Chapter 6 DECISION MAKING: THE ESSENCE OF THE MANAGER’S JOB 6.1 © 2003 Pearson Education Canada Inc.

LEARNING OBJECTIVES l You should be able to: – Outline the steps in the decision-making process – Explain why decision-making ability is so important for a manager – Describe the rational decision maker – Contrast the perfectly rational and bounded rationality approaches to decision making – Explain the role that intuition plays in the decision- making process 6.2

© 2003 Pearson Education Canada Inc. LEARNING OBJECTIVES (continued) l You should be able to: (continued) – Identify the two types of decision problems and the two types of decisions that are used to solve them – Differentiate the decision conditions of certainty, risk, and uncertainty – Describe the different decision-making styles 6.3

© 2003 Pearson Education Canada Inc. DECISION MAKING Decisions – Choices from two or more alternatives – All organizational members make decisions Decision-Making Process – Step 1 - Identifying a Problem problem - discrepancy between an existing and a desired state of affairs 6.4

© 2003 Pearson Education Canada Inc. DECISION MAKING (continued) Decision-Making Process (continued) – Step 2 - Identifying Decision Criteria decision criteria - what’s relevant in making a decision – Step 3 - Allocating Weights to the Criteria must weight the criteria to give them appropriate priority in the decision – Step 4 - Developing Alternatives list the viable alternatives that could resolve the problem without evaluating them 6.5

© 2003 Pearson Education Canada Inc. DECISION MAKING (continued) Decision-Making Process (continued) – Step 5 - Analyzing Alternatives each alternative is evaluated against the criteria – Step 6 - Selecting an Alternative choosing the best alternative from among those considered – Step 7 - Implementing the Decision implementation - conveying the decision to those affected by it and getting their commitment to it – Step 8 - Evaluating Decision Effectiveness determine whether the problem is resolved 6.6

© 2003 Pearson Education Canada Inc. THE DECISION-MAKING PROCESS Identifying a Problem Identifying the Decision Criteria Allocating Weights To Criteria Price Manufacturer and model Warranties Support Reliability Repair Record Reliability Service Warranty Period On-site Service Price Case Style My sales representatives need new computers Exhibit 6.1

© 2003 Pearson Education Canada Inc. Developing Alternatives Fujitsu AST Sharp IBM HPTI NEC Analyzing Alternatives NEC AST HP Fujitsu IBM Sharp TI Selecting an Alternative Implementing Decision Evaluation of Decision Effectiveness Reliability Service Warranty Period On-site Service Price Case Style The Fujitsu is the best. Compaq 6.8 Exhibit 6.1 (continued)

ASSESSED VALUES OF NOTEBOOK COMPUTER ALTERNATIVES AGAINST DECISION CRITERIA (Exhibit 6.3)6.9© 2003 Pearson Education Canada Inc.

EVALUATION OF LAPTOP COMPUTER ALTERNATIVES AGAINST CRITERIA AND WEIGHTS (Exhibit 6.4) 6.10© 2003 Pearson Education Canada Inc.

DECISIONS IN THE MANAGEMENT FUNCTIONS (Exhibit 6.5) 6.11© 2003 Pearson Education Canada Inc.

THE MANAGER AS DECISION MAKER Rational Decision Making –Decisions are consistent, value-maximizing choices within specified constraints –Managers assumed to make rational decisions –Assumptions of Rationality - decision maker would: –be objective and logical –carefully define a problem –have a clear and specific goal –select the alternative that maximizes the likelihood of achieving the goal –make decision in the firm’s best economic interests Managerial decision making seldom meets all the tests 6.12© 2003 Pearson Education Canada Inc.

“Good Enough” versus Optimizing Lacks Complete Information Cannot Assess All Alternatives Cannot Weigh All Criteria Bounded Rationality 6.13

THE MANAGER AS DECISION MAKER (continued) Bounded Rationality –Behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information –Accept solutions that are “good enough” –Escalation of commitment - increased commitment to a previous decision despite evidence that it may have been wrong 6.14© 2003 Pearson Education Canada Inc.

THE MANAGER AS DECISION MAKER (continued) Role of Intuition –Intuitive decision making - subconscious process of making decisions on the basis of experience and accumulated judgment does not rely on a systematic or thorough analysis of the problem generally complements a rational analysis 6.15© 2003 Pearson Education Canada Inc.

WHAT IS INTUITION? Managers make decisions based on experience Managers make decisions based on feelings and emotions Managers make Decisions based on ethical values or culture Managers make decisions based on subconscious data Manager make decisions based on skills, knowledge, or training Intuition Affect- initiated decisions Experienced- based decisions Values or ethics-based decisions Subconscious mental processing Cognitive- based decisions 6.16© 2003 Pearson Education Canada Inc.

THE MANAGER AS A DECISION MAKER (continued) Types of Problems and Decisions –Well-Structured Problems - straightforward, familiar, and easily defined –Programmed Decisions - used to address structured problems procedure - series of interrelated sequential steps used to respond to a structured problem rule - explicit statement of what to do or not to do policy - guidelines or parameters for decision making 6.17© 2003 Pearson Education Canada Inc.

THE MANAGER AS A DECISION MAKER (continued) Types of Problems and Decisions (continued) –Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete –Non-programmed Decisions - used to address poorly- structured problems –few decisions in the real world are either fully programmed or non-programmed 6.18© 2003 Pearson Education Canada Inc.

TYPES OF PROBLEMS, TYPES OF DECISIONS, AND LEVEL IN THE ORGANIZATION (Exhibit 6.8) Programmed Decisions Non-programmed Decisions Level in Organization Top Lower Well structured Poorly structured Type of Problem 6.19© 2003 Pearson Education Canada Inc.

THE MANAGER AS A DECISION MAKER (continued) Decision-Making Conditions –Certainty - outcome of every alternative is known –Risk - able to estimate the probability of outcomes stemming from each alternative –Uncertainty - not certain about outcomes and unable to estimate probabilities 6.20© 2003 Pearson Education Canada Inc.

THE MANAGER AS A DECISION MAKER (continued) Decision-Making Styles –Two dimensions define the approach to decision making way of thinking - differs from rational to intuitive tolerance for ambiguity - differs from a need for consistency and order to the ability to process many thoughts simultaneously –Define four decision-making styles Directive - fast, efficient, and logical Analytic - careful and able to adapt or cope with new situations Conceptual - able to find creative solutions Behavioural - seek acceptance of decisions 6.21© 2003 Pearson Education Canada Inc.

DECISION-MAKING STYLES (Exhibit 6.12) Analytic DirectiveBehavioural Rational Intuitive Way of Thinking Conceptual High Low Tolerance for Ambiguity 6.22© 2003 Pearson Education Canada Inc.

MANAGING WORKFORCE DIVERSITY Diversity in Decision Making –Advantages - diverse employees: provide fresh perspectives offer differing interpretations of problem definition increase the likelihood of creative and unique solutions –Disadvantages - diverse employees: require more time to reach a decision may have problems of communication may create a more complex, confusing, and ambiguous decision-making process may have difficulty in reaching agreement 6.23© 2003 Pearson Education Canada Inc.

OVERVIEW OF MANAGERIAL DECISION MAKING (Exhibit 6.13) Decision-Making Process Types of Problems and Decisions Well-structured - programmed Poorly structured - non-programmed Decision-Making Conditions Certainty Risk Uncertainty Decision Maker Style Directive Analytic Conceptual Behavioural Decision-Making Approach Rationality Bounded Rationality Intuition Decision Choose best alternative - maximizing - good enough Implementing Evaluating6.24© 2003 Pearson Education Canada Inc.