Nature of Managerial Decision-making:
The situations in which managers have to act
differ according to the types of problems that must be
Programmed decisions are those made in routine, repetitive,
well-structured situations through the use of
predetermined decision rules.
Many programmed decisions are derived from established practices and
procedures or habit. Computers are
an ideal tool for dealing with several kinds of complex programmed
Most of the decisions made by first-line managers and many by middle
managers are Programmed
Non-programmed decisions are those for which predetermined decision
rules are impractical because the
situations are novel and/or ill-structured.
Types of Problems and Decisions:
Managers will be faced with different types of
problems and will use different types of decisions.
1. Well-structured problems
are straightforward, familiar, and easily
defined. In handling this
situation, a manager can use a
programmed decision, which is a repetitive
decision that can be
handled by a routine approach. There are three possible programmed
a. A procedure
is a series of interrelated sequential steps that can
be used to respond to a structured
b. A rule
is an explicit statement that tells managers what
they ought or ought not to do.
c. A policy
is a guide that establishes parameters for making
decisions rather than specifically stating
what should or should not be done
2. Poorly structured problems
are new or unusual problems in which
information is ambiguous or
incomplete. These problems are best handled by a
non-programmed decision that is a
unique decision that requires a custom-made solution.
General Organizational Situations:
a. At the higher levels of the organization,
managers are dealing with poorly structured problems and
using non-programmed decisions.
b. At lower levels, managers are
dealing with well-structured problems by using programmed
Since managers can make decisions on the basis of rationality, bounded
rationality, or intuition, let us try to
understand them one by one:
1. Assumptions of Rationality.
Managerial decision making is assumed to be
; that is, choices that is consistent and
maximizing within specified constraints. The assumptions of rationality
are summarized below.
a. These assumptions are problem clarity (the problem is clear and
unambiguous); goal orientation (a
single, well-defined goal is to be achieved); known options (all
alternatives and consequences are
known); clear preferences; constant preferences (preferences are
constant and stable); no time or
cost constraints; and maximum pay off.
b. The assumption of rationality is that decisions are made in the best
economic interests of the
not in the manager’s interests.
c. The assumptions of rationality can be met
manager is faced with a simple problem in which
goals are clear and alternatives limited, in which time pressures are
minimal and the cost of finding
and evaluating alternatives is low, for which the organizational culture
supports innovation and risk
taking, and in which outcomes are concrete and measurable.
The rational model is flawed in that it does
not apply to actual decision aiming for two reasons.
a. Perfect information is not available.
b. Manager’s values and personality factors enter into their decisions.
The rational model presents an ideal against which actual
decision-making patterns can be measured
Managers have different styles when it comes
to making decisions and solving problems. One perspective
proposes that people differ along two dimensions in the way they
approach decision making.
1. One dimension is an individual’s way of thinking—rational or
intuitive. The other is the individual’s
tolerance for ambiguity—low or high.
2. These two dimensions lead to a two by two matrix with four different
a. The directive style
is one that’s characterized by low tolerance for
ambiguity and a rational way of
b. The analytic style
is one characterized by a high tolerance for
ambiguity and a rational way of
c. The conceptual style
is characterized by an intuitive way of thinking and
a high tolerance for
d. The behavioral style
is one characterized by a low tolerance for ambiguity
and an intuitive way of
3. Most managers realistically probably have a dominant style and
alternate styles, with some relying
almost exclusively on their dominant style and others being more
flexible depending on the