Foundations of Decision Making

3
Topic
Foundatio
ns of
Decision
Making
Copyright 2013 Pearson
Education
4-1
Learning Objectives
Describe the types of decisions and
decision-making conditions
managers face.
Describe the decision making
process.
Explain the three approaches
managers can use to make decisions.
Discuss group decision making.
Discuss contemporary issues in
managerial decision making.
Education
4-2

Education
4-3
Types of Problems
Problem A discrepancy between
an existing and a desired state of
affairs
Structured problem A
straightforward, familiar, and easily
defined problem
eg. Return goods
Unstructured problem A problem

that is new or unusual for which
information is ambiguous or
4-4
Education
incomplete
Types of Decisions
Decision - choice made from available alternatives
Decision Making - process of identifying problems and
opportunities and resolving them
Programmed decisions
Repetitive decisions that can be handled using a
routine approach
efficient to handle structured problems
Nonprogrammed decisions
Unique and nonrecurring decisions;
require a custom-made solution
Use to solve unstructured problem
Education
4-5
Problems, Decision Types, and

Orgn. Levels

Education
4-6
Problems, Decision Types, and

Orgn. Levels
Structured problems are handled with
programmed decision making.
Unstructured problems require non-programmed
decision making.
Lower-level managers usually confront familiar
and repetitive problems and typically rely on
programmed decisions, such as standard
operating procedures. As managers move up the
organizational hierarchy, problems are likely to
become less structured.
Top level managers confront nonrecurring nature
problems; rely on non-programmed decisions to
control cost, create policies and standard
4-7
operating procedures
to guide lower-level
Education
Decision-Making Conditions
Certainty A situation where a manager can
make accurate decisions because the outcome of
every alternative is known
Example: decision on meet customer needs. Failing to meet

requirements it will effect your business.
Risk A situation where a decision maker

estimates the likelihood of certain outcomes.
Risk
Unit trust / shares
is when we know that the outcomes may fall within a

range of expectations
Example: invest money for new business.
Uncertainty A situation where a decision

maker has neither certainty nor reasonable
probability estimates available.
Example: many automotive company were in compliance with their

banking agreements, yet found the bank no longer willing to
4-8
support them due to
unforeseen changes in the broad
economy
Education
and automotive market.

Education
4-9
How Do Managers Make

Decisions?

Education
4-10
Decision making process

8 steps
1. Identify problems (discrepancy)
2. Identify decision criteria (critical success
factors)
3.
4.
5.
6.
7.
8.
Weight the criteria (set priority)

Develop alternatives
Analyze alternatives
Select alternative
Implement alternative
Evaluate decision effectiveness
(1)What Defines a Decision

Problem?
Problem A
discrepancy
between an
existing and a
desired state of
affairs.
Eg. Past
performance,
previous set goal,
other unit/orgn.

Education
4-12
(2) Factors in the DecisionMaking Process

Relevant decision
criteria:
Price
Model (two-or fourdoor)
Size
Manufacturer
Optional equipment
Fuel economy, or
Repair records.
Education
1-13
(3) Weighing Criteria and

Analyzing Alternatives
To weigh criteria:
1. Give the most important criterion
a weight of 10.
2. Compare remaining criteria
against that standard to indicate
their relative degrees of
importance.

Education
4-14
Weighing Criteria and

(cont.)

Education
4-15
(4 & 5) Weighing Criteria and

Alternative & score each

Education
4-16
(6) Determining the Best

Choice
Weighted score

Education
4-17
(7) Implementing Decisions

Putting a decision into
action;
includes conveying the
decision to the persons who
will be affected by it and
getting their commitment to
it.

Education
4-18
(8) The Last Step in the

Decision Process
The last step in the
decision-making process,
managers appraise the
result (evaluation) of the
decision to see whether
the problem was resolved.

Education
4-19
Common Errors in the

Decision Making Process
Overconfidence: when they think they know more than
they do/hold unrealistic positive views of themselves.
Def.- Individual overestimate their ability to predict future event;

-Holding unrealistically positive views of ones self and ones
performance.
Eg. -A lot of driver/rider are overconfidence to their driving skills and
experience and trying to exceed the speed limit yet going ahead against
red light on the road that lead to accidents.

Education
4-20
Common Errors in the

Decision Making Process
Selective perception - Seeing what they want to
see : decision makers selectively organize and
interpret events based on their biased perceptions.
Representation: decision makers assess the

likelihood of an event based on how closely it
resembles other events. (analogy)
Availability: Decision makers tend to remember

events that are the most recent and vivid in their
memory. (recently)
Sunk costs - : decision makers forget that current

choices cant correct the past.

