2. Decision Making Decision A choice from two or more alternatives.
The Decision-Making Process
A set of eight steps that include identifying a problem, selecting an alternative, and evaluating the decision’s effectiveness.
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3. The Decision-Making Process
The eight steps in the decision-making process
Identifying a problem
Identifying decision criteria
Allocating weights to the criteria
Developing alternatives
Analyzing alternatives
Selecting an alternative
Implementing the alternative
Evaluating decision effectiveness
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4. The Decision-Making Process
Exhibit 6.1

5. Step 1: Identifying a Problem
Finding a discrepancy (difference) between an existing (current) and a desired state of affairs (things are not going as they should).
Three Characteristics (aspects) of Problems.
A problem is identified when:
A manager becomes aware (conscious) of it.
There is pressure to act and solve the problem.
The resources needed to take action are available (means, authority, information).
Note: It is important not to confuse a problem with the symptoms (visible indications) of the problems.
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6. Step 2: Identifying Decision Criteria
Managers must determine and list the relevant (important, significant) criteria (factors, items) to include in making a choice — or one criterion that will guide (direct) a decision — aimed at resolving the problem identified in step 1.
Costs that will be incurred (investment required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)
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7. Step 3: Allocating Weights to the Criteria
Prioritizing the criteria that were identified in step 2 by assigning (giving) a “weight” to each.
Decision criteria are not of equal importance Assigning a weight to each item (criterion) places the items in the correct priority (order of importance) in the decision making process.
E.g. Giving the most important criterion a weight of 10 and then assign weights to the rest against that standard: A weight of 10 would be twice as important as a weight of 5.
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8. Step 4: Developing Alternatives
Listing viable (workable) alternatives (other possible actions) that could resolve the problem.
Alternatives are only listed without evaluation.
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9. Step 5: Analyzing Alternatives
Appraising (evaluating, analyzing) each alternative’s strengths and weaknesses against the criteria established in steps 2 and 3.
Alternatives are analyzed for their effectiveness in resolving the issue.
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10. Step 6: Selecting an Alternative
Choosing the best alternative from among those considered.
Once the criteria in the decision have been weighted, and viable alternatives analyzed, the alternative with the highest total in step 5 is chosen.
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11. Step 7: Implementing the Decision
Putting the chosen alternative into action.
Conveying (communicating) the decision to those who will implement it and gaining (getting) their commitment (cooperation) to the decision.
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12. Step 8: Evaluating the Decision Effectiveness
Evaluating (measuring) the outcome (result) of the decision to see if the problem has been resolved.
The soundness (quality, goodness) of the decision is judged by its outcomes.
How effectively was the problem solved resulting from the chosen alternatives?
If the problem was not solved, what went wrong?
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13. Making Decisions Assumptions (accepted truths) of Rationality
Rational decision making describes choices that are consistent (logical) and value-maximizing (for the best advantage) within specified constraints (defined limits).
Assumptions (accepted truths) of Rationality
Perfectly rational decision makers would…
be fully objective (neutral, fair-minded), and logical.
carefully define a problem.
have a clear and specific goal.
Identify all viable alternatives.
select the alternative that maximizes goal achievement.
maximize the organization’s interests, not their own interests.
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14. Assumptions of Rationality
Exhibit 6.6

15. Influences on Decision Making
Certain assumptions of rationality in the decision-making process are not always realistic (practical) with respect to how managers actually make decisions.
Bounded Rationality
Managers tend to make decisions rationally, but are often limited (bounded) by their ability to process information.
Satisficing
Because they cannot possibly analyze all information on all alternatives, managers accept solutions that are “good enough”. They satisfice rather than maximize.
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16. Influences on Decision Making
Decision making may be influenced by the organization’s culture, internal politics, power considerations and by…
Escalation of Commitment
An increasing or continued commitment to a previous decision despite evidence that the decision may have been wrong.
They don’t want to admit that their decision was wrong
Rather than search for new alternatives, they increase their commitment to the original solution.
E.g. Facts in the Challenger space shuttle disaster on January 28, 1986 indicate an escalation of commitment by decision makers (managers) to launch the shuttle even though the decision was questioned by others.
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17. Influences on Decision Making
The Role of Intuition (instinctive knowing)
Intuitive decision making
Making decisions on the basis of experience, feelings, and accumulated judgment.
Intuition or “gut feeling” and rational analysis complement each other.
An experienced manager can act with limited information using his or her judgment to make a decision.
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18. What is Intuition? Exhibit 6.7
Source: Based on L.A. Burke and M.K. Miller. “Taking the Mystery Out of Intuitive Decision Making.” Academy of Management Executive. October pp. 91–99.
Exhibit 6.7

19. Problems and Decisions
Programmed Decision
A repetitive decision that can be handled by a routine approach
Structured Problems
Involve goals that are clear.
Are familiar (have occurred before).
Are easily and completely defined—information about the problem is available and complete. .
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20. Types of Programmed Decisions
A Policy
A general guideline for making a decision about a structured problem.
A Procedure
A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem.
A Rule
An explicit statement that limits what a manager or employee can or cannot do in carrying out the steps involved in a procedure.
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21. Policy, Procedure, and Rule Example
Accept all customer-returned merchandise.
Procedure
Follow all steps for completing merchandise return documentation.
Rules
Managers must approve all refunds over $50.00.
No credit purchases are refunded for cash.

