MANAGEMENT 3200 DECISION MAKING Is decision making a function of management No but decision making is a key activity at all levels of management Managers also must make decisions related to all functions of management not only to the planning function Decision making techniques are applicable and valuable to all management functions Decision making is applicable to all management functions but most closely related with the planning function Why do we make decisions as managers Decisions are means to an end rather than ends in themselves They are organizational mechanisms through an attempt is made to achieve operative goals and overall organizational goals Accomplish goals ef ciently What s the difference between programmed and non programmed decisions A Programmed decisions are speci c procedures that have been developed for repetitive and routine problems Thus decisions are programmed to the extent that they are repetitive and routine and a speci c procedure has been developed for handling them B Non programmed decisions are speci c to management problems that are novel and unique They are complex and unstructured Thus there is no established procedure for handling them either because it has not arisen in exactly the same manner before or because is complex or extremely important Such decisions deserve special treatment Do managers make more programmed or non programmed decisions in general The management of most organizations faces great numbers of programmed decisions Such decisions should be treated without expending unnecessary organizational resources on them On the other hand non programmed decisions must be properly identi ed as this is the type of decision that forms the basis for allocating billions of dollars worth of resources a year Unfortunately it s the process involved in this type of decision that we know the least about Traditionally programmed decisions have been handled through rules standard operating procedures etc Operational researchers through the development of mathematical models have facilitated the handling of the types of decisions On the other hand non programmed decisions have traditionally been handled by general problem solving processes judgment intuition and creativity Unfortunately the advances that modern management techniques made in improving non programmed decision making have not been nearly as great as the advances that they have made in programmed decision making What is decision making under conditions of certainty of 1 24 Certainty When a decision is made under conditions of certainty the managers knows all the available alternatives and the outcomes associated with each In this case the manager has perfect knowledge about all alternatives and their outcomes There is no element of chance that intervenes between the alternative and its income The outcomes of alternatives are known with 100 probability absolute certainty Certainty is an ideal situation for managerial decision making Under certainty a manager simply picks the alternative with the best outcome Managerial decisions are seldom made under conditions of certainty This is the exception rather than the rule What is decision making under conditions of risk Risk Decisions under risk are most common This condition involves a lack of complete certainty regarding the outcomes of various alternatives but an awareness of the probabilities associated with their occurrence Thus alternatives are known but outcomes are in doubt For example when you get ready to roll a die you know they are six alternatives but the outcome of the roll is n doubt It s a gamble Managers assess probabilities of various outcomes based upon past experience research The key element in decision making under conditions of risk is accurately determining the probabilities associated with each alternative No matter which alternative you select it will be a calculated gamble because there is no sure thing here as opposed to when you make a decision under conditions of certainty and other information What is decision making under conditions of uncertainty Uncertainty When decisions are made under conditions of uncertainty managers don t know alternatives their potential outcomes or the probability of the outcomes occurrence These decisions are the most dif cult In such situations a manager has no knowledge on which to estimate the probability of various outcomes Decisions under uncertainty generally occur in cases where there is no historical data available from which to infer probabilities or in instances that are so novel and complex it s impossible to make comparative judgments The most common case for this type of decision making involves the introduction of new technology What is the key to making good decisions under risk Accurately determining the probability associated with each alternative How do programmed non programmed decisions and the different decision making conditions relate Easiest to program Certainty Most likely non programmed Uncertainty of 2 24 Risk can be both programmed and non programmed What does the traditional economic model assume about decision makers The traditional model of decision making makes two general assumptions about decision makers 1 Managers seek to maximize bene ts or minimize costs ECONOMIC MAN 2 Managers are completely rational Under what decision making condition do decisions get made in the traditional economic model Certainty 1 The manager has perfect knowledge of all alternatives 2 The manager has perfect knowledge of all outcomes of all alternatives 3 The manager has a well ordered and stable set of preferences 4 The manager has the necessary ability to evaluate all the consequences of all the alternatives What does the behavioral model assume about decision makers 1 They operate under bounded rationality 2 They don t maximize they satis ce What is bounded rationality What three things bound one s rationality Simon said that rather than Economic Man there is Administrative Man Administrative Man possesses bounded rationality Managers are unable to grasp the full complexity of managerial decisions due to both their limited mental capacity and emotions and the uncertainty of future events Therefore a manager s rationality is bounded by these three things limited mental capacity emotions and unforseeability of future events What is satis cing How does it differ from maximizing Is it irrational With maximizing we consider all alternatives select best one as humans we can