LECTURE 6, PROCESS OF DECISION MAKING AND LEVELS OF MANAGEMENT

15/6/2015

DECISION MAKING AND INFORMATION SYSTEMS

Decision making in businesses used to be limited to management. Today, lower-level

employees are responsible for some of these decisions, as information systems make
information available to lower levels of the business.
Decision making is not easy It must be done amid ever-changing factors, unclear
information and conflicting points of view

Decision = choice made from available alternatives

Decision Making = process of identifying problems and opportunities and resolving
them

Types of Decisions
Decisions are classified as structured, semistructured, and unstructured.

INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS

IN A FIRM

Senior managers, middle managers, operational managers, and employees have different
types of
decisions and information requirements

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Unstructured decisions Are more common at higher levels of the firm. The decisions
are non routine and there is no well understood or agreed procedure for making them.
The decision maker must provide judgment, evaluation, and insight to solve the
problem.

Structured decisions They are more common lower organizational levels. By contrast
the decisions are repetitive and routine, and they involve a definite procedure for
handling them so that they do not have to be treated each time as if they were new.

Semistructured - Part of the problem has a clear-cut answer provided by an accepted

procedure.

Senior executives face many unstructured decision situations, such as establishing the
firm’s five- or ten-year goals or deciding new markets to enter.Answering the question
“Should we enter a new market?” would require access to news, government reports,
and industry views as well as high-level summaries of firm performance. However, the
answer would also require senior managers to use their own best judgment and poll
other managers for their opinions.

Middle management faces more structured decision scenarios but their decisions may
include unstructured components. A typical middle-level management decision might
be “how to make a marketing plan”

Operational management and rank-and-file employees tend to make more structured

decisions. For example, a supervisor on an assembly line has to decide whether an
hourly paid worker is entitled to overtime pay. If the employee worked more than eight
hours on a particular day, the supervisor would routinely grant overtime pay for any
time beyond eight hours that was clocked on that day.

A sales account representative often has to make decisions about extending credit to
customers by consulting the firm’s customer database that contains credit information.

THE DECISION-MAKING PROCESS

Making a decision is a multistep process. There are FOUR different stages in decision
making:

1. Intelligence
2. Design
3. Choice
4. Implementation

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STAGES IN DECISION MAKING FIG.2

1. Intelligence consists of discovering, identifying, and understanding

the problems occurring in the organization—why a problem exists,
where, and what effects it is having on the firm.
2. Design involves identifying and exploring various solutions to the
problem.
3. Choice consists of choosing among solution alternatives.
4. Implementation involves making the chosen alternative work and
continuing to monitor how well the solution is working.

What happens if the solution you have chosen doesn’t work? FIG 2 shows
that you can return to an earlier stage in the decision-making process and
repeat it if necessary. For instance, in the face of declining sales, a sales
management team may decide to pay the sales force a higher commission
for making more sales to spur on the sales effort. If this does not produce
sales increases, managers would need to investigate whether the problem

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stems from poor product design, inadequate customer support, or a host of
other causes that call for a different solution .
MANAGERS AND DECISION MAKING IN THE REAL WORLD
Managerial Roles

Managers play key roles in organizations. Their responsibilities range from

making decisions, to writing reports, to attending meetings etc . We are able
to better understand managerial functions and roles by examining classical
and contemporary models of managerial behavior.

The classical model of management, describes what managers do. The

classical Model of Management was largely unquestioned for the more than
70 years since the 1920s. Henri Fayol and other early writers first described
the five classical functions of managers as planning, organizing,
coordinating, deciding, and controlling. This description of management
activities dominated management thought for a long time, and it is still
popular today. The classical model describes formal managerial functions but
does not address what exactly managers do when they plan, decide things,
and control the work of others.

For this, we must turn to the work of contemporary behavioral scientists

who have studied contemporary models of managerial behavior in daily
action. Behavioral models state that the actual behavior of managers
appears to be less systematic, more informal, less reflective, more reactive
and less well organized than the classical model would have us believe.
Observers find that managerial behavior actually has FIVE attributes that
differ greatly from the classical description.
 First, studies have found that managers engage in more than 600
different activities each day, with no break in their pace.
 Second, managerial activities are fragmented; most activities last for
less than nine minutes, and only 10 percent of the activities exceed
one hour in duration.
 Third, managers prefer current, specific, and ad hoc information.
 Fourth managers prefer oral forms of communication to written forms
because oral forms provide greater flexibility, require less effort, and bring a
faster response.
 Fifth, managers give high priority to maintaining a diverse and complex web of
contacts that acts as an informal information system and helps them execute
their personal agendas and short- and long-term goals.

