Decision making – A Contingency Approach

The types of problems managers face in decision making situations often determine how a problem is treated. In this article we present a categorization scheme for problems and for types of decisions. Then we show how the type of decision making a manager uses should reflect the characteristics of the problem.

How do Problems differ?

Well structured problems: Straightforward, familiar, easily defined problems

Ill-structured problems: New problems in which information is ambiguous or incomplete

Some problems are straightforward. The goal of the decision maker is clear, the problem familiar and information about the problem easily defined and complete. Examples might include a supplier’s tardiness with an important delivery, a customer wanting to return an Internet purchase, a news program having to respond to an unexpected fast breaking event, or a university’s handling of student who is applying for financial aid. Such situations are called well structured problems. They align closely with the assumptions underlying perfect rationality.

Many situations faced by managers, however, are ill-structured problems. They are new or unusual. Information about problems is ambiguous or incomplete. Examples of ill-structured problems include the decisions to enter new market segment, to hire an architect to design a new office park, or to merge two organizations. So, too, is the decision to invest in a new, unproven technology.

How does a manager make programmed decisions?

A repetitive decision that can be handled by routine approach.

Just as Problems can be divided into two categories, so, too can decisions. As we will see, programmed or routine making is the most efficient way to handle well structured problems. However, when problems are ill structured, managers must rely on non programmed decision in order to develop unique solutions.

An auto mechanic damages a customer’s rim while changing a tire. What does the manager do? Because the company probably has a standardized method for handling this type of problem, it is considered a programmed decision. For example the manager may replace the rim at the company’s expenses. Decisions are programmed to the extent that they are repetitive and routine and to the extent that a specific approach has been worked out for handling them. Because the problem is well structured, the manager does not have to go to the trouble and expenses of working up an involved decision process. Programmed decision making is relatively simple and tends to rely heavily on previous solutions. To develop the alternatives stage in the decision making process is either inexistent or given little attention. Why? Because once the structured problem is defined, its solution is usually self evident or at least reduced to only a few alternatives that are familiar and that have proved successful in the past. In many cases, programmed decision making becomes decision making by precedent. Managers imply do what they and others have done previously in the same situation. The damaged rim does not require the manager to identify and weight criteria or develop a long list of possible solutions. Rather the manager falls back on a systematic procedure rule or policy.

Procedures: A procedure is a series of interrelated sequential steps that a manager can use responding to a well structured problem. The only real difficulty is identifying the problem. Once the problem is clear, so is the procedure. For instance a purchasing manager receives a request from computing services or licensing arrangement to install 250 copies of Norton Antivirus Software. The purchasing manager knows that a definite procedure is in place for handling this decision. Has the requisition been properly filled out and approved? If not, one can send the requisitions back with a note explaining what is deficient. If the request is complete, the approximate costs are estimated. If the total exceeds Rs 50,000 three bids must be obtained. If the total is Rs 50,000 or less, only one vendor need be identified and the order placed. The decision making process is merely the execution of a simple series of sequential steps.

Rule: An explicit statement that tells managers what they ought or ought not to do.

Policies: A general guide that establishes parameters for making decisions. A third guide or making programmed decisions is a policy. It provides guidelines to channel a manager’s thinking in a specific direction. The statement that we promote from within whenever possible is an example of a policy.