Management Course 5

1MANAGEMENT (5)MANAGEMENT (5)Decision MakingDecision Making

CCtlinatlina RADU, MBA, PhD.RADU, MBA, PhD.BucharestBucharest UniversityUniversity of of EconomicEconomic StudiesStudies

Proposed Quotes (1)Proposed Quotes (1)

GroupGroup 917917:: "Stay"Stay committedcommitted toto youryour decisions,decisions,butbut staystay flexibleflexible inin youryour approachapproach.."" -- TonyTonyRobbinsRobbins

GroupGroup 918918:: WheneverWhenever youyou seesee aa successfulsuccessful GroupGroup 918918:: WheneverWhenever youyou seesee aa successfulsuccessfulbusiness,business, someonesomeone onceonce mademade aa courageouscourageousdecisiondecision.. -- PeterPeter FF.. DruckerDrucker

2Proposed Quotes (2)Proposed Quotes (2)

GroupGroup 919919:: TrulyTruly successfulsuccessful decisiondecision--makingmakingreliesrelies onon aa balancebalance betweenbetween deliberatedeliberate andandinstinctiveinstinctive thinkingthinking.. -- MalcolmMalcolm GladwellGladwell

GroupGroup 922922:: OnOn anan importantimportant decisiondecision oneonerarelyrarely hashas 100100%% ofof thethe informationinformation neededneeded forforaa goodgood decisiondecision nono mattermatter howhow muchmuch oneoneaa goodgood decision,decision, nono mattermatter howhow muchmuch oneonespendsspends oror howhow longlong oneone waitswaits.. And,And, ifif oneone waitswaitstootoo long,long, hehe hashas aa differentdifferent problemproblem andand hashas totostartstart allall overover.. ThisThis isis thethe terribleterrible dilemmadilemma ofof thethehesitanthesitant decisiondecision makermaker.. -- RobertRobert KK.. GreenleafGreenleaf

The DecisionThe Decision--Making ProcessMaking Process

IdentificationIdentification Allocation ofAllocation ofIdentification Identification of decision of decision

criteriacriteriaIdentification Identification of a problemof a problem

Allocation of Allocation of weights to weights to

criteriacriteria

Development of Development of alternativesalternatives

Evaluation Evaluation of decision of decision

effectivenesseffectiveness

Analysis of Analysis of alternativesalternatives

Selection ofSelection ofan alternativean alternative

ImplementationImplementationof the of the

alternativealternative

effectivenesseffectiveness

3Bounded RationalityBounded Rationality

Rational decision making Choices are Rational decision making = Choices are consistent and value-maximizing within specified constraints

Bounded rationality = Making decision that are rational within the limits of a managers ability to process informationability to process information

Satisfice = Accepting solutions that are good enough

Pay attention to emotional influences!

Common Errors Committed in Common Errors Committed in the Decisionthe Decision--Making Process (1)Making Process (1)

Heuristics = Judgmental shortcuts or rules of thumb used to simplify decision making;

Useful, but not reliable; they may lead to errors and biases in processing and evaluating information.

4Common Errors Committed in Common Errors Committed in the Decisionthe Decision--Making Process (2)Making Process (2)

Overconfidence bias = decision makers tend to think they know more than they do;

Immediate gratification bias = decision makers tend to want immediate rewards or to avoid immediate costs;;

Anchoring effect = decision makers fixate oninitial information as a starting point and thenfail to adequately adjust to subsequentinformation;


Selective perception bias = decision makers Selective perception bias = decision makers selectively organize and interpret events based on their biased perceptions;

Confirmation bias = decision makers seek out information that reaffirms their past choices and discount information that contradicts pastand discount information that contradicts past judgments;

Framing bias = decision makers select and highlight certain aspects of a situation while excluding others;

5Common Errors Committed in Common Errors Committed in the Decisionthe Decision--Making Process (4)Making Process (4)

Availability bias = decision makers tend toremember events that are the most recent andvivid in their memory;

Representation bias = decision makers drawanalogies and see identical situation wherethey dont exist;

Randomness bias = decision makers try tocreate meaning out of random events(because of the difficulty of dealing withchance);


Sunk costs error = decision makers forget thatcurrent choices cant correct the past andincorrectly fixate on past expenditure of time,money or effort;

Self-serving bias = decision makers are quickto take credit for their successes and to blamef il t id f tfailure on outside factors;

Hindsight bias = decision makers tend tofalsely believe that they would have accuratelypredicted the outcome of an event once thatoutcome is actually known.

