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Managing Decision Making and Problem SolvingManaging Decision Making and Problem Solving
9–2
Learning ObjectivesLearning Objectives
• After studying this chapter, you should be able to:
– Define decision making and discuss types of decisions and decision-making conditions.
– Discuss rational perspectives on decision making, including the steps in decision making.
– Describe the behavioral nature of decision making.
• After studying this chapter, you should be able to:
– Define decision making and discuss types of decisions and decision-making conditions.
– Discuss rational perspectives on decision making, including the steps in decision making.
– Describe the behavioral nature of decision making.
9–3
Chapter OutlineChapter Outline• The Nature of Decision
Making– Decision Making Defined– Types of Decisions– Decision-Making Conditions
• Rational Perspectives on Decision Making– The Classical Model of
Decision Making– Steps in Rational Decision
Making
• The Nature of Decision Making– Decision Making Defined– Types of Decisions– Decision-Making Conditions
• Rational Perspectives on Decision Making– The Classical Model of
Decision Making– Steps in Rational Decision
Making
• Behavioral Aspects of Decision Making
– The Administrative Model– Political Forces in Decision
Making– Intuition and Escalation of
Commitment– Risk Propensity and Decision
Making– Ethics and Decision Making
• Behavioral Aspects of Decision Making
– The Administrative Model– Political Forces in Decision
Making– Intuition and Escalation of
Commitment– Risk Propensity and Decision
Making– Ethics and Decision Making
9–4
Decision-makingDecision-making
Decision making and decision-making process.
Are they the same or different. Discuss
Decision making and decision-making process.
Are they the same or different. Discuss
9–5
Decision-makingDecision-making
ChoosingChoosing
StepsSteps
9–6
Decision MakingDecision Making
• The act of
choosing one alternative from among a set of alternatives.
• The act of
choosing one alternative from among a set of alternatives.
9–7
Best ?Best ?• To reach a decision the best alternative is usually selected. a)Discuss what is meant ‘Best’?
b) Does it mean effective or efficient?
c)Does it always mean to increase?
d)Are decisions only used to solve problems?
• To reach a decision the best alternative is usually selected. a)Discuss what is meant ‘Best’?
b) Does it mean effective or efficient?
c)Does it always mean to increase?
d)Are decisions only used to solve problems?
9–8
• Best = Effective
• An effective decision is one that maximize or minimize
• Managers make decisions about both problems and opportunities
• Best = Effective
• An effective decision is one that maximize or minimize
• Managers make decisions about both problems and opportunities
9–9
Decision Making ProcessDecision Making Process
• Arrange the Decision-Making Steps
a) Identifying alternatives
b)choosing the “best” alternative, and
c) The process of recognizing and defining the nature of a decision situation,
d) putting it into practice
e) Evaluate the alternatives
• Arrange the Decision-Making Steps
a) Identifying alternatives
b)choosing the “best” alternative, and
c) The process of recognizing and defining the nature of a decision situation,
d) putting it into practice
e) Evaluate the alternatives
9–10
The Nature of Decision Making The Nature of Decision Making ProcessProcess
– The process of recognizing
and defining the nature of a decision situation,
– Identifying alternatives
– Evaluate the alternatives
– Choosing the “best” alternative, and
– Putting it into practice
– The process of recognizing
and defining the nature of a decision situation,
– Identifying alternatives
– Evaluate the alternatives
– Choosing the “best” alternative, and
– Putting it into practice
9–11
Types of DecisionsTypes of Decisions• In G’eant Hypermarket, whenever inventory levels of
various products such as coffee makers, electric drills, and folding chairs drop below a predetermined level, replacements are automatically ordered. Such a decision is called:
i. Programmed
ii. Non-programmed decision
a) Provide an example of the other type of decision.
b) Programmed decisions are usually less critical to the firm and are made at lower levels of the organization, while non-programmed decisions involve top management and important issues. Discuss why.
