© Pearson Education Limited 20154-1 Chapter 4 Foundations of Decision Making

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Chapter4Foundationsof Decision Making

Learning Outcomes

• Describe the decision-making process.• Explain the three approaches managers can use

to make decisions.• Describe the types of decisions and decision-

making conditions managers face.

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Learning Outcomes (cont.)

• Discuss group decision-making.• Discuss contemporary issues in managerial

decision making.

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4.1Describe the decision-making process.

How Do Managers Make Decisions?

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Identifying a Decision Problem

Problem:a discrepancy between an existing and a desired state of affairs.

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Identifying Decision Criteria

Relevant Factors:• Price• Model• Size• Manufacturer• Options• Repair record

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Weighting Criteria

1. Most important criterion assigned a weight of 10.

2. Other weights assigned against this standard.

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Developing Alternatives

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Analyzing Alternatives

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Selecting the Best Alternative

Implementing the Decision

Decision implementation:putting a decision into action.

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Evaluating the Decision

Appraising the outcome of the decision:

Was the problem resolved?

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Common Errors

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4.2Explain the three approaches managers can use to make decisions.

Three Approaches Used to Make Decisions: Types of Decisions

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Rational Model

Rational decision making:choices that are consistent and value-maximizing within specified constraints.

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Bounded Rationality

Satisfice

Escalation of commitment

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Intuitive Decision Making

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4.3 Describe the types of decisions and decision-making conditions that managers face.

Types of Problems

1. Structured problem2. Unstructured problem

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Types of Decisions

Programmed:Repetitive decisions that can be handled

using a routine approach.

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Types of Decisions (cont.)

Nonprogrammed:Repetitive decisions that can be handled using a routine approach

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Problems, Decision Types, and Organizational Levels

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Decision-Making Conditions

• Certainty• Risk• Uncertainty

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4.4Discuss group decision-making.

How Do Groups Make Decisions?

Decisions are often made by groups representing the people who will be most affected by those decisions.

•Committees•Task forces•Review panels•Work teams

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Advantages of Group Decision Making

• More complete information• Diversity of experiences/perspectives• More alternatives generated• Increased acceptance of solution• Increased legitimacy

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Disadvantages of Group Decision Making

• Time-consuming• Minority domination• Ambiguous responsibility• Pressures to conform

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GroupthinkWhen a group exerts extensive pressure on an individual to withhold his or her different views in order to appear to be in agreement.

• What it does• How it occurs• How to minimize it

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When Are Groups Most Effective?

Individual•Faster decision making•More efficient use of work hours

Group•More accurate decisions•More creative•More heterogeneous representation•Greater acceptance of final solution

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Improving Group Decision MakingMake group decisions more creative by:

1. Brainstorming2. The nominal group technique3. Electronic meetings

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4.5 Discuss contemporary issues in managerial decision making.

Contemporary Issues

National culture influences the way decisions are made and the degree of risk involved.

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Contemporary Issues

Creativity lets the decision maker:

• Understand a problem more fully• See problems others can’t• Identify all viable alternatives

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Contemporary Issues

Design thinking:approaching management problems as designers approach design problems

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Contemporary Issues

Big dataThe vast amounts of quantifiable information that can be analyzed by highly sophisticated data processing.

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