Types of Problems and Decisions
Managers encounter different types of problems and use different types of decisions to resolve them. Problems can be structured problems or unstructured problems and decisions can be programmed decisions or nonprogrammed decisions.
Structured problems are straightforward, familiar, and easily defined. In dealing with structured problems, a manager may use a programmed decision, which is a repetitive decision that can be handled by a routine approach.
Managers rely on three types of programmed decision:
a. A procedure is a series of interrelated sequential steps that can be used to respond to a structured problem.
b. A rule is an explicit statement that that tells managers what they can or cannot do.
c. A policy is a guideline for making decision.
Unstructured problems are problems that are new or unusual and for which information is ambiguous or incomplete. These problems are best handled by a nonprogrammed decision that is a unique decision that requires a custom-made solution.
At higher levels in the organizational hierarchy, managers deal more often with diffichlt, unstructured problems and make nonprogrammed decision in attempting to resolve these problems and challenges. Lower-level managers handle routine decision, using programmed decision.
Decision-making Conditions
Decision can be made under conditions of certainty, uncertainty and risk.
Certainty is a situation in which a manager can make accurate decisions because all outcomes are known. Few managerial decisions are made under the condition of certainty.
More common is thee situation of risk, in which the decision maker is able to estimate the likelihood of certain outcomes.
Uncertainty is a situation in which the decision maker is not certain and cannot even make reasonable probability estimates concerning outcomes of alternatives. In such a situation, the choice of alternative is influenced by the limited amount of information available to the decision maker. It,s also influenced by the psychological orientation of the decision maker.
1. An optimistic manager will follow a maximax choice, maximizing the maximum possible payoff.
2. A pessimistic manager will pursue a maximin choice, maximizing the minimum possible payoff.
3. the manager who desires to minimize the maximum regret will opt for a monimax choice.