• In G’eant Hypermarket, whenever inventory levels of various products such as coffee makers, electric drills, and folding chairs drop below a predetermined level, replacements are automatically ordered. Such a decision is called:
i. Programmed
ii. Non-programmed decision
a) Provide an example of the other type of decision.
b) Programmed decisions are usually less critical to the firm and are made at lower levels of the organization, while non-programmed decisions involve top management and important issues. Discuss why.
9–12
Types of DecisionsTypes of Decisions
• Programmed Decisions– A decision that is a fairly structured
decision or recurs with some frequency or both.• Example: Starting your car in the
morning.
• Non-programmed decisions– A decision that is relatively
unstructured and occurs much less often a programmed decision.• Example: Choosing a vacation
destination.
• Programmed Decisions– A decision that is a fairly structured
decision or recurs with some frequency or both.• Example: Starting your car in the
morning.
• Non-programmed decisions– A decision that is relatively
unstructured and occurs much less often a programmed decision.• Example: Choosing a vacation
destination.
Decision-Decision-making making
ConditionsConditions
9–14
Decision Alternatives
•All Known•Some Known•Not Known
Details(Information)
•Available (complete and perfect)•Partially available (estimates)•Not Available
Probability of making a Bad decision
•Low•Moderate•High
Level of Ambiguity
•Low•Moderate•High
Conditions
•Risk•Certainty•Uncertainty
Buying 5 planes
Submitting a quotation to win a bid to be the official carrier to F1 travelers
GF flights Jupiter
Gulf Air Decision Making ConditionsGulf Air Decision Making Conditions
9–15
Decision Alternatives
Details(Information)
Probability of making a Bad decision
Level of Ambiguity
Conditions
Buying 5 planes
•All Known•Some Known•Not Known
•Available•Partially available (estimates / probability)•Not Available
•Low•Moderate•High
•Low•Moderate•High
•Risk•Certainty•Uncertainty
Submitting a quotation to win a bid to be the official carrier to F1 travelers
GF flights Jupiter
9–16
Decision Alternatives
Details(Information)
Probability of making a Bad decision
Level of Ambiguity
Conditions
Buying 5 planes
Submitting a quotation to win a bid to be the official carrier to F1 travelers
•All Known•Some Known•Not Known
•Available•Partially available (estimates / probability)•Not Available
•Low•Moderate•High
•Low•Moderate•High
•Risk•Certainty•Uncertainty
GF flights Jupiter
9–17
Decision Alternatives
Details(Information)
Probability of making a Bad decision
Level of Ambiguity
Conditions
Buying 5 planes
Submitting a quotation to win a bid to be the official carrier to F1 travelers
GF flights Jupiter
•All Known•Some Known•Not Known
•Available•Partially available (estimates / probability)•Not Available
•Low•Moderate•High
•Low•Moderate•High
•Risk•Certainty•Uncertainty
9–18
Decision Alternatives
Details(Information)
Probability of making a Bad decision
Level of Ambiguity
Conditions
Buying 5 planes
•All Known
•Available (perfect and Complete)
•Low •Low •Certainty
Submitting a quotation to win a bid to be the official carrier to F1 travelers
•Some Known
•Partially available (estimates / probability)
•Moderate
•Moderate
•Risk
GF flights Jupiter
•Not Known
•Not Available
•High •High •Uncertainty
Gulf Air Decision Making ConditionsGulf Air Decision Making Conditions
9–19
Decision-Making Conditions Decision-Making Conditions (cont’d)(cont’d)
Level of ambiguity and chances of making a bad decision
Lower HigherModerate
Certainty UncertaintyRisk
The decisionmaker facesconditions of...
Figure 9.1
9–20
Decision-Making ConditionsDecision-Making Conditions
• Decision Making Under Certainty– A condition in which the decision maker knows with
reasonable certainty what the alternatives are and what conditions are associated with each alternative.
• Decision Making Under Risk– A condition in which the availability of each alternative and
its potential payoffs and costs are all associated with risks.
