Chapter 12
Decision-making and the management process
ALL managers perform POLC.
Managers are faced with opportunities and threats that need to be addressed and problems to be
solved.
The organisation’s long-term survival depends on its manager’s decision making skills.
This is the ability of managers to make better decisions than their competitors, make decisions faster
than competitors and implement decisions effectively and efficiently.
The relationship between problems, problem-solving
and decision-making
Managers are responsible for setting goals and if those goals are not met, a problem exist.
Problems exist whenever managers perceive a difference between what has actually
happened and what they planned to happen.
Problem-solving is the process of taking corrective action that will solve a problem and it
realigns the organisation with its goals.
Decision-making is the process of selecting an alternative course of action that will solve a
problem.
Types of managerial decisions
Programmed decisions
o Decisions that are made by habit or policy and involve simple, common, frequently
occurring problems.
o These decisions are repetitive and routine
o Buying stationery
Non-programmed decision
o Decisions that deal with unusual or novel problems and require creative thinking.
o These decisions are novel, unstructured and have not occurred before
o Firing an employee
, Decision-making conditions
Certainty
o Such decisions are made in conditions where the available options and the benefits
or costs associated with each option are known in advance.
Risk
o Such decisions are made in conditions where the manager does not know the
outcome of each alternative in advance, but can assign a probability to each
outcome.
Uncertainty
o Such decisions are made in conditions where there is a lack of information. The
outcome of each alternative is unpredictable and managers cannot determine
probabilities.
1. Economic recessions, stock market crashes, hostile takeovers
2. Physical industrial accidents, supply breakdowns, product failure
3. Personnel strikes, workplace violence
4. Criminal theft of money and goods, product tampering
5. Theft of information, tampering with company records, cyber attacks
6. Reputation rumour mongering, defamation
7. Natural disasters: fires, floods, earthquakes
Decision making models
The rational model
o Decision-maker selects best possible solution
o Known as optimising
o Use when making non-programmed, high-risk decisions in conditions of uncertainty
Bounded-rationality model
o Decision-maker selects the first possible solution to a problem that meets the
minimal criteria
o Known as satisficing
o Use when making programmed, low-risk decision in conditions of certainty
Decision-making and the management process
ALL managers perform POLC.
Managers are faced with opportunities and threats that need to be addressed and problems to be
solved.
The organisation’s long-term survival depends on its manager’s decision making skills.
This is the ability of managers to make better decisions than their competitors, make decisions faster
than competitors and implement decisions effectively and efficiently.
The relationship between problems, problem-solving
and decision-making
Managers are responsible for setting goals and if those goals are not met, a problem exist.
Problems exist whenever managers perceive a difference between what has actually
happened and what they planned to happen.
Problem-solving is the process of taking corrective action that will solve a problem and it
realigns the organisation with its goals.
Decision-making is the process of selecting an alternative course of action that will solve a
problem.
Types of managerial decisions
Programmed decisions
o Decisions that are made by habit or policy and involve simple, common, frequently
occurring problems.
o These decisions are repetitive and routine
o Buying stationery
Non-programmed decision
o Decisions that deal with unusual or novel problems and require creative thinking.
o These decisions are novel, unstructured and have not occurred before
o Firing an employee
, Decision-making conditions
Certainty
o Such decisions are made in conditions where the available options and the benefits
or costs associated with each option are known in advance.
Risk
o Such decisions are made in conditions where the manager does not know the
outcome of each alternative in advance, but can assign a probability to each
outcome.
Uncertainty
o Such decisions are made in conditions where there is a lack of information. The
outcome of each alternative is unpredictable and managers cannot determine
probabilities.
1. Economic recessions, stock market crashes, hostile takeovers
2. Physical industrial accidents, supply breakdowns, product failure
3. Personnel strikes, workplace violence
4. Criminal theft of money and goods, product tampering
5. Theft of information, tampering with company records, cyber attacks
6. Reputation rumour mongering, defamation
7. Natural disasters: fires, floods, earthquakes
Decision making models
The rational model
o Decision-maker selects best possible solution
o Known as optimising
o Use when making non-programmed, high-risk decisions in conditions of uncertainty
Bounded-rationality model
o Decision-maker selects the first possible solution to a problem that meets the
minimal criteria
o Known as satisficing
o Use when making programmed, low-risk decision in conditions of certainty