Education
4-21

Education
4-22
Outline
Decision Making Model
1. Classical model
2. Administrative Model
3. Political Model
Decision Making Model

Selecting a Decision Making Model depend
on:
Depends on the managers personal
preference
Whether the decision is programmed or
non-programmed
Extent to which the decision is
characterized by risk, uncertainty, or
ambiguity
Outline
Classical Model
Concentrates on
how decisions
should be made,
not on how they
actually are made
Classical Model
A prescriptive framework of
how a decision should be
made that assumes
managers have completely
accurate information.
The classical model of decision making is based

on assumptions that managers should make
logical decisions that will be in the organizations
best economic interests. The four assumptions
include:
Assumptions
1. Decision maker operates to accomplish goals that are known
and agreed upon
2. Decision maker strives for condition of certainty gathers
complete information
3. Criteria for evaluating alternatives are known
4. Decision maker is rational and uses logic
Normative = describes how a manager should and

provides guidelines for reaching an ideal decision
Outline
Administrative Model
Bounded Rationality & Satisficing,
And Intuition
-
Acknowledge human limitations that make rational decisions are difficult to

achieve
The behavior of managers can be considered rational, but only in terms of their
simplified view of the problem.
Assume that a persons cognitive ability to process information is limited.
Administrative Model
Managers actually make decisions in
difficult situations characterized by nonprogrammed decisions, uncertainty, and
ambiguity
Assumption of the Administrative model:
1. Decision goals often are vague, conflicting and lack
consensus among managers
2. Rational procedures are not always used
3. Managers searches for alternatives are limited
4. Managers settle for a satisficing rather than a
maximizing solution
Descriptive =
how managers actually make

decisions--not how they should
Bounded Rationality and

Satisficing
Herbert A. Simon proposed two concepts
instrumental in shaping the administrative model:
i. Bounded rationality: people have limits or

boundaries on how rational they can be
eg : assume that
people cant know everything, they are limited by such organization constraint
such as time, information resources and mental capacity.
ii. Satisficing: means that decision makers choose

the first solution alternative that satisfies minimal
decision criteria.
Eg. Satisficers dont try to find optimal solution to problems but search until
they find an acceptable or satisfactory solution and then adopt it.

The search and acceptance of something that is satisfactory rather than
perfect or optimal.
Intuition -
everything from an unconscious analysis based on

past experiences to a paranormal ability called sixth sense.
Intuition is another aspect of administrative

decision making.
Intuition represents a quick apprehension of a

decision situation based on past experience but
without conscious thought.
described as unconscious reasoning.

managers make decisions based on: Past experiences,
Feelings and emotions, Skills, knowledge, and training,
Data from the subconscious, and Ethical values or
culture.
Eg: a decision makers who detects similarities between the current

situation and one encountered previously will select or modify
actions that proved effective in past situations.
Managers use intuition to obtain a quick understanding of a
situation and to identify solutions without extensive analysis.
Intuition in Decision Making

Education
4-31
Outline
Political Model
Political Model
The political model begins with four basic
assumptions.
1.Organizations are made up of groups with diverse
interests, goals, and values.
2.Information is ambiguous and incomplete.
3.Managers do not have time, resources, or mental
capacity to identify all dimensions of the problem
and process all relevant information.
4.Managers engage in the push and pull of debate
to decide goals and discuss alternatives.

Education
4-33
Political Model -
The political
model views decision making as a process of
conflict resolution
Closely resembles the real environment in which

most managers and decision makers operate
Useful in making non-programmed decisions
Decisions are complex
Disagreement and conflict over problems and
solutions are normal
Coalition = informal alliance among managers
who support a specific goal
In contrast to the rational Model, thepolitical do not focus on a

single issue but on many intraorganizational problems that
reflect their personal goals. In fact, the political model does not
assume that decisions result from applying existing standard
operating procedures, programs, and routines. Decisions result
from bargaining among coalitions.
Characteristics of Classical,
Political, and Administrative
Decision Making Models
SHORT QUIZ.
Match each term with the correct statement below.
a.
b.
c.
d.
e.
rational-economic model
behavioral decision model
bounded rationality
intuition
satisficing
1. the recognition that people are limited by such organizational constraints as

time, information, resources and their own mental capacities
2. the search for and acceptance of something that is satisfactory rather than
perfect or optimal
3. a prescriptive framework of how a decision should be made that assumes
managers have completely accurate information
4. a descriptive framework for understanding that a person's cognitive ability
to process information is limited
5. an unconscious analysis based on past experience
Education
4-36

Education
4-37
How Do Groups Make

Decisions?
Important decisions are often made by
groups who will be most affected by
those decisions:
Committees
Task forces
Review panels
Work teams
Education
4-38
Group Decision Making:

