College of Business

1
Management Process Model
linking management
desired processes functions
conditions
Planning Manager Communications
Organizing Coordination Goals
Decision Making Leading
Adaptation Controlling
2
Models of Decision Making
Rational Model (Classical)

• Complete information about alternatives
• Complete information about consequences
• of each alternative
• Objective analysis of facts
• Goal maximize, minimize, optimize

3
Factors that affect our ability to make rational
decisions
Limited cognitive capacity and time Emotions/intui
tion Framing Information Processing Biases all
of the perceptual biases Decision Context
Biases escalation of commitment groupthink org.
impediments
4
Models of Decision Making continued

• Nonrational Models
• Administrative Model
• Bounded Rationality
• Incremental Model
• Intuition
• Political Model

5
Bounded Rationality
Limited available information Limited search for
additional information Limited cognitive
capacity Satisficing solutions
6
Types of Decisions
Programmed Decisions Nonprogrammed decisions
7
Decision Making Environments
Decision making under certainty Decision making
under risk Decision making under uncertainty
8
Summary
Decision Decision Decision
Decision Decision Type
Environ. Model Technique
Goal Programmed Certainty Rational
Habit Maximize
SOPs Minimize
Risk Classical Calculation
Optimize Operations
Research Non- Nonrational Programmed
Uncertainty Administrative Judgement
Satisfice Political
Intuition Inspiration Relativity
9
Decision Making Techniques

• Depends on how much, and the quality of,
• information available which is a function of
• The environment in which decision making is
• to take place
• The ability to forecast that environment

10
Forecasting Techniques

• Forecasting the external environment
• Economic forces
• Technological forces
• Sociocultural forces
• Governmental forces

• Forecasting the internal environment
• Sales forecasting

11
Sales Forecasting Techniques
Forecasts based on what people say they will
do. Jury of Executive Opinion Salesforce
Composite User Expectation Forecasts based on
what people are doing. Test marketing Forecasts
based on what people have done in the past. Time
Series Analysis Correlation analysis Econometri
c Models
12
Decision Making Techniques Under Certainty
Habit SOPs Linear Programming Waiting Line
Analysis (Queuing Theory)
13
Decision Making Techniques under Risk
Decision Tree Analysis Payoff Matrices
14
Decision Tree Analysis
Our Price
Competitors Price Profits
50 30 10 55 40 25 50 40 30 100 80 60
High (.40) Medium (.50) Low (.10) High
(.10) Medium (.60) Low (.30) High (.10) Medium
(.20) Low (.70)
36
High Medium Low
49.6
Market Do not market
Competition .80 No competition
.20
37
37
34
0
High Low
100
Medium
15
Payoff Matrices
How big of a plant to build? Depends on demand
Product Demand Low
Medium High (.50)
(.25) (.25)
Decision Strategies Small Plant Medium
Plant Large Plant
30 -14 -30
30 68 28
30 68 100
16
Decision Making Techniques Under Uncertainty
Decision Matrices without probabilities
Possible States of Nature (Demand)
Alternatives 100,000 200,000
300,000 400,000
Labor Intensive Labor Machine Automated
10 8 9
11 12 8 6
7 20 10 6
4
17
The true meaning of Probabilities
Objective versus Subjective probabilities
1.0 .8 .6 .4 .2 0
Probability Of Success
Low Size of Commitment
High
Statistical averages (Objective
probabilities) Risk Averter Gambler
18
Group Decision Making Techniques
Ordinary Criteria Groups Brainstorming
NGT Delphi
ideas Low Medium High
High Quality of ideas Low Medium
High High Conflict Potential
High Low Medium
Low Time/Cost Medium Low
Low High Task Orientation
Low High High High Sense
of Accomplishment High to Low High
High Medium Commit. To Solution
High n.a. Medium
Low Cohesiveness High High
Medium Low