• Decision Making Under Uncertainty– A condition in which the decision maker does not know all
the alternatives, the risks associated with each, or the consequences of each alternative.
• Decision Making Under Certainty– A condition in which the decision maker knows with
reasonable certainty what the alternatives are and what conditions are associated with each alternative.
• Decision Making Under Risk– A condition in which the availability of each alternative and
its potential payoffs and costs are all associated with risks.
• Decision Making Under Uncertainty– A condition in which the decision maker does not know all
the alternatives, the risks associated with each, or the consequences of each alternative.
9–21
Decision-making conditionsDecision-making conditions
• Stock analysts are able to make predictions about the price movement of individual stocks or the market as a whole, based on probabilities that were derived from a study of historical stock prices. What is the decision-making condition faced by stock analyst.
(a) Conditions of certainty
(b) Conditions of Risk
(c) Conditions of Uncertainty
• Stock analysts are able to make predictions about the price movement of individual stocks or the market as a whole, based on probabilities that were derived from a study of historical stock prices. What is the decision-making condition faced by stock analyst.
(a) Conditions of certainty
(b) Conditions of Risk
(c) Conditions of Uncertainty
Rational Perspectives onRational Perspectives onDecision MakingDecision Making
9–23
Rational Perspectives onRational Perspectives onDecision MakingDecision Making
• The Classical Model of Decision Making• The Classical Model of Decision Making
When faced with a
decision situation,
managers should. . .
. . . and end up with
a decision that best
serves the interests
of the organization.
• obtain complete
and perfect information
• eliminate uncertainty
• evaluate everything
rationally and logically
Figure 9.2
9–24
What are the assumptions of the What are the assumptions of the rational model of decision-making rational model of decision-making (Classical Perspective)(Classical Perspective)
Managers obtain a) Complete and perfect
informationb) Incomplete and
imperfect information
Decision-making condition is
a) Certaintyb) Riskc) Uncertainty
Managers ------------ eliminate uncertainty
a) Canb) Can’t
Managers obtain a) Complete and perfect
informationb) Incomplete and
imperfect information
Decision-making condition is
a) Certaintyb) Riskc) Uncertainty
Managers ------------ eliminate uncertainty
a) Canb) Can’t
Managers must be focused on
a) Facts and logicb) Subjective judgment
Decision-makers area) rational, logical, and
dispassionate when they make decisions
b) irrational, illogical, and passionate when they make decisions
Decision-makers ---------------- take decisions that best serves the interest of the organization
a) alwaysb) sometimesc) never
Managers must be focused on
a) Facts and logicb) Subjective judgment
Decision-makers area) rational, logical, and
dispassionate when they make decisions
b) irrational, illogical, and passionate when they make decisions
Decision-makers ---------------- take decisions that best serves the interest of the organization
a) alwaysb) sometimesc) never
9–25
Obtain complete and perfect information.
Eliminate uncertainty. Evaluate everything
rationally and logically…
The Classical Model of Decision The Classical Model of Decision MakingMaking
When faced with adecision situation,
managers should…
…and end up with adecision that best
serves the interestsof the organization.
9–26
•What are the ideal steps that would be taken to reach and implement a decision.
•What are the ideal steps that would be taken to reach and implement a decision.
9–27
Rational Model Of d-mRational Model Of d-m
1. Recognizing and defining the decision situation
2. Identifying alternatives3. Evaluate alternatives
– Feasibility– Satisfactory– Affordable consequences
4. Select the an alternative (s)5. Implement the decision6. Follow up and evaluate the results
1. Recognizing and defining the decision situation
2. Identifying alternatives3. Evaluate alternatives
– Feasibility– Satisfactory– Affordable consequences
4. Select the an alternative (s)5. Implement the decision6. Follow up and evaluate the results
9–28
which of the following which of the following statements is truestatements is true
According to the Rational Model Of decision-making1. The first step is to recognize that a decision is
necessary. To do this, the situation must be defined clearly and fully.