Analyzing managers’ day-to-day behavior, Mintzberg found that it could be

classified into 10 managerial roles. Managerial roles are expectations of
the activities that managers should perform in an organization. Mintzberg
found that these managerial roles fell into three categories:

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 1. Interpersonal Roles
2. Informational Roles
3. Decisional Roles

Interpersonal Roles. Managers act as figureheads for the organization

when they represent their companies to the outside world and perform
symbolic duties, such as giving out employee awards, in their interpersonal
role. Managers act as leaders, attempting to motivate, counsel, and support
subordinates. Managers also act as liaisons between various organizational
levels;\within each of these levels, they serve as liaisons among the
members of the management team. Managers provide time and favors,
which they expect to be returned.

Informational Roles. In their informational role, managers act as the

nerve centers of their organizations, receiving the most concrete, up-to-date
information and redistributing it to those who need to be aware of it.
Managers are therefore information disseminators and spokespersons for
their organizations.

Decisional Roles. Managers make decisions. In their decisional role, they

act as entrepreneurs by initiating new kinds of activities; they handle
disturbances arising in the organization; they allocate resources to staff
members who need them; and they negotiate conflicts and mediate between
conflicting groups.

Table 1 is based on Mintzberg’s role classifications, is one look at where

systems can and cannot help managers. The table shows that information
systems are now capable of supporting most, but not all, areas of
management life.

TABLE 1 MANAGERIAL ROLES AND SUPPORTING INFORMATION SYSTEMS

ROLE BEHAVIOR SUPPORTING

SYSTEMS
Interpersonal Roles
 Figurehead Telepresence systems

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  Leader Interpersonal Telepresence, social networks,
Twitter
 Liason Smartphones, social networks
Informative Roles
 Nerve Centre Management Information
Science, Ess
 Disseminator Information Email, Social Networks
 Spokesman Processing Webinars, telepresence
Decisional Roles
 Enterprenuer Decision None exist
 Disturbance Handler Making None exist
 Resoure allocator Business Intelligence, Dss System
 Negotiator None exist

From Table 1 we now see that information systems are not helpful for all
managerial roles. and in those managerial roles where information systems
might improve decisions, investments in information technology do not
always produce positive results. There are three main reasons:
1. information quality
2. Management filters
3. organizational culture
Information Quality. High-quality decisions require high-quality
information.If the output of information systems does not meet these quality
criteria,decision-making will suffer
degrade the quality of decision making.

Management Filters. Even with timely, accurate information, some

managers make bad decisions. Managers (like all human beings) absorb
information through a series of filters to make sense of the world around
them. Managers have selective attention, focus on certain kinds of problems
and solutions, and have a variety of biases that reject information that does
not conform to their
prior conceptions.

Organizational Inertia and Politics. Organizations are bureaucracies with

limited capabilities and competencies for acting decisively. When
environments change and businesses need to adopt new business models to
survive.

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Levels of Management Decision Making

Management levels have different decisional responsibilities, depending on

their level.

Managers at all levels must make decisions on behalf of a company. The

difference between decisions at various levels lies in the scope of the choices
made.

Long-term decisions affecting the company as a whole belong to the highest

management levels

while decisions affecting day-to-day operations fall to bottom management.

All decisions relate directly or indirectly to broader management functions:

planning, organizing, leading, staffing and controlling. Different management
levels spend more time on certain functions than on others.

1. Board or Owner

All business and management activity follows from a company’s mission -- its
reason for being in business. A company’s board or owners create the
mission and write a mission statement for the internal and external
audiences. Success in accomplishing the mission could take many forms. The
form chosen gives a company its vision, an ideal the business seeks to
actualize. A caterer, for instance, might envision becoming the first choice
for jet-set soirees. Besides defining a lofty ambition and the existential
question of mission, a company’s board or owners also articulate a
company’s core values, those standards the business will never compromise.

Top Management

Top management must translate the vast scope of mission and vision into
concrete achievements over time. In other words, top management needs a
strategic plan. Once top management decides the overall direction of the
company, it’s up to middle management to choose smaller tactical objectives
that, put together, accomplish strategic goals.

Middle Managers

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Middle managers create tactical pla

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ns
, which have more detail than strategic plans. The tactics often are ge
red toward some function or department such as production, where a possibl
objective could involve some measurable efficiency or quality improv
ment. Middle management’s choices and plans see fruition in a year
or less.

Operational Management

Also called first-line management, operational management is the level

directly responsible for employees. By choosing their own goals on a daily,
weekly or monthly basis, first-line management accomplishes the objectives
of middle management. The scope of operational management covers
departments, sections or teams. Inventory, scheduling and budgeting are
examples of plans and decisions that operational managers adopt. Goals
might include a certain number of sales for the day.

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