22. Problems and Decisions (cont’d)
Non-programmed Decisions
Decisions that are unique and nonrecurring (are not repeated).
Decisions that generate unique responses.
Unstructured Problems
Problems that are new or unusual and for which information is ambiguous or incomplete.
Problems that will require custom-made solutions.
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23. Types of Problems, Types of Decisions, and Level in the Organization
Exhibit 6.8

24. Decision-Making Conditions
Certainty
When a manager can make an accurate decision because the outcome of every alternative is known.
Risk
When a manager can only estimate the different outcomes resulting from each alternative.
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25. Decision-Making Conditions
Uncertainty
Limited or no information prevents estimation of outcomes resulting from alternatives and may force managers to use intuition, hunches, and “gut feelings”.
Maxi-max: the optimistic manager’s choice to maximize the maximum payoff
Maxi-min: the pessimistic manager’s choice to maximize the minimum payoff
Mini-max: the manager’s choice to minimize his maximum regret.
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26. Payoff Matrix
Exhibit 6.10

27. Regret Matrix
Exhibit 6.11

28. Making Decisions Decision-Making Styles
Directive: Use minimal information and consider few alternatives.
Analytic: Make careful decisions in unique situations.
Conceptual: Maintain a broad outlook (wide perception) and consider many alternatives in making long-term decisions.
Behavioral: Avoid conflict by working well with others and being receptive (accept) to suggestions.
Decision-Making Biases (wrong attitudes) and Errors
Using “rules of thumb” (fixed, easy guidelines) to simplify decision making.
Holding unrealistically (too high) positive views of one’s self and one’s performance.
Choosing alternatives that offer immediate rewards to avoid immediate costs.
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29. The Managerial Decision-Making Model
Summing up Managerial Decision Making
The decision making process is shaped (formed) in various degrees by four factors that play a role in how managers choose the “best” alternative, implement it, and determine whether or not it takes care of the problem:
The decision-making approach being followed.
The decision-making conditions.
The type of problem being dealt with.
The manager’s own style of decision making.
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30. Overview of Managerial Decision Making
Exhibit 6.14

31. Decision Making for Today’s World
Guidelines for making effective decisions:
Know when it is time to call it quits. Recognize when a decision is not working and it is time to move on.
Practice the five “whys”. Learning to ask “why” not just once, but five times forces decision makers to examine more deeply the causes of the problem and possible solutions.
Be an effective decision maker. >>>
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32. Decision Making for Today’s World
Characteristics of an Effective Decision-Making Process
1 - It focuses on what is important.
2 - It is logical and consistent.
3 - It acknowledges both subjective and objective thinking and blends (mixes) analytical with intuitive (instinctive) thinking.
4 - It requires only as much information and analysis as is necessary to resolve a particular dilemma.
5 - It encourages and guides the gathering of relevant information and informed opinion.
6 - It is straightforward (free from ambiguity), reliable, easy to use, and flexible.
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33. Decision Making for Today’s World
Habits of highly reliable organizations (HROs)
Are not tricked (led to mistakes) by their success.
Defer to (let decide) the experts on the front line.
Let unexpected circumstances provide the solution.
Embrace (include, welcome) complexity.
Anticipate, but also anticipate their limits.
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34. C H A P T E R R E V I E W 1/3
The Decision-Making Process (slides 2 & 5 to 12)
Define decision and decision-making process.
Describe the eight steps in the decision-making process.

35. C H A P T E R R E V I E W 2/3
The Manager as Decision Maker (slides 13, 15 to 20, 22, 24, 25, 29)
Discuss the assumptions of rational decision making.
Describe the concepts of bounded rationality, satisficing, and escalation of commitment.
Explain what intuition is and how it affects decision making.
Contrast programmed and non-programmed decisions.
Contrast the three decision-making conditions.
Explain maxi-max, maxi-min, and mini-max decision choice approaches.
Explain the managerial decision-making model.

36. C H A P T E R R E V I E W 3/3
Decision Making for Today’s World (slides 29, 30, 31,33)
Explain how managers can make effective decisions in today’s world.
List six characteristics of an effective decision-making process.
Describe the five habits of highly reliable organizations.