1. Rational Decision Making 8-step Process
1. Identification of problem
2. Identification of Decision Criteria
3. Allocation of weights to criteria
4. Development of alternatives
5. Analysis of alternatives
6. Decide on an alternative
7. Implementation of decision
8. Evaluation of decision

2. The Decision-Making Process
Allocation of
Weights to
Criteria
Problem
Identification
Identification of
Decision Criteria
Development of
Alternatives
“My salespeople
need new computers”
Price
Weight
Warranty
Screen type
Reliability
Screen size
Reliability
Screen size
Warranty
Weight
Price
Screen type 3
Acer
Compaq
Gateway HP
Micromedia
NEC
Sony
Toshiba
Analysis of
Alternatives
Selection of an
Alternative
Implementation
of an Alternative
R S W W P S
Acer
Compaq
Gateway HP
Micromedia
NEC
Sony
Toshiba
Acer 125
Compaq 142
Gateway 246
HP 174
Micromedia 103
NEC 151
Sony 192
Toshiba 154
Gateway
Evaluation
of Decision
Effectiveness

3. Decisions in the Management Functions

4. About Rational Decision Making
Is it always possible to make rational decisions?

5. Rational Decision Making
Single, well-
defined goal
is to be achieved
Problem is
clear and
unambiguous
All alternatives
and consequences
are known
Rational
Decision
Making
Preferences
are clear
Final choice
will maximize
payoff
Preferences
are constant
and stable
No time or cost
constraints exist

6. Bounded Rationality
behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information
satisfice - accept solutions that are “good enough”

7. Intuitive decision making
Based on “gut feeling”
subconscious process of making decisions on the basis of experience, values, and emotions
does not rely on a systematic or thorough analysis of the problem
generally complements a rational analysis

8. Types of Problems & Decisions
Well-Structured Problems - straightforward, familiar, and easily defined
Programmed Decisions - used to address structured problems
minimize the need for managers to use discretion
facilitate organizational efficiency

9. Types of Problems and Decisions
Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete
Nonprogrammed Decisions - used to address poorly- structured problems
produce a custom-made response
more frequent among higher-level managers
Procedure, Rule, & Policy

10. Types of Problems & Level In the Organization
Top
Lower
Well-structured
Ill-structured
Type of
Problem
Programmed
Decisions
Nonprogrammed
Decisions

11. Things to consider . . .
Certainty – how certain is a particular outcome?
Risk – how much risk can you take?
expected value - the conditional return from each possible outcome
Uncertainty – Limited information prevents estimation of outcome probabilities for alternatives.

12. What to do? maximax choice – optimistic
maximizing the maximum possible payoff
taking the best of all possible cases
maximin choice – pessimistic
maximizing the minimum possible payoff
taking the best of the worst cases
minimax - minimize the maximum “regret” (difference between what you get and the best case)

13. Decision-Making Styles
Dimensions of Decision-Making Styles
Value orientations
Task and technical concerns
People and social concerns
Tolerance for ambiguity
Low tolerance: require consistency and order
High tolerance: multiple thoughts simultaneously

14. Decision-Making Styles
Directive
Prefer simple,
clear solutions
Make decisions
rapidly
Do not consider
many alternatives
Rely on existing
rules
Prefer complex
problems
Carefully analyze
alternatives
Enjoy solving
Willing to use
innovative
methods
Analytical
Conceptual
Socially oriented
Humanistic and
artistic approach
Solve problems
creatively
Enjoy new ideas
Behavioral
Concern for their
organization
Interest in helping
others
Open to
suggestions
Rely on meetings

15. Decision Making Styles
High
Analytical
Conceptual
Directive
Behavioral
Tolerance for Ambiguity
Low
Tasks and Technical Concerns
People and Social Concerns
Value Orientation

16. Common Errors in Decision Making
Over-confidence
Hindsight
Self-serving
Sunk costs
Randomness
Representation
Availability
Framing
Confirmation
Selective perception
Anchoring
Immediate gratification

17. Advantages and Disadvantages of Group-Aided Decision Making
Advantages Disadvantages
1. Greater pool of knowledge 1. Social pressure
2. Different perspectives 2. Minority domination
3. Greater comprehension 3. Logrolling
4. Increased acceptance 4. Goal displacement
5. Training ground 5. “Groupthink”

18. Decision-Making Approach Decision-Making Conditions
Rationality
Bounded Rationality
Intuition
Types of Problems and Decisions
Well-structured
- programmed
Poorly structured
- nonprogrammed
Decision
Choose best
alternative
- maximizing
- satisficing
Implementing
Evaluating
Decision-Making
Process
Decision-Making Conditions
Certainty
Risk
Uncertainty
Decision Maker Style
Directive
Analytic
Conceptual
Behavioral