2. All alternative courses of action must be listed for evaluation.
3. The proper sequence for evaluating a decision alternative is, satisfactoriness, feasibility and probable consequences.
4. The alternative that is selected is the one with the highest feasibility, satisfaction and affordable consequences.
5. Selecting an alternative is the crux (decisive factor) of decision-making
6. In implementing the chosen alternatively, some unexpected consequences might occur.
According to the Rational Model Of decision-making1. The first step is to recognize that a decision is
necessary. To do this, the situation must be defined clearly and fully.
2. All alternative courses of action must be listed for evaluation.
3. The proper sequence for evaluating a decision alternative is, satisfactoriness, feasibility and probable consequences.
4. The alternative that is selected is the one with the highest feasibility, satisfaction and affordable consequences.
5. Selecting an alternative is the crux (decisive factor) of decision-making
6. In implementing the chosen alternatively, some unexpected consequences might occur.
9–29
K-mart Steps of Classical Decision-making K-mart Steps of Classical Decision-making ModelModel
• K-Mart is a company that sells shoes and has two divisions, specialty store and a discount. The former, specializes in high quality shoes while the later is in lower quality shoes. The company needed to take a decision regarding the future of the company. The company was loosing and was facing a possibility of bankruptcy.
• What would be the first step to reach a decision?
• Recognizing that a decision is necessary. To do this, the problem must be defined clearly and fully.
• Define the problem and specify the indicators that you used to recognize the need to take a decision?
• Kmart recently defined its decision situation as a need to decided what to do with the future of the company? How to recover from bankruptcy and to regain lost sales and profits.
• If K-mart decided to continue then it needs an injection of fund of about 10 million to recover.
• K-Mart is a company that sells shoes and has two divisions, specialty store and a discount. The former, specializes in high quality shoes while the later is in lower quality shoes. The company needed to take a decision regarding the future of the company. The company was loosing and was facing a possibility of bankruptcy.
• What would be the first step to reach a decision?
• Recognizing that a decision is necessary. To do this, the problem must be defined clearly and fully.
• Define the problem and specify the indicators that you used to recognize the need to take a decision?
• Kmart recently defined its decision situation as a need to decided what to do with the future of the company? How to recover from bankruptcy and to regain lost sales and profits.
• If K-mart decided to continue then it needs an injection of fund of about 10 million to recover.
9–30
Kmart Criteria for Evaluation of Kmart Criteria for Evaluation of AlternativesAlternatives
Kmart saw its primary options as• Option (1) Borrow 10m from a bank• Option (2) selling off its discount operations and concentrating on
specialty retailing, • Option (3) selling off its specialty store businesses to raise cash, or• Option (4) shutting down the company (selling the company)
Kmart have asked you, as a management consultant, to evaluate the alternatives on three criteria:
– Feasibility– Satisfactory– Affordable consequences
In selecting an alternative, use the facts below only.• Banks and financial institutions were unwilling to lend the 10m due to the
weak financial position.• There is one interested buyer who is willing to pay the market value of 8m.
The shareholders are not interested in selling it as the projection of the future demand is increasing.
• There are already interesting buyers for the specialty store. The value of this division is around 12m. Projection of future demand of quality shoes indicates a sharp decline as customers are increasingly interested in discount shoes. Therefore, Shareholders are willing to sell this division.
• The market value of the company as a total is 18m. There is only one interested buyer who is willing to pay 14m for the whole company. The stockholders are not willing to sell at this price as it reduces their personal wealth.
Kmart saw its primary options as• Option (1) Borrow 10m from a bank• Option (2) selling off its discount operations and concentrating on
specialty retailing, • Option (3) selling off its specialty store businesses to raise cash, or• Option (4) shutting down the company (selling the company)
Kmart have asked you, as a management consultant, to evaluate the alternatives on three criteria:
– Feasibility– Satisfactory– Affordable consequences
In selecting an alternative, use the facts below only.• Banks and financial institutions were unwilling to lend the 10m due to the
weak financial position.• There is one interested buyer who is willing to pay the market value of 8m.
