Chapter 6 – Managerial Decision Making
Types of Decisions and Problems
A decision is a choice made from available alternatives. A decision making is the process of identifying problems and opportunities and then resolving them. Management decisions typically fall in one of the following categories: programmed and non-programmed. A programmed decision is a decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future. A non-programmed decision is a decision made in response to a situation that is unique, is poorly defined and largely unstructured, having important consequences for the organization. One of the primary differences between programmed and non-programmed decisions relates to the degree of certainty or uncertainty that managers deal with in making the decision. Every decision situation can be organized in a scale according to the availability of information and the possibility of failure; the four positions in the scale are certainty, risk, uncertainty, and ambiguity: •
Certainty: this is the situation in which all the information the decision maker needs is fully available. •
Risk: a situation in which a decision has clear-cut goals and good information is available but the future outcomes associated with each alternative are subject to chance. •
Uncertainty: is the situation that occurs when managers know which goals they need to achieve, but information about alternatives and future events are incomplete. •
Ambiguity: a condition in which the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable.
Decision Making Models
The classical model of decision making is based on rational economic assumptions and manager beliefs about what ideal decision making should be. This model is considered to be normative which means it defines how a decision maker should make decisions. The...
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