Study unit 5 – Chapter 14

Members that participated in the activity:

Learning outcome 1 - Define decision-making and explain the role of decision-making for managers and employees.

Decision-making includes defining problems, gathering information, generating alternatives and choosing a course of action. There are various types of decision-making on the nature of the problem to be solved, the possible solutions available and the degree of risk involved. An effective manager relies on all six managerial competencies to make a decision.

Learning outcome 2 - Discuss the conditions of certainty, risk, and uncertainty under which decisions are made.

Certainty:

It is the condition under which individuals are fully informed about a problem, alternative solutions are obvious and the likely result of each solution is clear. It allows anticipation of events and their outcomes if it does not allow control. Problems and solutions are defined and known. Decision-makers choose the solution that has the best potential outcome. It is mostly for middle and top-level managers. Only a few decisions are certain in the real world.

Risk:

Risk is the condition under which individuals can define a problem, specify the probability of certain events, identify alternative solutions and state the probability of each solution leading to the desired result. 

Risk usually means that the problem and alternative solutions fall somewhere between the extremes of being relatively common and ambiguous.

Uncertainty:

It is the condition under which an individual does not have necessary information to assign probabilities to the outcomes or alternatives solutions. It suggests that the problem and the alternative solutions are both highly unusual. It can be affected by certain factors such as price, volume, production cost or future interest rates. Managers may have to make assumptions from which to forge the distinction, even though the decision will be wrong if the assumption is correct. Managers face uncertainty every day because many problems don’t have clear-cut solutions. This forces managers to rely on judgment, intuition, and creativity to make a decision. Market researchers, strategic planners and development engineers usually face this problem

Learning outcome 3 - Describe the characteristics of routine, adaptive, and innovative decisions.

Routine decision:
Basic decisions made in order to fix common problems. These decisions are often made by computer software, for example, online hotel bookings.

Adaptive decision:
Modern problems need alternative solutions adaptive decisions often involve modifying past routine decisions. In order to have an effective decision, continuous improvement is key. Improvement such as increased responsiveness to customer changes and expectations.

Innovative decision:
Choices base on new arising problems the solution can usually be found through a series of small interrelated decisions made over a period of time. To be effective, decision-makers, therefore, must be especially careful to define the right problem and recognize that earlier actions can significantly affect later decisions.

Learning outcome 4 - Explain how goals affect decision-making.

Firstly, goals are important because they give employees, managers, and organizations a sense of order direction and meaning, as well as playing a role in adaptive and innovative decision making.

Secondly, the planning process is crucial in identifying and revising new goals and finding more efficient ways to accomplish current goals.

The nature of goals:

• Goals have to be achieved and they indicate the direction in which decisions should be aimed.
• The quality or quantity of results is achieved through clear goals.
• Goals guide peoples’ behaviour without them giving it much thought”.
• Goals can be long term(years) or short term(months).
• Long term goals such as growth or profitability remain stable.
• Short term goals which are completed in projects require consistent management and employee attention 

Learning outcome 5 - Differentiate between the rational, bounded rationality, and political models of decision-making.

Rational model:

The rational model focuses on different steps that need to be followed to increase the likelihood that their decisions will be logical and sound. The rational model of decision making focusses on how best to achieve goals.

Bounded rationality model:

The bounded rationality model is useful because it focusses on the limitations of rationality and provides better answers to the day-to-day decision-making process. This model shows the different answers people give when they have the same information.

Political model:

The political model focuses on the decision making process in terms of specific interests of powerful external and internal stakeholders. In the political model. Stakeholders define goals to their own advantage.