Importance of Managerial Decisions in Organizations

Topics: Decision making, Decision theory, Risk Pages: 8 (2563 words) Published: June 9, 2013
Managers run organizations by the decisions they make on a daily basis. The quality of these decisions, to a smaller or greater degree, impacts the success or failure of an organization. Managers encounter challenges and opportunities every day. Some situations require actions that are very straightforward; others, not so simple. Some decisions need to be made right away, while others take a long period of time to be made. Decision making can be challenging, and it’s important we understand why. In this paper, we will cover the main characteristics of managerial decisions, the stages of decision making, and the tools a manager has to achieve efficient decision making in a challenging and uncertain work environment.

Characteristics of Managerial Decisions
For most routine decisions, there is a determined procedure, or structure, that helps managers solve a problem. If it’s a routine problem, then they have standard responses. In these situations, managers only have to implement previously stated solutions, from past experiences in the organization. Unfortunately, not all decisions are programmed. New problems arise all the time in an organization, and that’s when managers have to get creative to solve them. Past experience helps, so does intuition, but the decision maker, in this case, has to create, or rely on a method for making the decision. In this case, there’s no standard response. Uncertainty and Risk:

As Schermerhorn, Hunt, & Osborn (1994) point out, problem solving decisions in organizations are typically made under three different conditions or environments: certainty, risk, and uncertainty. When information is sufficient, and outcomes of decisions are predictable, you are working in an environment of certainty. However, for most important decisions, uncertainty is to be expected. Uncertainty exists when a manager doesn’t have enough information to assign probabilities to the consequences of different possible decisions. A manager might have a good guess, or opinion, but doesn’t know for sure if something will or won’t happen. Whenever there’s uncertainty, and something to lose, then there’s risk. Risk isn’t a bad thing; it’s just the fact that comes with any managerial decision. Choosing one alternative over another can imply losing time, or money, so every decision entails risk. Managers have to be aware that with their decisions they manage risk. With good planning and problem resolution, risk can be minimized and controlled. Contending Interests:

J. Davids (2012) talks about decisions that affect people with contending interests. An example of this is a CFO who argues in favor of increasing long-term debt to finance a purchase. On the other hand, the CEO wants to minimize long-term debt and find the funds somewhere else. In another example, a marketing department wants more product lines to sell, the engineers want higher quality of products, and the production manager wants less variety of products to lower costs. In these situations, it’s up to the decision maker to fashion a workable decision that reflects an appreciation of all these antagonizing point of views. If a key player’s perspective isn’t taken into consideration, and the manager pushes forward in the decision process, the outcomes will probably not satisfy the decision makers’ plans. There are different approaches to managing participation of multiple players that we’ll touch on a bit later. Stages of Decision Making

The first step in the decision making process is knowing the situation. This means, recognizing a problematic situation that exists, and must be fixed. This usually implies comparing things the way they are now, to what they should be. An example of this is comparing the actual expenses to the budgeted expenses. Another example is looking at this quarter’s sales, and comparing them to the previous quarter. The problem that needs to be solved is usually an opportunity that...

References: Bateman, S. Thomas, Snell, A. Scott(2011). Management Leading & Collaborating in a Competitive World. (9 th Edition). McGraw-Hill Irwin
Bowen, D. B., Lewicki, J.R., Douglas,T.H., Francine, S.H.,(1997). Experiences in Management and Organization Behavior. John Wiley & Sons, Inc.
Frame, J. Davidson(2012). Framing Decisions : Decision-Making That Accounts for Irrationality, People and Constraints. Wiley
Ritti, R.Ritti, Levy, Steve(2010). The Ropes to Skip and the Ropes to Know. John Wiley & Sons, Inc.
Schermerhorn, Hunt, & Osborn, (1994) Managing Organizational Behavior (5th Edition) John Wiley &Sons, Inc.
Simon, A. Herbert (1947). Administrative Behavior: A Study of Decision-Making Processes in Administrative Organization. The Free Press
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