MEM 2221 Lecture Notes - Lecture 13: Decision-Making, Bounded Rationality, Satisficing
11 Dec 2019
School
Course
Professor
Lecture 13: Decision Making
Chapter 5: Decision Making
Nature of Decision Making
Relation to Planning
● Managerial decision making - making a choice between rational alternatives to select
one that will produce the most desirable consequence (benefit) relative to unwanted
consequences (costs)
● Skills to evaluate and select from alternatives
● Decision making is required in designing and staffing an organization, developing
methods of motivating subordinates, and identifying corrective actions in the control
process
Occasions for Decision
1. From authoritative communications from superiors
2. From cases referred for decision by subordinates
3. From cases originating in the initiative of the executive concerned
Types of Decisions
Routine and Nonroutine Decisions
● Routine decisions - deal with well structured situations with little uncertainty, use policies,
rules, past precedents, standardized methods of processing, or computational
techniques to make decisions
○ ex) payroll processing, reordering inventory items, paying suppliers, etc
● Nonroutine decisions - deal with unstructured situations, non-recurring nature, high
uncertainty and subjective judgment or intuition may be needed to make decisions. May
be that no alternative can be proved to be the best solution to the problem
Objective vs Bounded Rationality
● Objectively rational decision - maximises given values in a given situation. They are
made by:
○ Viewing the behavior alternatives prior to decision in exhaustive fashion
○ Considering the whole complex of consequences that would follow on each
choice
○ With the system of values as criterion singling out one from the whole set of
alternatives
○ Optimizing the outcome by choosing the best decision from all possible ones
● Rational decision making is difficult to carry out because:
○ Complete knowledge and anticipation of all consequences is rarely fully known
○ Consequences lie in the future, only imperfect anticipation can assign values to
these consequences
○ A choice from all possible choices is difficult to achieve because usually only a
few possible alternatives actually come to mind
● Bounded rationality - taking into account a few of the factors and making a satisfice
decision
Document Summary
Managerial decision making - making a choice between rational alternatives to select one that will produce the most desirable consequence (benefit) relative to unwanted consequences (costs) Skills to evaluate and select from alternatives. Decision making is required in designing and staffing an organization, developing methods of motivating subordinates, and identifying corrective actions in the control process. Occasions for decision: from authoritative communications from superiors, from cases referred for decision by subordinates, from cases originating in the initiative of the executive concerned. Routine decisions - deal with well structured situations with little uncertainty, use policies, rules, past precedents, standardized methods of processing, or computational techniques to make decisions. Ex) payroll processing, reordering inventory items, paying suppliers, etc. Nonroutine decisions - deal with unstructured situations, non-recurring nature, high uncertainty and subjective judgment or intuition may be needed to make decisions. May be that no alternative can be proved to be the best solution to the problem.