6Scope of Decision Making (1)Scope of Decision Making (1)

Individual decision making Group decision making Organizational decision making Metaorganizational decision making

Scope Scope of Decision Making of Decision Making (2)(2)

Organization

MetaorganizationDecisional Inputs(Objectives,information,resources, energy) Interactional

Group

Individual

gy)Levels

DecisionalOutputs(Actions transactions,outcomes)

PermeableBoundaries

External Environment

7Types of ProblemsTypes of Problemsand Decisionsand Decisions

Structured problem = A straightforward, familiar Structured problem A straightforward, familiar and easily defined problem

Unstructured problem = A problem that is new or unusual for which information is ambiguous or incomplete

Programmed decision = A repetitive decision that can be handled using a routine approach

Nonprogrammed decision = A unique or nonrecurrent decision that required a custom-made solution

Situations for Situations for Making Making DDecisionsecisions

C t i t A it ti i hi h d i i Certainty = A situation in which a decision maker can make accurate decisions because all oucomes are known

Risk = A situation in which a decision maker is able to estimate the likelihood of certain

toutcomes Uncertainty = A situation in which a decision

maker has neither certainty nor reasonable probability estimates available

8DecisionDecision--Making Making StrategiesStrategiesKnowledgeRegarding

the Outcome Strong Preference Weak PreferencePreference for the Outcome

ComputationalDecision-Making

Strategy

CompromiseDecision-Making

Strategy

High Levelof Knowledge

JudgmentalDecision-Making

Strategy

InspirationalDecision-Making

Strategy

Low Levelof Knowledge

*** QUOTES ABOUT OUR COURSE ****** QUOTES ABOUT OUR COURSE ***Lets look again!Lets look again!

9Proposed Quotes (1)Proposed Quotes (1)

GroupGroup 917917:: "Stay"Stay committedcommitted toto youryour decisions,decisions,butbut staystay flexibleflexible inin youryour approachapproach.."" -- TonyTonyRobbinsRobbins

GroupGroup 918918:: WheneverWhenever youyou seesee aa successfulsuccessful GroupGroup 918918:: WheneverWhenever youyou seesee aa successfulsuccessfulbusiness,business, someonesomeone onceonce mademade aa courageouscourageousdecisiondecision.. -- PeterPeter FF.. DruckerDrucker

Proposed Quotes (2)Proposed Quotes (2)

GroupGroup 919919:: TrulyTruly successfulsuccessful decisiondecision--makingmakingreliesrelies onon aa balancebalance betweenbetween deliberatedeliberate andandinstinctiveinstinctive thinkingthinking.. -- MalcolmMalcolm GladwellGladwell

GroupGroup 922922:: OnOn anan importantimportant decisiondecision oneonerarelyrarely hashas 100100%% ofof thethe informationinformation neededneeded forforaa goodgood decisiondecision nono mattermatter howhow muchmuch oneoneaa goodgood decision,decision, nono mattermatter howhow muchmuch oneonespendsspends oror howhow longlong oneone waitswaits.. And,And, ifif oneone waitswaitstootoo long,long, hehe hashas aa differentdifferent problemproblem andand hashas totostartstart allall overover.. ThisThis isis thethe terribleterrible dilemmadilemma ofof thethehesitanthesitant decisiondecision makermaker.. -- RobertRobert KK.. GreenleafGreenleaf

10

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Management Course 5