Benefits
Provides more
information (from Diversity of
experiences/perspectives)
Generates more
alternatives (diff. specialties
higher accuracy)
Increases acceptance of
a solution (participation)
Increases legitimacy of
the decision (democratic)
Education
4-39
Disadvantages of Group
Decision Making
Time-consumingassembling the group, getting

decisions made.
Minority domination can unduly influence final decision
because group members are never perfectly equalthey
differ in rank, experience, knowledge about the problem,
influence on other members, verbal skills, assertiveness,
etc.
Ambiguous responsibility. Group members share
responsibility BUT who is actually responsible for final
outcome? Individual Decisionits clear. Group decision
its not.
Pressures to conform: groupthink, a form of conformity
in which group members withhold deviant, minority, or
unpopular views in order to give the appearance of
agreement. Eg: an agreement-at-any cost mentality that result in ineffective
group decision making. People affected by groupthink usually feel pressured to
conform to the views expressed
by an influential group leader.
They hesitate to
Pearson Education Limited 2015
4-40
voice concerns for fear of being shamed or ostracized, and, in the absence of
When Are Groups Most

Effective?
Individual
Faster decision
making
More efficient use
of work hours
Group
More accurate
decisions
More
heterogeneous
representation
More creative
More effective in
accepting final
solution
Education
4-41
Improving Group Decision

Making
Three ways of making group
decisions more creative:
Brainstorming
Nominal group technique
Electronic meetings

Education
4-42
How Can You Improve Group

Decision Making?
Brainstorming
An idea-generating process that encourages
alternatives while withholding criticism
Ideas construction -> decision
Nominal Group Technique
group members are physically present but
operate independently
Secretly write list of general prob. & solutions
Electronic Meeting
- nominal group techniques. - participants are
linked by computer
Education, Inc. publishing as
Prentice Hall

Education
4-44
Contemporary Issues
National culture Influences the
way in which decisions are made and
India high PD & UA safe decision
the degree of risk a decision
maker
will take
Eg. By group/team members, participative /
autocratic by individual
Jpn group oriented, vales conformity &
cooperation, long-term perspectives rather short
term profit (Ringisei).
Education
4-45
Creativity in Decision
Making
Creativity The ability to produce
novel and useful ideas decision
Creativity allows the decision
Divergent way
maker to:
Appraise and understand a problem
more fully
See problems others cant see
Identify all viable alternatives
Education
4-46
Thank you

Education
4-47

Foundations of Decision Making

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Foundations of Decision Making

Încărcat de

Drepturi de autor:

Formate disponibile

3

Copyright 2013 Pearson

Unstructured problem A problem

Problems, Decision Types, and

Copyright 2013 Pearson

Problems, Decision Types, and

Example: decision on meet customer needs. Failing to meet

Risk A situation where a decision maker

is when we know that the outcomes may fall within a

Example: invest money for new business.

Uncertainty A situation where a decision

Example: many automotive company were in compliance with their

Copyright 2013 Pearson

How Do Managers Make

Copyright 2013 Pearson

Decision making process

Weight the criteria (set priority)

(1)What Defines a Decision

Copyright 2013 Pearson

(2) Factors in the DecisionMaking Process

(3) Weighing Criteria and

Copyright 2013 Pearson

Weighing Criteria and

Copyright 2013 Pearson

(4 & 5) Weighing Criteria and

Alternative & score each

Copyright 2013 Pearson

(6) Determining the Best

Copyright 2013 Pearson

(7) Implementing Decisions

Copyright 2013 Pearson

(8) The Last Step in the

Copyright 2013 Pearson

Common Errors in the

Def.- Individual overestimate their ability to predict future event;

Copyright 2013 Pearson

Common Errors in the

Representation: decision makers assess the

Availability: Decision makers tend to remember

Sunk costs - : decision makers forget that current

Copyright 2013 Pearson

Copyright 2013 Pearson

Decision Making Model

The classical model of decision making is based

Normative = describes how a manager should and

Acknowledge human limitations that make rational decisions are difficult to

how managers actually make

Bounded Rationality and

i. Bounded rationality: people have limits or

ii. Satisficing: means that decision makers choose

they find an acceptable or satisfactory solution and then adopt it.

everything from an unconscious analysis based on

Intuition is another aspect of administrative

Intuition represents a quick apprehension of a

described as unconscious reasoning.

Eg: a decision makers who detects similarities between the current

Intuition in Decision Making

Copyright 2013 Pearson

Copyright 2013 Pearson

Closely resembles the real environment in which

In contrast to the rational Model, thepolitical do not focus on a

Match each term with the correct statement below.

1. the recognition that people are limited by such organizational constraints as

Copyright 2013 Pearson