Chapter 7 · The Decision-Making Process

A choice among alternatives to address a problem or opportunity.

Managers make decisions across all four management functions.

Identify need; develop alternatives; choose; implement and monitor.

Monitoring supplies evidence that restarts the cycle.

A learned pattern for recognizing situations and responding.

Scripts simplify decisions but can hide issues outside familiar categories.

They prioritize stakeholder well-being and externalities beyond maximizing firm finances.

A non-financial harm can merit action even without a financial improvement.

A response selected from standard alternatives for a recurring situation.

Established rules and routines simplify repeat decisions.

A newly developed response to a novel problem or opportunity.

It can later become the basis of a programmed routine.

Available knowledge and agreement on aims and means.

Both information and consensus affect what selection method is workable.

Knowing outcomes, their payoffs and their likelihoods.

Such completeness is unusual in managerial decisions.

Having some knowledge to estimate outcomes, payoffs and probabilities.

An estimate does not guarantee the realized outcome.

Not knowing outcomes, payoffs or their probabilities.

Uncertainty is greater than merely having several known possible outcomes.

Information that can be codified or articulated.

Reports, manuals and business plans carry explicit knowledge.

Insight that is difficult to articulate or codify.

Experience and intuition can carry useful tacit knowledge.

Aims are desired outcomes; means are ways of achieving them.

Managers can agree on a purpose while disagreeing on how to pursue it.

High knowledge and high agreement.

It compares alternatives to choose the best under its assumptions.

High knowledge and low agreement.

Negotiation reconciles competing interests or preferred methods.

High agreement and low knowledge.

Small experiments help learn the best means for shared aims.

Low agreement and low knowledge.

Chaotic choices may select a solution before understanding the problem.

Choosing an adequate option rather than proving it is optimal.

The administrative approach conserves search effort within practical limits.

Decision limits arising from incomplete information and limited processing capacity.

These limits help explain satisficing.

Persisting with a poor decision despite evidence it is failing.

Defending the decision can replace learning from its outcomes.

Information distortion, excessive persistence and administrative inertia.

Each can keep a failing choice in place despite negative feedback.

It contributes knowledge, understanding and commitment before implementation.

Participation improves the process but does not guarantee unanimity.

Choosing whether to produce an input internally or purchase it.

The entrepreneur compares internal production with exchange costs and stakeholder effects.

Costs of safeguarding exchange against opportunism and uncertainty.

Examples include certification, contracts, monitoring and inspections rather than direct production.

Cheating or misleading others to pursue self-interest.

The risk of opportunism creates a need for exchange safeguards.

A decision situation without an identifiable optimum but with enough knowledge to distinguish better from worse alternatives.

A decision situation without an identifiable optimum but with enough knowledge to distinguish better from worse alternatives.

A decision situation with insufficient information to predict which alternative is better.

A decision situation with insufficient information to predict which alternative is better.