The shareholders are not interested in selling it as the projection of the future demand is increasing.
• There are already interesting buyers for the specialty store. The value of this division is around 12m. Projection of future demand of quality shoes indicates a sharp decline as customers are increasingly interested in discount shoes. Therefore, Shareholders are willing to sell this division.
• The market value of the company as a total is 18m. There is only one interested buyer who is willing to pay 14m for the whole company. The stockholders are not willing to sell at this price as it reduces their personal wealth.
9–31
3. EVALUATE ALTERNATIVES3. EVALUATE ALTERNATIVES
Feasible
Satisfactory
Affordableconsequences
9–32
Evaluation Criteria
Meaning Option (1)Borrow
Option (2)Sell Discount
Option (3)Sell Specialty
Options (4)Sell company
Feasibility Whether the alternative is within the realm of probability and practicality for the organization
Satisfactory to the extent to which the alternative meets the conditions of the situation
Affordable consequences
The effects of the decisions on the the total organization
9–33
Evaluation Criteria
Meaning Option (1)Borrow
Option (2)Sell Discount
Option (3)Sell Specialty
Options (4)Sell company
Feasibility Whether the alternative is within the realm of probability and practicality for the organization
No bank in willing to lend the company 10 m due to the weak financial position of the company
There is one interested buyer who is willing to pay the market value of 8m.
Yes, as there are interested buyers for this segment.
Yes, there is only one interested buyer who is willing to pay 12m for the whole company
Satisfactory to the extent to which the alternative meets the conditions of the situation
No, Selling at 8m will not meet the company requirement of 10m
Yes, Sell at 12m will meet the company requirement of 10 m
Yes, selling at 14m will meet the company requirement of 10m.
Affordable consequences
The effects of the decisions on the the total organization
Yes, Shareholders are willing to sell. As a consequence, the company will consist of one division only that is the discount stores and the growth of demand for this segment is increasing.
No, The stockholders are not willing to sell at this price as it reduces their personal
wealth.
9–34
Evaluating Alternatives in theEvaluating Alternatives in theDecision-Making ProcessDecision-Making Process
Is the alternative
feasible?
Eliminate from
consideration
Is the alternative
satisfactory?
Are the alternative’s
consequences
affordable?
Retain for further
considerationYes Yes Yes
Eliminate from
consideration
Eliminate from
consideration
No No No
9–35
Steps in the Rational Steps in the Rational Decision-Making ProcessDecision-Making Process
Step Detail Example
1. Recognizing and defining the decision situation
Some stimulus indicates that a decision must be made. The stimulus may be positive or negative.
A plant manager sees that employee turnover has in-creased by 5 percent.
2. Identifying alterna-tives
Both obvious and creative alternatives are desired. In general, the more important the decision, the more alterna-tives should be considered.
The plant manager can in-crease wages, increase bene-fits, or change hiring stan-dards.
3. Evaluating alterna-tives
Each alternative is evaluated to determine its feasibility, its satisfactoriness, and its consequences.
Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions.
9–36
Steps in the Rational Steps in the Rational Decision-Making Process (cont’d)Decision-Making Process (cont’d)
Step Detail Example
4. Selecting the best alternative
Consider all situational factors, and choose the alternative that best fits the manager’s situation.
Changing hiring standards will take an extended period of time to cut turnover, so increase wages.
5. Implementing the chosen alternative
The chosen alternative is implemented into the organizational system.
The plant manager may need permission from corporate headquarters. The human resource department establishes a new wage structure.
6. Following up and evaluating the results
At some time in the future, the manager should ascertain the extent to which the alternative chosen in step 4 and implemented in step 5 has worked.
The plant manager notes that, six months later, turnover has dropped to its previous level.
