Page 126 - Fundamentals of Management Myths Debunked (2017)_Flat

CHAPTER 4 • Foundations of Decision Making 125
Exhibit 4–8 Types of Problems, Types of Decisions, and organizational Level
Unstructured Top

Nonprogrammed
Type of Decisions Level in
Problem Programmed Organization
Decisions
Structured Lower

What Decision-Making Conditions Do Managers Face? certainty

When making decisions, managers face three different conditions: certainty, risk, and uncer- A situation in which a decision maker can make
tainty. Let’s look at each. accurate decisions because all outcomes are known
The ideal situation for making decisions is one of certainty, which is a situation where a risk
manager can make accurate decisions because the outcome of every alternative is known. For A situation in which a decision maker is able to
example, when South Dakota’s state treasurer decides where to deposit excess state funds, he estimate the likelihood of certain outcomes
knows exactly the interest rate being offered by each bank and the amount that will be earned uncertainty
on the funds. He is certain about the outcomes of each alternative. As you might expect, most A situation in which a decision maker has neither
managerial decisions aren’t like this. certainty nor reasonable probability estimates
available
Far more common is a situation of risk, conditions in which the decision maker is able to
estimate the likelihood of certain outcomes. Under risk, managers have historical data from
past personal experiences or secondary information that lets them assign probabilities to dif-
ferent alternatives.
What happens if you face a decision where you’re not certain about the outcomes
and can’t even make reasonable probability estimates? We call this condition uncertainty.
Managers do face decision-making situations of uncertainty. Under these conditions, the
choice of alternative is influenced by the limited amount of available information and by the
psychological orientation of the decision maker.

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complete MGMT 8: Decision Making.

How Do Groups Make Decisions?

4-4 Discuss group Work teams are common

decision making. at Amazon. Jeff Bezos,
founder and CEO,
uses a “two-pizza”
philosophy—that is, a team
should be small enough that it can be
fed with two pizzas. 26

Do managers make a lot of decisions in groups? You bet they do! Many decisions in organiza-
tions, especially important decisions that have far-reaching effects on organizational activities
and people, are typically made in groups. It’s a rare organization that doesn’t at some time
use committees, task forces, review panels, work teams, or similar groups as vehicles for