Marketing Manager Course - Chapter 06
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McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
6
Decision Making
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After reading this chapter, you should be able to:
Know how to implement the six stages of management
decision making.
Apply the criteria of quality and acceptance to a decision.
Recognize the characteristics of management decisions:
programmability, uncertainty, risk, conflict, and decision
scope.
Reap the advantages and avoid the disadvantages of
group decision making.
Develop the skill of time management to allow adequate
time to make decisions.
Know when to delegate, and do so wisely.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Introduction
Making decisions under conditions of risk and
uncertainty is one of the most important activities
that managers engage in.
Generally, there is a lack of information and a
limited amount of time available to make the
decision.
Procrastinating and not making a decision
sometimes has greater risk than making it.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Making
The process of identifying
problems and opportunities and
resolving them.
Management decisions can be
made by managers, teams, or
individual employees, depending
on:
The scope of the decision, and
The design and structure of the
organization.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Characteristics of Management
Decision Making
Program m abiiy
lt
D eci on Scope
si U ncert nt
ai y
C onfi
lct Ri
sk
Crisis
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Characteristics of Management
Decision Making (Cont)
Programmed Decisions
Programmability
Non-programmed Decisions
Certainty
Uncertainty
Uncertainty
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Characteristics of Management
Decision Making (Cont)
Risk – occurs when the outcome of
management decision is uncertain
Risk has both positive and negative aspects
Decision environment for risk vary depending upon company
culture and size
Conflict – occurs when there are opposing goals,
scares resources, or differences in priorities
Crisis – a situation that involves small amounts of
time to make a decision that can impact the
survival of the organization
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Characteristics of Management
Decision Making (Cont)
Decision Scope – the effect and time horizon of a
decision
Strategic Decisions – long term perspective of 2-5 years and
affect on the organization
Tactical Decisions – short term perspective of 1 year or less and
focus on subunits
Operational Decisions – shortest time perspective, generally
less than a year, often measured on a daily or weekly basis
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
© 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Stages of Decision Making
Identifying Generating Selecting
and alternative Evaluating the best Implementing
diagnosing solutions alternatives alternative the decision
the problem
Evaluating
the decision
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Typical problems
that require decisions
A high level of employee turnover.
A reduction in firm profits.
Unacceptable levels of “shrinkage” in a store.
Lower than planned quality of finished goods.
An unexpected increase in workplace injuries.
The invention of a new technology that can
increase the productivity of the workforce.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Evaluating Alternatives
Decision criteria should be related to the
performance goals of the organization and its
subunits.
Decision criteria can include:
Costs
Profits
Timeliness
Whether the decision will work
Fairness
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Evaluating Alternatives (continued)
A practical way to apply decision criteria is to
consider:
Decision quality – aspect of decision making based on such
facts as costs, revenues, and product design specifications.
Decision acceptance – aspect of decision making based on
people’s feelings.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Approaches to selecting
the best alternative
Optimizing – selecting the best
alternative from among
multiple criteria.
Satisficing – selecting the first alternative
solution that meets a minimum
criterion.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Key factors for
successful implementation
Providing resources (staff, budgets, office space)
that will be needed for the activities that are required
for successful implementation.
Exercising leadership to persuade others to move the
implementation forward.
Developing communication and information
systems that enable management to know if the
decision alternative is meeting its planned objectives.
Recognition and rewards for individuals and teams
that are successful with implementation.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Assumptions of the Rational
Decision Making Process
The problem is clear and unambiguous.
There is a single, well-defined goal that all parties
agree to.
Full information is available about criteria.
All the alternatives and their consequences are
known.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Assumptions of the Rational
Decision Making Process (continued)
The decision preferences are clear.
The decision preferences are constant and stable
over time.
There are no time and cost constraints affecting
the decision.
The decision solution will maximize the economic
payoff.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Factors That Limit Rational
Decision Making
O rgani i Poltcs
zaton ii
Em otons and Personal
i
Preferences
Il on ofC ont
lusi rol
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Nonrational Decision
Making Models
Satisficing Model
Bounded rationality – the ability of a manager to be
perfectly rational is limited by factors such as cognitive
capacity and time constraints
Therefore, decision makers apply heuristics , or decision
rules, that quickly eliminate alternatives
By using the heuristic known as satisficing, a manager
seeks out the first decision alternative that appears to be
satisfactory
Satisficing is an accurate model many management
decisions.
Nonrational Decision
Making Models (continued)
Garbage Can Model
This model suggests that managers have a set of
preestablished solutions to problems located in
“garbage cans.”
The garbage can model is likely to be used when
decision makers are undisciplined and have no clear
immediate goals.
The decision making process lacks structure
This can lead to serious difficulties
