1. Part 2: Planning PowerPoint Presentation by Charlie Cook Copyright © 2004 Prentice Hall, Inc. All rights reserved. Chapter 4 Foundations of Decision Making

2. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–2 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

3. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–3 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

4. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–4 The Decision-Making Process EXHIBIT 4.2

5. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–5 Criteria and Weight in Car-Buying Decision (Scale of 1 to 10) EXHIBIT 4.3 CRITERIONWEIGHT Price10 Interior comfort8 Durability5 Repair record5 Performance3 Handling1

6. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–6 Assessment of Car Alternatives EXHIBIT 4.4 INITIALINTERIORDURA-REPAIR ALTERNATIVESPRICECOMFORTBILITYRECORDPERFORMANCEHANDLINGTOTAL Jeep Cherokee210875537 Ford Mustang96568640 Mercedes C23085664635 Pontiac Grand Am95676538 Mazda Tribute569107744 Dodge Durango105643331 Volvo S6048768942 Isuzu Axiom76865638 BMW 32597644737 Audi A65854101042 Toyota Camry6510106643 Volkswagen Passat86657840

7. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–7 Weighting of Vehicles (Assessment Criteria X Criteria Weight) EXHIBIT 4.5

8. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–8 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

9. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–9 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

10. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–10 Assumptions of Rationality EXHIBIT 4.6

11. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–11 Making Decisions: The Rational Model Rational  Describes choices that are consistent and value- maximizing within specified constraints Bounded rationality  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

12. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–12 Three Elements of Creativity EXHIBIT 4.7 Source: T. M. Amabile, “Motivating Creativity in Organizations,” California Management Review (Fall 1997): 43. Creativity The ability to produce novel and useful ideas

13. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–13 Common Decision-making Errors Heuristics: Using judgmental shortcuts  Availability heuristic  the tendency for people to base their judgments on information that is readily available to them  Representative heuristic  The tendency for people to base judgments of probability on things with which they are familiar  Escalation of commitment  An increased commitment to a previous decision despite negative information

14. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–14 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

15. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–15 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)

16. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–16 Types of Problems, Types of Decisions, and Level in the Organization EXHIBIT 4.8

17. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–17 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

18. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–18 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.

19. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–19 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.

20. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–20 Decision-Making Styles EXHIBIT 4.9

21. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–21 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

22. Copyright © 2004 Prentice Hall, Inc. All rights reserved.4–22 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