Topic 3 mp_decision_making

3Chapter

Foundations of Decision Making

Copyright ©2013 Pearson Education 4-1

Learning Objectives

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

decision making.



How Do Managers Make Decisions?


Decision making process

8 steps1. Identify problems2. Identify decision criteria (critical success factors)

3. Weight the criteria (set priority)4. Develop alternatives5. Analyze alternatives6. Select alternative7. Implement alternative8. Evaluate decision effectiveness

What Defines a Decision Problem?

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


Factors in the Decision-Making Process

Relevant decision criteria:• Price• Model (two-or four-door)• Size • Manufacturer • Optional equipment• Fuel economy, or• Repair records.


Weighing Criteria and Analyzing AlternativesTo weigh criteria:

1. Give the most important criterion a weight of 10.

2. Compare remaining criteria against that standard to indicate their relative degrees of importance.


Weighing Criteria and Analyzing Alternatives (cont.)


Weighing Criteria and Analyzing Alternatives (cont.)


Determining the Best Choice


Implementing Decisions


• Putting a decision into action; includes conveying the decision to the persons who will be affected by it and getting their commitment to it.

The Last Step in the Decision Process


The last step in the decision-making process, managers appraise the result of the decision to see whether the problem was resolved.

Common Errors in the Decision Making Process


• Overconfidence: when they think they know more than they do/hold unrealistic positive views of themselves.

• Immediate Gratification: decision makers tend to want immediate reward and to avoid immediate costs.

• Anchoring: decision makers fixate on initial information as a starting point, and then, once set, fail to adequately adjust for subsequent information.

• Selective perception: decision makers selectively organize and interpret events based on their biased perceptions.


Common Errors

Common Errors

• Confirmation: decision makers seek out information that reaffirms their past choices and discount information that contradicts past judgment.

• Framing: decision makers select and highlight certain aspects of a situation while excluding others.

• Availability: Decision makers tend to remember events that are the most recent and vivid in their memory.

• Representation: decision makers assess the likelihood of an event based on how closely it resembles other events.


Common Errors

• Randomness: decision makers try to create meaning out of random events.

• Sunk costs: decision makers forget that current choices can’t correct the past.

• Self-serving: decision makers who are quick to take credit for their successes and blame failure on outside factors.

• Hindsight: decision makers tend to falsely believe that they would have accurately predicted the outcome of an event once that outcome is actually known.




(1) The Rational Model

• Rational decision making – Choices that are consistent and maximize value within specified constraints


IT can enhance an org’s decision-making capabilities.

• Rational Model assumes – that managers’ decision making will be rational

logical and consistent choices to maximize value– The problem faced would be clear and

unambiguous – the decision maker would have a clear and

specific goal – know all possible alternatives


(2) Bounded Rationality

• Bounded rationality – Decisions that are rational within the limits of a manager’s ability to process information

• Satisfice – Accepting solutions that are “good enough”

• Escalation of commitment – An increased commitment to a previous decision despite evidence that it may have been a poor one


(3) Intuition in Decision Making


• Intuitive Decision Making– making decisions on the basis of experience,

feelings and accumulated judgment– described as “unconscious reasoning.”



Types of Problems

• 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


Types of Decisions: Programmed

Programmed decisions – Repetitive decisions that can be handled using a routine approach


Types of Decisions: Nonprogrammed

Nonprogrammed decisions – Unique and nonrecurring decisions; require a custom-made solution


Problems, Decision Types, and Organizational Levels


Decision-Making Conditions


• Risk – A situation where a decision maker estimates the likelihood of certain outcomes

• Certainty – A situation where a manager can make accurate decisions because the outcome of every alternative is known

• Uncertainty – A situation where a decision maker has neither certainty nor reasonable probability estimates available


How Do Groups Make Decisions?

Important decisions are often made by groups who will be most affected by those decisions:• Committees• Task forces• Review panels• Work teams


Group Decision Making: Benefits

• Provides more information

• Generates more alternatives

• Increases acceptance of a solution

• Increases legitimacy of the decision


Group Decision Making: Drawbacks

• Time-consuming• Infrequent and often inefficient interaction• Minority domination• Groupthink• Ambiguous responsibility


When Are Groups Most Effective?

Individual• Faster decision making• More efficient use of

work hours

Group• More accurate decisions• More heterogeneous

representation• More time-consuming• More creative• More effective in

accepting final solution


Improving Group Decision Making

Three ways of making group decisions more creative:• Brainstorming• Nominal group technique• Electronic meetings


How Can You Improve Group Decision Making?• Brainstorming

– An idea-generating process that encourages alternatives while withholding criticism

– Ideas construction -> decision• Nominal Group Technique

– group members are physically present but operate independently

– Secretly write list of general prob. & solutions• Electronic Meeting

- nominal group tech. - participants are linked by computer

Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall


Contemporary Issues

• National culture – Influences the way in which decisions are made and the degree of risk a decision maker will take

• Creativity – The ability to produce novel and useful ideas


Creativity in Decision Making

Creativity allows the decision maker to:• Appraise and understand a problem more fully• “See” problems others can’t see • Identify all viable alternatives


Documents

Topic 3 mp_decision_making