Decision-Making:

The Essence of the Manager’s Job

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 LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter.

The Decision-Making Process

• Define decision and decision-making process.

• Describe the eight steps in the decision-making process.

• Types of Problems and Types of Decisions

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 Decision Making
• Managers at all levels and in all areas of organizations make decisions.
That is, they make choices.
• For instance, top-level managers make decisions about their
organization’s goals, where to locate manufacturing facilities, or what
new markets to move into.
• Middle and lower-level managers make decisions about production
schedules, product quality problems, pay raises, and employee
discipline.
• Making decisions isn’t something that just managers do; all
organizational members make decisions that affect their jobs and the
organization they work for.

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 Decision Making
 Although decision making is typically described as choosing among
alternatives, that view is too simplistic. Why? Because decision making
is (and should be) a process, not just a simple act of choosing among
alternatives.
 Even for something as straightforward as deciding where to go for
lunch, you do more than just choose burgers or pizza.
 Granted, you may not spend a lot of time consider your lunch decision,
but you still go through the process when making that decision.
 Exhibit 7-1 shows the eight steps in the decision-making process. This
process is as relevant to personal decisions as it is to corporate
decisions.
 Let’s use an example—a manager deciding what laptop computers to
purchase—to illustrate the steps in the process.

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 Exhibit 6–1
The Decision-Making
Process

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 Step 1: Identifying the Problem
 Your team is dysfunctional, your customers are leaving, or your plans are no longer
relevant.

 Every decision starts with a problem, a discrepancy between an existing and a desired
condition.

 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outdated and inadequate for doing their job.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.

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 Step 1: Identifying the Problem
 How do managers identify problems? In the real world, most problems don’t come
with neon signs flashing “problem.” When her reps started complaining about their
computers, it was pretty clear to Amanda that something needed to be done, but few
problems are that obvious.

Managers also have to be cautious not to confuse problems with symptoms of the
problem. Is a 5 percent drop in sales a problem? Or are declining sales merely a
symptom of the real problem, such as poor-quality products, high prices, or bad
advertising?

Also, keep in mind that problem identification is subjective. What one manager
considers a problem might not be considered a problem by another manager. In
addition, a manager who resolves the wrong problem perfectly is likely to perform
just as poorly as the manager who doesn’t even recognize a problem and does
nothing. As you can see, effectively identifying problems is important, but not easy.

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 Step 2: Identifying Decision Criteria

 Once a manager has identified a problem, he or she 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.

 In our 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.

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 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. How?

 A simple way is to give the most important criterion a weight of 10 and

then assign weights to the rest using that standard.

 Of course, you could use any number as the highest weight.

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 Exhibit 6–2 Criteria and Weights for Computer Replacement Decision

Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3

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 Step 4: Developing Alternatives

The fourth step in the decision-making process

requires the decision maker to list viable
alternatives that could resolve the problem. In
this step, a decision maker needs to be creative.
And the alternatives are only listed, not
evaluated just yet. Our sales manager Amanda,
identifies eight laptops as possible choices. (See
Exhibit 7-3.)

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 Step 5: Analyzing Alternatives

 Once alternatives have been identified, a decision maker must evaluate each one. How? By using
the criteria established in Step 2.

 Exhibit 7-3 shows the assessed values that Amanda gave each alternative after doing some
research on them. Keep in mind that these data represent an assessment of the eight alternatives
using the decision criteria, but not the weighting.

 When you multiply each alternative by the assigned weight, you get the weighted alternatives as
shown in Exhibit 7-4. The total score for each alternative, then, is the sum of its weighted
criteria.

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 Exhibit 6–3 Assessed Values of Laptop Computers Using
Decision Criteria

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 Exhibit 6–4 Evaluation of Laptop Alternatives Against
Weighted Criteria

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 Step 6: Selecting an Alternative

 The sixth step in the decision-making process is choosing the best

alternative or the one that generated the highest total in Step 5.

 In our example (Exhibit 7-4), Amanda would choose the Dell Inspiron
because it scored higher than all other alternatives (249 total).

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 Step 7: Implementing the Alternative

 In step 7 in the decision-making process, you put the decision

into action by conveying it to those affected and getting their
commitment to it.

 We know that if the people who must implement a decision

participate in the process, they’re more likely to support it
than if you just tell them what to do.

 Another thing managers may need to do during

implementation is reassess the environment for any changes,
especially if it’s a long-term decision. Are the criteria,
alternatives, and choice still the best ones, or has the
environment changed in such a way that we need to
reevaluate?

