Management 8e. - Robbins and Coulter

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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 decisions effectiveness.
• Page 77 Slide 2

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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
• Slide 3

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The Decision-Making Process
Exhibit 6.1
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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.
• Slide 5

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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)
• Page 79 Slide 6

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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. Slide 7
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Step 4 Developing Alternatives

• Listing viable (workable) alternatives (other
  possible actions) that could resolve the problem.
• Alternatives are only listed without evaluation.
• Page 80 Slide 8

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Step 5 Analyzing Alternatives

• Appraising (evaluating, analyzing) each
  alternatives strengths and weaknesses against
  the criteria established in steps 2 and 3.
• Alternatives are analyzed for their effectiveness
  in resolving the issue.
• Slide 9

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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.
• Page 81 Slide 10

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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.
• Slide 11

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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?
• Slide 12

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Making Decisions

• 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 organizations interests, not their
  own interests.
• Page 82 Slide 13

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Assumptions of Rationality
Exhibit 6.6
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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.
• Page 83 Slide 15

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Influences on Decision Making

• Decision making may be influenced by the
  organizations 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 dont 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.
• Page 84 Slide 16

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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.
• Page 84 Slide 17

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What is Intuition?
Source Based on L.A. Burke and M.K. Miller.
Taking the Mystery Out of Intuitive Decision
Making. Academy of Management Executive. October
1999. pp. 9199.
Exhibit 6.7
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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 definedinformation
  about the problem is available and complete.
• .
• Page 85 Slide 19

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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.
• Slide 20

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Policy, Procedure, and Rule Example

• Policy
• 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.

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Problems and Decisions (contd)

• 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.
• Page 86 Slide 22

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Types of Problems, Types of Decisions, and Level
in the Organization
Exhibit 6.8
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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.
• Page 87 Slide 24

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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 managers choice to
  maximize the maximum payoff
• Maxi-min the pessimistic managers choice to
  maximize the minimum payoff
• Mini-max the managers choice to minimize his
  maximum regret.
• Page 88 Slide 25

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Payoff Matrix
Exhibit 6.10
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Regret Matrix
Exhibit 6.11
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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 ones self and ones performance.
• Choosing alternatives that offer immediate
  rewards to avoid immediate costs.
• Slide 28

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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 managers own style of decision making.
• Page 91 Slide 29

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Overview of Managerial Decision Making
Exhibit 6.14
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Decision Making for Todays 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. gtgtgt
• Page 92 Slide 31

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Decision Making for Todays 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.
• Slide 32

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Decision Making for Todays 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.
• Slide 33

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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.

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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.

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C H A P T E R R E V I E W 3/3

• Decision Making for Todays World (slides 29, 30,
  31,33)
• Explain how managers can make effective decisions
  in todays world.
• List six characteristics of an effective
  decision-making process.
• Describe the five habits of highly reliable
  organizations.