2.3 Programmed and Nonprogrammed Decisions

Managers face two main types of decisions: programmed and nonprogrammed. Programmed decisions are routine and use established procedures, while nonprogrammed decisions tackle unique situations without clear guidelines. Understanding these differences helps managers choose the right approach for each scenario.

For programmed decisions, managers often use heuristics as mental shortcuts. Nonprogrammed decisions follow a six-step process: identify the problem, generate alternatives, evaluate options, choose the best solution, implement it, and monitor results. Other approaches like bounded rationality and intuitive decision-making also play a role in managerial choices.

Types of Managerial Decisions

Programmed vs nonprogrammed decisions

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• Programmed decisions involve routine, repetitive situations with predictable circumstances (reordering office supplies, processing payroll, handling common customer complaints)
  • Established procedures, guidelines, or policies exist to guide decision-making process
  • Managers can rely on past experience, rules, or standard operating procedures to make these decisions efficiently
• Nonprogrammed decisions arise from unique, complex, or unpredictable situations (launching a new product line, entering an untapped market, responding to a major crisis)
  • No pre-established procedures or guidelines available to guide decision-making process
  • Managers must use creativity, judgment, and gather more information to make well-informed decisions
  • Often involve higher levels of uncertainty, risk, and potential impact on the organization
  • May require the use of decision trees to analyze potential outcomes and probabilities

Heuristics in programmed decisions

• Heuristics serve as simple, efficient rules or mental shortcuts managers use to simplify programmed decision-making and save time
  • Availability heuristic relies on making decisions based on information that is readily available or easily recalled (choosing a supplier based on recent positive experience)
  • Representativeness heuristic involves making decisions based on perceived similarities to previous experiences or stereotypes (assuming a job candidate with an Ivy League degree will perform better)
  • Anchoring and adjustment heuristic starts with an initial value or estimate and then adjusts from that point (setting a project budget by starting with last year's budget and making minor adjustments)
• While heuristics can streamline decision-making, they may lead to biases or suboptimal choices if not used judiciously
  • Managers should be aware of potential pitfalls and use heuristics in combination with other decision-making tools and techniques

Six-step nonprogrammed decision process

1. Identify and define the problem
   • Recognize that a problem or opportunity exists and needs to be addressed
   • Gather relevant information from various sources to clearly understand the problem's scope, nature, and potential impact (conducting market research, analyzing financial data, seeking input from stakeholders)
2. Generate alternative solutions
   • Brainstorm a wide range of potential solutions or courses of action to address the identified problem
   • Encourage creative thinking and consider both conventional and unconventional approaches (holding ideation sessions, seeking diverse perspectives, challenging assumptions)
3. Evaluate alternatives
   • Assess the feasibility, costs, benefits, and risks associated with each alternative solution
   • Consider the potential short-term and long-term consequences of each option on the organization and its stakeholders (conducting cost-benefit analyses, scenario planning, risk assessments)
4. Choose the best alternative
   • Select the solution that best meets the established decision criteria and aligns with the organization's goals and values
   • Consider the resources required for implementation and the level of risk the organization is willing to accept (evaluating trade-offs, seeking consensus, making data-driven decisions)
5. Implement the chosen alternative
   • Develop a detailed action plan to put the chosen solution into practice
   • Allocate necessary resources, assign responsibilities, and establish timelines to ensure successful implementation (creating project plans, communicating decisions, providing training and support)
6. Monitor and evaluate the results
   • Track the progress and outcomes of the implemented solution over time
   • Assess whether the desired results are being achieved and identify any unintended consequences or areas for improvement (setting key performance indicators, conducting regular reviews, gathering feedback from stakeholders)
   • Make adjustments to the implementation plan as needed based on feedback, changing circumstances, or new information that emerges (adapting strategies, reallocating resources, modifying timelines)

Additional Decision-Making Approaches

• Bounded rationality recognizes that decision-makers have limited information, cognitive abilities, and time, leading to satisficing behavior where they choose the first acceptable solution rather than the optimal one
• Intuitive decision-making relies on gut feelings, experience, and pattern recognition to make quick judgments in complex or time-sensitive situations
• Decision support systems are computer-based tools that help managers analyze data, model scenarios, and make more informed decisions by providing relevant information and analytical capabilities