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 Step 8: Evaluating the Decision’s Effectiveness

 The last step in the decision-making process involves evaluating the outcome or
result of the decision to see whether the problem was resolved. If the evaluation
shows that the problem still exists, then the manager needs to assess what went
wrong. Was the problem incorrectly defined?

Were errors made when evaluating alternatives? Was the right alternative
selected but poorly implemented? The answers might lead you to redo an earlier
step or might even require starting the whole process over.

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 Managers Making Decisions
 Although everyone in an organization makes decisions, decision making is particularly
important to managers. In fact, that’s why we say that decision making is the essence of
management.

 And that’s why managers—when they plan, organize, lead, and control—are called
decision makers. The fact that almost everything a manager does involves making
decisions doesn’t mean that decisions are always time-consuming, complex, or evident to
an outside observer.

 Most decision making is routine. For instance, every day of the year you make a decision
about what to eat for dinner. It’s no big deal. You’ve made the decision thousands of
times before. It’s a pretty simple decision and can usually be handled quickly. It’s the
type of decision you almost forget is a decision.

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 Exhibit 6–5 Decisions in the Management
Functions

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 Types of Problems and Decisions
 Restaurant managers in New York City make routine
decisions weekly about purchasing food supplies and
scheduling employee work shifts.
 It’s something they’ve done numerous times. But now they’re
facing a different kind of decision—one they’ve never
encountered— how to adapt to the new law requiring that
nutritional information be posted.
 Types of Decisions
 Such situations aren’t all that unusual. 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.
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 Types of Problems and Decisions
 STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS.

 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.
 Examples might include when a customer returns a purchase to a store,
when a supplier is late with an important delivery, a news team’s response
to a fast-breaking event, or a college’s handling of a student wanting to
drop a class.

 Such situations are called structured problems because they’re

straightforward, familiar, and easily defined.

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 Types of Problems and Decisions
 For instance, a server spills a drink on a customer’s coat. The customer is upset and the
manager needs to do something. Because it’s not an unusual occurrence, there’s probably
some standardized routine for handling it. For example, the manager offers to have the
coat cleaned at the restaurant’s expense. This is what we call a programmed decision, a
repetitive decision that can be handled by a routine approach. Because the problem is
structured, the manager doesn’t have to go to the trouble and expense of going through an
involved decision process.

 The “develop-the-alternatives” stage of the decision-making process either doesn’t exist

or is given little attention. Why? Because once the structured problem is defined, the
solution is usually self-evident or at least reduced to a few alternatives that are familiar
and have proved successful in the past. The spilled drink on the customer’s coat doesn’t
require the restaurant manager to identify and weight decision criteria or to develop a
long list of possible solutions. Instead, the manager relies on one of three types of
programmed decisions: procedure, rule, or policy.

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 Types of Programmed Decisions
 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. For instance, a purchasing manager receives a
request from a warehouse manager for 15 PDA handhelds for the inventory
clerks. The purchasing manager knows how to make this decision by
following the established purchasing 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. For example, rules about lateness and absenteeism
permit supervisors to make disciplinary decisions rapidly and fairly.

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 Types of Programmed Decisions
 The third type of programmed decisions is 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. Policies typically contain an ambiguous term that leaves interpretation up to
the decision maker. Here are some sample policy statements:
 The customer always comes first and should always be satisfied.
 We promote from within, whenever possible.
 Employee wages shall be competitive within community standards.

 Notice that the terms satisfied, whenever possible, and competitive require
interpretation. For instance, the policy of paying competitive wages doesn’t tell a
company’s human resources manager the exact amount he or she should pay, but it
doe guide them in making the decision.

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 Problems and Decisions (cont’d)
 Unstructured Problems
 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.

 Whether to build a new manufacturing facility in China is an example of an

unstructured problem. So, too, is the problem facing restaurant managers in
New York City who must decide how to modify their businesses to comply
with the new law. When problems are unstructured, managers must rely on
nonprogrammed decision making in order to develop unique solutions.

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 Problems and Decisions (cont’d)
 Nonprogrammed decisions are unique and nonrecurring and involve custom-
made solutions. Exhibit 7-7 describes the differences between programmed and
nonprogrammed decisions.

 Lower-level managers mostly rely on programmed decisions (procedures,

rules, and policies) because they confront familiar and repetitive problems. As
managers move up the organizational hierarchy, the problems they confront
become more unstructured. Why?

 Because lower-level managers handle the routine decisions and let upper-level
managers deal with the unusual or difficult decisions. Also, upper-level
managers delegate routine decisions to their subordinates so they can deal with
more difficult issues.20 Thus, few managerial decisions in the real world are
either fully programmed or nonprogrammed. Most fall somewhere in between.

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 Exhibit 6–8 Programmed versus Non-programmed Decisions

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