consistent with their prior beliefs and ignore information that contradicts these beliefs.
B. Representative Bias –incorrectly generalize from a small amount of information, a small sample, or even one single case.
C. Illusion of Control –overestimate one's ability to control events.
D. Escalating Commitment –add more resources into the project even though feedback indicates that the project is failing.
IV. Improving Decision Making
A learning organization is one in which managers maximize the ability of workers to think and act creatively. Creativity is the ability to discover original and novel ideas for the solution of a problem.
A. Uncover Biases and Manage Time Wisely
B. Adopt a Sustainability Strategy with four elements: protect the environment; promote social responsibility; respect cultural differences; and provide an economic benefit.
C. Become a Learning Organization in which managers maximize the ability of workers to think and act creatively to better understand and manage the organization and its environment.
Creativity is the ability to discover original and novel ideas for the solution of a problem.
D. Promoting Individual Creativity – give workers the freedom to generate new ideas, provide constructive feedback and visible rewards.
V. Utilizing Information and Management Information Systems (MIS)
A. Managers need information to make decisions
1. Data are unsummarized facts
2. Information is data that has been organized into meaningful form.
3. Information technology is the means by which information is acquired, organized, stored, manipulated and transmitted.
B. Attributes of Useful Information
1. Quality – accuracy and reliability of the information
2. Timeliness – available when it is needed for managerial decision-making. Real-time information updates frequently to reflect current conditions.
3. Completeness – all the information a manager needs to make a decision
4. Relevance – useful for the manager's needs
C. Management Information Systems (MIS) are computer-based gathering and processing systems of interconnected components – which are increasingly offered as web-based services (called cloud computing) – needed to combat information distortion and the time and expense of sending information up and down the management hierarchy. Four main types:
1. transaction-processing systems handle large volumes of routine, recurring transactions.
2. operations information systems gather, organize, and summarize data in a form that managers can use in their decision-making tasks.
3. decision support systems have interactive model-building capability
4. expert systems employ human knowledge captured in a computer to solve problems that ordinarily require human expertise.