9–37
What are the assumptions the rational What are the assumptions the rational model of decision-makingmodel of decision-making
Managers can obtain a) Complete and perfect informationb) Incomplete and imperfect information
Decision-making condition is a) Certaintyb) Riskc) Uncertainty
Managers ------------ eliminate uncertaintya) Canb) Can’t
Managers must be focused ona) Facts and logicb) Subjective judgment
Decision-makers area) rational, logical, and dispassionate when they make decisionsb) irrational, illogical, and passionate when they make decisions
Decision-makers ------------------ take decisions that decision that best serves the interest of the organization
a) Alwaysb) Sometimesc) never
Managers can obtain a) Complete and perfect informationb) Incomplete and imperfect information
Decision-making condition is a) Certaintyb) Riskc) Uncertainty
Managers ------------ eliminate uncertaintya) Canb) Can’t
Managers must be focused ona) Facts and logicb) Subjective judgment
Decision-makers area) rational, logical, and dispassionate when they make decisionsb) irrational, illogical, and passionate when they make decisions
Decision-makers ------------------ take decisions that decision that best serves the interest of the organization
a) Alwaysb) Sometimesc) never
Behavioral Behavioral perspectivperspectiv
e e of d-mof d-m
9–39
...and end up with a decision that may or
may not serve the interests of the organization.
Use incomplete andimperfect Information.
Are constrained by bounded rationality. Tend to satisfice…When faced with a
decision situation
managers actually…
Behavioral Aspects of Decision Behavioral Aspects of Decision MakingMaking
• The Administrative Model of Decision Making
• The Administrative Model of Decision Making
9–40
Behavioral and Political Aspects Behavioral and Political Aspects of d-mof d-m
Which of the following statements is true.• Decision makers are limited with their values, skills
and knowledge. • In reality decision makers have the tendency to search
for all alternatives.• In reality decision makers tend to search for
alternative until one is found that meets some minimum standard of sufficiency.
• It is impossible for an informal alliance of groups to effect the decision that will be selected.
• Sometimes, decision makers select an alternative based on their inner belief about something without proper evaluation.
• It is impossible for a decision maker to stay with a decision when it appears to be wrong.
• In reality a decision maker effected by his/her willingness to gamble when making a decision.
• Individual ethics (personal beliefs about right and wrong behavior) combine with the organization’s ethics affects the decision-maker.
Which of the following statements is true.• Decision makers are limited with their values, skills
and knowledge. • In reality decision makers have the tendency to search
for all alternatives.• In reality decision makers tend to search for
alternative until one is found that meets some minimum standard of sufficiency.
• It is impossible for an informal alliance of groups to effect the decision that will be selected.
• Sometimes, decision makers select an alternative based on their inner belief about something without proper evaluation.
• It is impossible for a decision maker to stay with a decision when it appears to be wrong.
• In reality a decision maker effected by his/her willingness to gamble when making a decision.
• Individual ethics (personal beliefs about right and wrong behavior) combine with the organization’s ethics affects the decision-maker.
9–41
Behavioral Aspects ofBehavioral Aspects ofDecision Making (cont’d)Decision Making (cont’d)
• Bounded Rationality– The concept that decision makers are limited by their values
and unconscious reflexes, skills, and habits.
• Satisficing– The tendency to search for alternatives only until one is
found that meets some minimum standard of sufficiency to resolve the problem.
• Coalition– A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a goal.
• Bounded Rationality– The concept that decision makers are limited by their values
and unconscious reflexes, skills, and habits.
• Satisficing– The tendency to search for alternatives only until one is
found that meets some minimum standard of sufficiency to resolve the problem.
• Coalition– A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a goal.
9–42
Behavioral Aspects ofBehavioral Aspects ofDecision Making (cont’d)Decision Making (cont’d)
• Intuition– An innate belief about something without conscious
consideration.
• Escalation of Commitment– A decision maker is staying with a decision even when it
appears to be wrong.
• Risk Propensity– The extent to which a decision maker
is willing to gamble when making a decision.
• Intuition– An innate belief about something without conscious
consideration.
