CHP 2

Making Decisions

A key to success in management and in your career is knowing how to be an effective decision maker.

Decision—a choice among two or more alternatives

8 steps in the decision-making process. This process is as relevant to personal decisions as it is to

corporate decisions

1) Identify problem: Problem: an obstacle that makes it difficult to achieve a desired goal or
purpose. Every decision starts with a problem, a discrepancy between an existing and a desired
condition. Example: Amanda is a sales manager whose reps need new laptops.
2) Identify the Decision Criteria : Decision criteria are factors that are important to resolving the
problem.
 Example: Amanda decides that memory and storage capabilities, display quality, battery life,
warranty, and carrying weight are the relevant criteria in her decision

3) Allocate Weights to the Criteria : If the relevant criteria aren’t equally important, the decision
maker must weight the items in order to give them the correct priority in the decision.
Example: The weighted criteria for Amanda’s computer purchase are shown in this Exhibit

4) Develop Alternatives: List viable alternatives that could solve the problem.
Example: Amanda identifies eight laptops as possible choices/Alternatives

5) Analyze Alternatives Once you identify the alternatives you need to analyze them using the
criteria established in Step 2.
6) Select an Alternative : Choose the alternative that generates the highest total in Step 5.

Evaluation of Alternatives
 7) Implement the Alternative : Put the chosen alternative into action. Convey the decision to those
affected and get their commitment to it.
8) Evaluate Decision Effectiveness : Evaluate the result or outcome of the decision to see if the
problem was resolved. If it wasn’t resolved, what went wrong?

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Decisions Managers May Make: Planning , Organizing , Leading and Controlling

Approaches manager do when making decisions :

 Rationality : ‫ العقالنية‬Rational Decision Making: choices that are logical and consistent and
maximize value
• Assumptions of rationality:
– Rational decision maker is logical and objective
– Problem faced is clear and unambiguous
– Decision maker would have clear, specific goal and be aware of all alternatives and
consequences
– The alternative that maximizes achieving this goal will be selected
– Decisions are made in the best interest of the organization
 Bounded rationality: decision making that’s rational, but limited by an individual’s ability to
process information
 Satisfice: accepting solutions that are “good enough”

• Intuitive Decision Making: making decisions on the basis of experience, feelings, and
accumulated judgment ‫اتخاذ القرار بناء على الحدس‬

five different aspects of intuition identified by researchers studying managers’ use of intuitive
decision making.

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• Evidence-based management (E B Mgt): the systematic use of the best available evidence to
improve management practice. ‫مهم جدا‬

• Crowdsourcing: a decision-making approach where you solicit ideas and input from a network
of people outside of the traditional set of decision makers. . ‫مهم جدا‬

‫ أنواع القرارات‬:Types of Decisions

• Structured problems: straightforward, familiar, and easily defined problems

• Programmed decisions: repetitive decisions that can be handled by a routine approach

------] Programmed :

• Procedure: a series of sequential steps used to respond to a well-structured problem

• Rule: an explicit statement that tells managers what can or cannot be done
 • Policy: a guideline for making decisions

Unstructured problems: problems that are new or unusual and for which information is ambiguous or
incomplete.

Nonprogrammed decisions: unique and nonrecurring and involve custom-made solutions.

Programmed and non programmed : ‫مقارنة بين نوعين‬

Decision-Making Styles ‫مهم‬

Research has identified four different individual decision-making styles based on two dimensions:
1. An individual’s way of thinking
2. An individual’s tolerance for ambiguity

The four styles are directive, analytic, conceptual and behavioral.

Decision-Style Model (from A. J. Rowe and J. D. Boulgarides, Managerial Decision Making
(Upper Saddler River, N J: Prentice Hall, 1992), p. 29.)

Heuristics ‫االستدالالت مهم‬/ ‫االستنباطات‬

Heuristics or “rules of thumb” can help make sense of complex, uncertain, or ambiguous
information.
However, they can also lead to errors and biases in processing and evaluating information.

