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Chapter 9. - Chapter 9 Managerial Decision Making Types of...

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Chapter 9 – Managerial Decision Making Types of Decisions and Problems o Decision Choice made from available alternatives o Decision Making Process of identifying problems and opportunities and then resolving them o Programmed and Nonprogrammed Decision Programmed Decisions Situations that have occurred enough to enable decision rules to be developed and applied in the future Made in response to reoccurring problems Nonprogrammed Decisions Made in response to unique situations that have important consequences Ex: Enter new market, develop new product, etc. o Certainty, Risk, Uncertainty, and Ambiguity Picture page 273 Certainty All the information the decision maker needs is available Very few certain decisions in the real world Risk Decision has clear-cut goals Good information is available, enough to estimate probability of outcomes 1
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Future outcomes for each alternative are subject to chance Uncertainty Managers know which goals they want to achieve, but information is incomplete Not enough information to estimate risk Managers will need to use personal judgment o Don’t always produce the desired results Ambiguity Most difficult decision situation Goals to be achieved, problems to be solved are unclear No information available Called wicked decision problems Can create much conflict Decision-Making Models o Classical Model Considered to be Normative How a decision maker should make decisions Based on economic assumptions Helps decision makers become more rational Managers expected to make decisions that are in company’s best interests 4 Assumptions Underlying this Model Decision maker operates to accomplish goals that are known and agreed upon, problems are precisely formulated and defined Decision maker gathers complete information, all alternatives and results are estimated Criteria for evaluating alternatives are known, decision maker selects alternative that will maximize economic return to organization Decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives, and make decision best for organization o Administrative Model (Herbert Simon) Considered to be Descriptive Describes how managers make decisions in complex situations rather than how they should 2
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Bounded Rationality and Satisficing 2 Concepts to shape administrative model o Bounded Rationality People have limits/boundaries on how rational they can be o Satisficing
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