• Escalation of Commitment– A decision maker is staying with a decision even when it
appears to be wrong.
• Risk Propensity– The extent to which a decision maker
is willing to gamble when making a decision.
9–43
Behavioral Aspects ofBehavioral Aspects ofDecision Making (cont’d)Decision Making (cont’d)
• Ethics and Decision Making– Individual ethics (personal beliefs about right and wrong
behavior) combine with the organization’s ethics to create managerial ethics.
– Components of managerial ethics:• Relationships of the firm to employees
• Employees to the firm
• The firm to other economic agents
• Ethics and Decision Making– Individual ethics (personal beliefs about right and wrong
behavior) combine with the organization’s ethics to create managerial ethics.
– Components of managerial ethics:• Relationships of the firm to employees
• Employees to the firm
• The firm to other economic agents
9–44
Behavioral Aspects of Decision Behavioral Aspects of Decision MakingMaking
• The Administrative Model of Decision Making• The Administrative Model of Decision Making
Figure 9.4
When faced with a
decision situation
managers actually…
. . . and end up with a
decision that may or may
not serve the interests
of the organization.
• use incomplete and
imperfect information
• are constrained by
bounded rationality
• tend to satisfice
9–45
What are the assumptions of the What are the assumptions of the administrative model (Behavioral administrative model (Behavioral perspective of decision-making)perspective of decision-making)
In reality, managers obtain
a) Complete and perfect information
b) Incomplete and imperfect information
In reality, decision-making condition is NOT
a) Certaintyb) Riskc) Uncertainty
In reality, managers ----------- completely eliminate uncertainty
a) Canb) Can’t
In reality, managers obtain
a) Complete and perfect information
b) Incomplete and imperfect information
In reality, decision-making condition is NOT
a) Certaintyb) Riskc) Uncertainty
In reality, managers ----------- completely eliminate uncertainty
a) Canb) Can’t
In reality, managers focus on
a) Facts and logic onlyb) Facts and logic along with
subjective judgment and other behavioral aspects
In reality, decision-makers are
a) rational, logical, and dispassionate when they make decisions
b) Not fully rational, logical, when they make decisions
In reality, decision-makers ---------------- take decisions that best serves the interest of the organization
a) Alwaysb) Sometimesc) never
In reality, managers focus on
a) Facts and logic onlyb) Facts and logic along with
subjective judgment and other behavioral aspects
In reality, decision-makers are
a) rational, logical, and dispassionate when they make decisions
b) Not fully rational, logical, when they make decisions
In reality, decision-makers ---------------- take decisions that best serves the interest of the organization
a) Alwaysb) Sometimesc) never
9–46
...and end up with a decision that may or
may not serve the interests of the organization.
The Administrative Model of Decision The Administrative Model of Decision MakingMaking
Use incomplete andimperfect Information.
Are constrained by bounded rationality. Tend to satisfice…When faced with a
decision situation
managers actually…
9–47
Behavioral and Political Aspects Behavioral and Political Aspects of d-mof d-m
Discuss the following statements. D0 you agree or disagree and why? Correct the statements that you disagree with .
1. In reality, decision makers are limited by their values, skills and knowledge.
2. In reality, decision makers have the tendency to search for all alternatives.
3. In reality, decision makers tend to search for alternatives until one is found that meets some minimum standard of sufficiency.
4. It is impossible for an informal alliance of groups to effect the decision that will be selected.
5. In reality, sometimes, decision makers select an alternative based on their inner belief about something without proper evaluation.
6. It is impossible for a decision maker to stay with a decision when it appears to be wrong.
7. In reality a decision maker is effected by his/her willingness to gamble when making a decision.
8. Individual ethics (personal beliefs about right and wrong behavior) combined with the organization’s ethics affect the decision-maker.
Discuss the following statements. D0 you agree or disagree and why? Correct the statements that you disagree with .
1. In reality, decision makers are limited by their values, skills and knowledge.
2. In reality, decision makers have the tendency to search for all alternatives.
3. In reality, decision makers tend to search for alternatives until one is found that meets some minimum standard of sufficiency.