12 Common Decision-Making Biases /errors of managers they may have

 : ‫شرح للي فوق‬

• Overconfidence Bias: holding unrealistically positive views of oneself and one’s performance
• Immediate Gratification Bias: choosing alternatives that offer immediate rewards and avoid
immediate costs
• Anchoring Effect: fixating on initial information and ignoring subsequent information
• Selective Perception Bias: selecting, organizing and interpreting events based on the decision
maker’s biased perceptions
• Confirmation Bias: seeking out information that reaffirms past choices while discounting
contradictory information
• Framing Bias: selecting and highlighting certain aspects of a situation while ignoring other
aspects
• Availability Bias: losing decision-making objectivity by focusing on the most recent events
• Representation Bias: drawing analogies and seeing identical situations when none exist
• Randomness Bias: creating unfounded meaning out of random events
• Sunk Costs Errors: forgetting that current actions cannot influence past events and relate only to
future consequences
• Self-serving Bias: taking quick credit for successes and blaming outside factors for failures
• Hindsight Bias: mistakenly believing that an event could have been predicted once the actual
outcome is known (after-the-fact)

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‫ تأثير التكنولوجيا والبيانات الضخمة والذكاء االصطناعي على القرارات‬Cutting-Edge Decision Making

Technology has changed the ability of managers to access information. Two technology driven cutting-
edge aides to decision making are:

– Design thinking: approaching management problems as designers approach design

problems
– Big data and Artificial Intelligence: big data refers to huge and complex data sets now
available. Big data has opened the door to widespread use of artificial intelligence (A I)

Big data: the vast amount of quantifiable data that can be analyzed by highly sophisticated data
processing

Can be a powerful tool in decision making, but collecting and analyzing data for data’s sake is wasted
effort

Artificial Intelligence (A I) – uses computing power to solve complex problems

– A I systems have the ability to learn and have facilitated the use of new tools such as:

 Machine learning
  Deep learning

 Analytics

Machine Learning: A method of data analysis that automates analytical model building.

Deep Learning: A subset of machine learning that use algorithms to create a hierarchical level of
artificial neural networks that simulate the function of the human brain.

Analytics: The use of mathematics, statistics, predictive modeling, and machine learning to find
meaningful patterns in a data set.

‫مراجعة‬

• Explain the five approaches managers use when making decisions.

 Assumptions of rationality

 The problem is clear and unambiguous

 A single, well-defined goal is to be achieved

 All alternatives and consequences are known

 The final choice will maximize goal achievement

 Rationality: making decisions when the goal is well-defined and everything is clear and
unambiguous
 Satisficing: when decision makers accept solutions that are good enough

 Intuitive decision making: making decisions on the basis of experience, feelings, and
accumulated judgment

 Evidence-based management: a manager makes decisions based on the best available evidence

 Crowdsourcing: a manager solicits ideas via the internet from people outside of the organization

• Classify decisions and decision-making styles.

– Programmed decisions are repetitive decisions that can be handled by a routine

approach and are used when the problem being resolved is straightforward, familiar,
and easily defined (structured).

– Nonprogrammed decisions are unique decisions that require a custom-made solution

and are used when the problems are new or unusual (unstructured) and for which
information is ambiguous or incomplete.
• Classify decisions and decision-making styles.

– Individual decision-making styles differ on two dimensions; way of thinking and

tolerance for ambiguity.

– These dimensions result in four different decision-making styles which are:

 Directive

 Analytical

 Conceptual

 Behavioral

• Identify cutting-edge approaches for improving decision making.

– Design thinking, big data, artificial intelligence, machine learning, deep learning, and
analytics are all relatively new tools that harness the power of technology to help
managers make better decisions.

– Design thinking: approaching management problems as designers approach design

problems

– Big Data: when tempered with good judgment, it can be a powerful tool in decision
making

– Artificial Intelligence: AI and the tools that use AI are now possible due to big data and
computing power. Machine learning, deep learning, and analytics can all help managers
make better decisions.