Managers as desicion makers

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Learning Outcomes
Follow this Learning Outline as you read and study this chapter.
6.1 The Decision-Making Process.
Define decision.
Describe the eight steps in the decision-making process.
6.2 Managers Making Decisions.
Discuss the assumptions of rational decision making.
Describe the concepts of bounded rationality, satisficing, and escalation of commitment.
Explain intuitive decision making.

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Learning Outcomes
6.3 Types Of Decisions and Decision-Making
Conditions.
Explain the two types of problems and decisions.
Contrast the three decision making conditions.
Explain maximax, maximin, and minimax decision choice approaches.
6.4 Decision-Making Styles
Describe two decision-making styles.
Discuss the twelve decision-making biases.
Explain the managerial decision-making model.

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Learning Outcomes
6.5 Effective Decision Making In Today’s World.
Explain how managers can make effective decisions in today’s world.
List the six characteristics of an effective decision making process.
List the five habits of highly reliable organizations.

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Decision Making
Decision
Making a choice from two or more alternatives.
The Decision-Making Process
Identifying a problem and decision criteria and allocating weights to the criteria.
Developing, analyzing, and selecting an alternative that can resolve the problem.
Implementing the selected alternative.
Evaluating the decision’s effectiveness.

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Exhibit 6–1
The Decision-Making Process

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Step 1: Identifying the Problem
Problem
A discrepancy between an existing and desired state of affairs.
Characteristics of Problems
A problem becomes a problem when a manager becomes aware of it.
There is pressure to solve the problem.
The manager must have the authority, information, or resources needed to solve the problem.

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Step 2: Identifying Decision Criteria
Decision criteria are factors that are important (relevant) to resolving the problem such as:
Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)
Step 3: Allocating Weights to the Criteria
Decision criteria are not of equal importance:
Assigning a weight to each item places the items in the correct priority order of their importance in the decision-making process.

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Exhibit 6–2 Criteria and Weights for Computer Replacement Decision

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Step 4: Developing Alternatives
Identifying viable alternatives
Alternatives are listed (without evaluation) that can resolve the problem.
Step 5: Analyzing Alternatives
Appraising each alternative’s strengths and weaknesses
An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3.

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Exhibit 6–3 Assessed Values of Laptop Computers Using Decision Criteria

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Step 6: Selecting an Alternative
Choosing the best alternative
The alternative with the highest total weight is chosen.
Step 7: Implementing the Alternative
Putting the chosen alternative into action.
Conveying the decision to and gaining commitment from those who will carry out the decision.

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Exhibit 6–4 Evaluation of Laptop Alternatives Against Weighted Criteria

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Step 8: Evaluating the Decision’s Effectiveness
The soundness of the decision is judged by its outcomes.
How effectively was the problem resolved by outcomes resulting from the chosen alternatives?
If the problem was not resolved, what went wrong?

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Exhibit 6–5 Decisions in the Management Functions

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Making Decisions
Rationality
Managers make consistent, value-maximizing choices with specified constraints.
Assumptions are that decision makers:
Are perfectly rational, fully objective, and logical.
Have carefully defined the problem and identified all viable alternatives.
Have a clear and specific goal
Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests.

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Making Decisions (cont’d)
Bounded Rationality
Managers make decisions rationally, but are limited (bounded) by their ability to process information.
Assumptions are that decision makers:
Will not seek out or have knowledge of all alternatives
Will satisfice—choose the first alternative encountered that satisfactorily solves the problem—rather than maximize the outcome of their decision by considering all alternatives and choosing the best.
Influence on decision making
Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong.

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Types of Problems and Decisions
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.
Programmed Decision
A repetitive decision that can be handled by a routine approach.

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Types of Programmed Decisions
Procedure
A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem.
Rule
An explicit statement that limits what a manager or employee can or cannot do.
Policy
A general guideline for making a decision about a structured problem.

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Policy, Procedure, and Rule Examples
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 (cont’d)
Unstructured Problems
Problems that are new or unusual and for which information is ambiguous or incomplete.
Problems that will require custom-made solutions.
Nonprogrammed Decisions
Decisions that are unique and nonrecurring.
Decisions that generate unique responses.

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Exhibit 6–7 Programmed Versus Nonprogrammed Decisions

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Decision-Making Conditions
Certainty
A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known.
Risk
A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.

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Terms to Know
decision
Decision-making process
problem
decision criteria
rational decision making
bounded rationality
satisficing
escalation of commitment
intuitive decision making
structured problems
programmed decision
procedure
rule
policy
unstructured problems
nonprogrammed decisions
certainty
risk
uncertainty
directive style
analytic style
conceptual style
behavioral style
heuristics
business performance management (BPM) software