The Nature of managerial decision making

Different problems require different types of decision making. Routine or minor matters such as return of merchandise can be handled by a set procedure, a type of programmed decision. More important decisions, such as the location of a new retail outlet, require a non-programmed decision, a specific solution created through a less structural process of decision making and problem solving. Because all decisions involve future events, managers must also learn to analyze the certainty risk and uncertainty associated with alternative courses of action.

Programmed and Non-programmed Decisions:

Programmed decisions are made in accordance with written or unwritten policies, procedures, or rules that simplify decision making in recurring situations by limiting or excluding alternatives. For example, managers rarely have to worry about the salary range for a newly hired employee because organizations generally have a salary scale for all positions. Routine procedures exist for dealing with routine problems.

Programmed decisions are used for dealing with recurring problems, whether complex or uncomplicated. If a problem recurs, and if its component elements can be defined predicted and analyzed then it may be a candidate for programmed decision making. For example, decisions about how much inventory of a given product to maintain an involve a great deal of fact finding and forecasting, but careful analysis of the elements in the problem may yield series of routine, programmed decisions. For Nike, buying television advertising time is a programmed decision.

To some extent, programmed decisions limit our freedom because the individual has less latitude in deciding what to do. However, programmed decisions are actually intended to be liberating. The policies, rules, or procedures by which we make programmed decisions save time, allowing us to devote attention to other, more important activities. For example, deciding how to handle customer complaints on an individual basis would be time consuming and costly, but a policy stating ‘exchanges will be permitted on all purchases within 14 days simplifies matters considerably. The customer service representative is then freed to deal with thornier issues.

Non-programmed decisions deal with unusual or exceptional problems. If a problem has not come up often enough to be covered by a policy or is so important that it deserves social treatment it must be handled as a non-programmed decision. Problems such as how to allocate an organization’s resources, what to do about a failing product line, how community relations should be improved — in fact, most of the significant problems a manager will face – usually require non-programmed decisions. How to design and market newer more advanced basketball shoes is an example of a non-programmed decision at Nike. Knight enters uncharted waters when it comes to creating the sequel to Air Jordans.

As one moves up the organizational hierarchy the ability to make non-programmed decisions becomes more important. For this reason, most management development programs try to improve managers’ abilities to make non-programmed decisions, usually teaching them to analyze problems systematically and to make logical decision.

More and more organizations have made their commitment to social responsibility a matter of policy involving both programmed and non-programmed decision. For example, Lotus the computer software company has a policy of donating one percent of its profits to philanthropic events and organizations. Thus how much to spend on charity is a programmed decision. Exactly how the money is sent is a non-programmed decision. A committee made up of all ranks of employees decides where the money will be allocated. Past projects have included the funding of the television documentary on the civil rights movement, Eyes on the Prize and sponsorship of the 1991 AIDS Walk in Boston. The committee’s focus is to concentrate on under-funded projects.