4. It is impossible for an informal alliance of groups to effect the decision that will be selected.
5. In reality, sometimes, decision makers select an alternative based on their inner belief about something without proper evaluation.
6. It is impossible for a decision maker to stay with a decision when it appears to be wrong.
7. In reality a decision maker is effected by his/her willingness to gamble when making a decision.
8. Individual ethics (personal beliefs about right and wrong behavior) combined with the organization’s ethics affect the decision-maker.
9–48
Behavioral and Political Aspects Behavioral and Political Aspects of d-mof d-m
Match the behaviors that you agree with with one of the following terms.
•Escalation of Commitment•Intuition•Satisficing•Bounded Rationality •Risk Propensity•Ethics and Decision Making• Coalition
Match the behaviors that you agree with with one of the following terms.
•Escalation of Commitment•Intuition•Satisficing•Bounded Rationality •Risk Propensity•Ethics and Decision Making• Coalition
9–49
Behavioral Aspects ofBehavioral Aspects ofDecision Making (cont’d)Decision Making (cont’d)
• Bounded Rationality– The concept that decision makers are limited by their values
and unconscious reflexes, skills, and habits.
• Satisficing– The tendency to search for alternatives only until one is
found that meets some minimum standard of sufficiency to resolve the problem.
• Coalition– A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a goal.
• Bounded Rationality– The concept that decision makers are limited by their values
and unconscious reflexes, skills, and habits.
• Satisficing– The tendency to search for alternatives only until one is
found that meets some minimum standard of sufficiency to resolve the problem.
• Coalition– A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a goal.
9–50
Behavioral Aspects ofBehavioral Aspects ofDecision Making (cont’d)Decision Making (cont’d)
• Intuition– An innate belief about something without conscious
consideration.
• Escalation of Commitment– A decision maker is staying with a decision even when it
appears to be wrong.
• Risk Propensity– The extent to which a decision maker
is willing to gamble when making a decision.
• Intuition– An innate belief about something without conscious
consideration.
• Escalation of Commitment– A decision maker is staying with a decision even when it
appears to be wrong.
• Risk Propensity– The extent to which a decision maker
is willing to gamble when making a decision.
9–51
Behavioral Aspects ofBehavioral Aspects ofDecision Making (cont’d)Decision Making (cont’d)
• Ethics and Decision Making– Individual ethics (personal beliefs about right and wrong
behavior) combine with the organization’s ethics to create managerial ethics.
– Components of managerial ethics:• Relationships of the firm to employees
• Employees to the firm
• The firm to other economic agents
• Ethics and Decision Making– Individual ethics (personal beliefs about right and wrong
behavior) combine with the organization’s ethics to create managerial ethics.
– Components of managerial ethics:• Relationships of the firm to employees
• Employees to the firm
• The firm to other economic agents
9–52
Concepts Covered ….Concepts Covered ….• The Nature of Decision
Making– Decision Making Defined– Types of Decisions– Decision-Making Conditions
• Certainty• Risk• Uncertainty
• Rational Perspectives on Decision Making– The Classical Model of
Decision Making– Steps in Rational Decision
Making
• The Nature of Decision Making– Decision Making Defined– Types of Decisions– Decision-Making Conditions
• Certainty• Risk• Uncertainty
• Rational Perspectives on Decision Making– The Classical Model of
Decision Making– Steps in Rational Decision
Making
• Behavioral Aspects of Decision Making
– The Administrative Model– Political Forces in Decision
Making• Bounded Rationality
• Satisfice
– Intuition and Escalation of Commitment
– Risk Propensity and Decision Making
– Ethics and Decision Making
• Behavioral Aspects of Decision Making
– The Administrative Model– Political Forces in Decision
Making• Bounded Rationality
• Satisfice
– Intuition and Escalation of Commitment
– Risk Propensity and Decision Making
– Ethics and Decision Making