1. PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 4 Foundations of Decision Making 4 PART II: Planning

2. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–2 Learning Outcomes After reading this chapter, I will be able to: 1.Describe the steps in the decision-making process. 2.Identify the assumptions of the rational decision- making model. 3.Explain the limits to rationality. 4.Define certainty, risk, and uncertainty as they relate to decision making. 5.Describe the actions of the bounded-rational decision maker.

3. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–3 Learning Outcomes (cont’d) After reading this chapter, I will be able to: 6.Identify the two types of decision problems and the two types of decisions that are used to solve them. 7.Define heuristics and explain how they affect the decision-making process. 8.Identify four decision-making styles. 9.Describe the advantages and disadvantages of group decisions. 10.Explain three techniques for improving group decision making.

4. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–4 Decision-making Decision-making process  A set of eight steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution Problem  A discrepancy between an existing and a desired state of affairs Decision criteria  Factors that are relevant in a decision

5. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–5 Examples of Planning-Function Decisions  What are the organization’s long-term objectives?  What strategies will best achieve those objectives?  What should the organization’s short-term objectives be?  What is the most efficient means of completing tasks?  What might the competition be considering?  What budgets are needed to complete department tasks?  How difficult should individual goals be? Exhibit 4.1

6. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–6 The Decision-Making Process Exhibit 4.2

7. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–7 Criteria and Weight in Car-Buying Decision (Scale of 1 to 10) CRITERIONWEIGHT Price10 Interior comfort8 Durability5 Repair record5 Performance3 Handling1 Exhibit 4.3

8. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–8 Assessment of Car Alternatives Exhibit 4.4

9. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–9 Weighting of Vehicles (Assessment Criteria X Criteria Weight) Exhibit 4.5

10. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–10 Decision-making (cont’d) Decision implementation  Putting a decision into action; includes conveying the decision to the persons who will be affected by it and getting their commitment to it.

11. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–11 Making Decisions: The Rational Model Certainty  The implication that the outcome of every possible alternative is known. Uncertainty  A condition under which there is not full knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined. Risk  The probability that a particular outcome will result from a given decision.

12. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–12 Assumptions of Rationality Exhibit 4.6

13. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–13 What Is Creative Potential? Expertise  Understanding, abilities, knowledge, proficiencies, necessary in the field of creative endeavor. Creative-thinking skills  The personality characteristics associated with creativity, the ability to use analogies, as well as the talent to see the familiar in a different light. Intrinsic task motivation  The desire to work on something because it’s interesting, involving, exciting, satisfying, or personally challenging.

14. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–14 Three Elements of Creativity Creativity The ability to produce novel and useful ideas Exhibit 4.7 Source: T. M. Amabile. “Motivating Creativity in Organizations,” Califormia Management Review (Fall 1997), p. 43. Copyright © 1997, by The Regents of the University of California. Reprinted by permission of the Regents.

15. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–15 Making Decisions: The Rational Model Rational  Describes choices that are consistent and value- maximizing within specified constraints. Bounded rationality (Herbert Simon)  Behavior that is rational within the parameters of a simplified model that captures the essential features of a problem. Satisfice  Making a “good enough” decision: choosing the first- identified alternative that satisfactorily and sufficiently solves the problem.

16. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–16 Common Decision-making Errors Heuristics: Using judgmental shortcuts  Availability heuristic  The tendency to base judgments on information that is readily available.  Representative heuristic  The tendency to base judgments of probability on things (objects or events) that are familiar  Escalation of commitment  An increased commitment to a previous decision despite negative information about the decision’s present outcomes.

17. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–17 How Do Problems Differ? Well-structured problems  Straightforward, familiar, easily defined problems Ill-structured problems  New problems in which information is ambiguous or incomplete Programmed decision  A repetitive decision that can be handled by a routine approach Nonprogrammed decisions  Decisions that must be custom-made to solve unique and nonrecurring problems

18. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–18 Programmed Decision-Making Aids Policy  A general guide that establishes parameters for making decisions about recurring problems. Procedure  A series of interrelated sequential steps that can be used to respond to a well-structured problem (policy implementation). Rule  An explicit statement that tells managers what they ought or ought not to do (limits on procedural actions).

19. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–19 Types of Problems, Types of Decisions, and Level in the Organization Exhibit 4.8

20. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–20 Technology And Decision Making Expert systems  Software that acts like an expert in analyzing and solving ill-structured problems  Use specialized knowledge about a particular problem area rather than general knowledge  Use qualitative reasoning rather than numerical calculations  Perform at a level of competence higher than that of nonexpert humans. Neural networks  Software that is designed to imitate the structure of brain cells and connections among them

21. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–21 Decision Making: Styles Directive style  Characterizes the low tolerance for ambiguity and a rational way of thinking of individuals who are logical and efficient and typically make fast decisions that focus on the short term. Analytic style  Characterizes the high tolerance for ambiguity combined with a rational way of thinking of individuals who prefer to have complete information before making a decision.

22. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–22 Decision Making: Styles (cont’d) Conceptual style  Individuals who tend to be very broad in outlook, to look at many alternatives, and to focus on the long run and often look for creative solutions. Behavioral style  Individuals who think intuitively but have a low tolerance for uncertainty; they work well with others, are open to suggestions, and are concerned about the individuals who work for them.

23. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–23 Decision-Making Styles Exhibit 4.9

24. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–24 Group Decision Making Advantages  Make more accurate decisions  Provides more complete information  Offers a greater diversity of experiences and perspectives  Generates more alternatives  Increases acceptance of a solution  Increases the legitimacy of a decision. Disadvantages  Is more time-consuming and less efficient  Minority domination can influence decision process  Increased pressures to conform to the group’s mindset (groupthink)  Ambiguous responsibility for the outcomes of decisions

25. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–25 When Are Groups Most Effective? Creativity  Groups tend to be more creative than individuals. Acceptance of the final solution  Groups help increase the acceptance of decisions. Effectiveness of group decision making  Groups of five to seven members are optimal for decision process speed and quality.

26. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–26 Improving Group Decision Making Brainstorming  An idea-generating process that encourages alternatives while withholding criticism. Nominal group technique  A decision-making technique in which group members are physically present but operate independently. Electronic meeting  A type of nominal group technique in which participants are linked by computer.

27. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–27 Web Links Visit the Robbins/DeCenzo companion Website  At www.prenhall.com/robbins for this chapter’s Internet resources, including chapter quiz and student PowerPoints.www.prenhall.com/robbins Diversity Perspectives  Log onto www.prenhall.com/onekey and take the role of the foundation director trying to turn a potentially “bad” committee into a “good” one.www.prenhall.com/onekey Enhancing Your Skill in Ethical Decision Making  Log onto www.prenhall.com/onekey and get ready to enhance your skill in ethical decision making.www.prenhall.com/onekey

28. Copyright © 2005 Prentice Hall, Inc. All rights reserved.4–28 Video Case Application The Management Picture: Quick Takes Video 1 Insert Video Link Here (Size to this window)