Management: Second Arab World Edition

Robbins, Coulter, Sidani, Jamali

Chapter 6: Managers as Decision Makers

Lecturer: Dr. R. Al Hajj

 Describe the Eight Steps in
the Decision-Making Process

1. Define decision.

2. Describe the eight steps in the decision-making process.

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The Decision-Making Process

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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 The Situation

• Sarah is a sales manager whose reps need new laptops because

their old ones are outdated and inadequate for doing their job. To
make it simple, assume that it is not economical to add memory to
the old computers and it is the company’s policy to purchase, not
lease.

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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)

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 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

Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3

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 Step 4: Developing Alternatives

Identifying viable alternatives

• Alternatives are listed (without evaluation) that can
resolve the problem.

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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 Possible Alternatives

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Step 6: Selecting an Alternative

Choosing the best alternative

• The alternative with the highest total weight is chosen.

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 Exhibit 6–4 Evaluation of Alternatives

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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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 Step 8: Evaluating Decision
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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Quick Learning Review

Decision-making process starts with:

a. Identifying decision criteria
b. Identifying a problem
c. Selecting an alternative
d. Identifying what is important or relevant in resolving a problem

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 Quick Learning Review

Decision-making process starts with:

a. Identifying decision criteria
b. Identifying a problem
c. Selecting an alternative
d. Identifying what is important or relevant in resolving a problem

“Alternatives” in the decision-making process need to be:

a. Developed, selected, analyzed and well-implemented
b. Developed, analyzed, selected and well-implemented
c. Analyzed, developed, selected and well-implemented
d. Developed and well-implemented

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Quick Learning Review

Decision-making process starts with:

a. Identifying decision criteria
b. Identifying a problem
c. Selecting an alternative
d. Identifying what is important or relevant in resolving a problem

“Alternatives” in the decision-making process need to be:

a. Developed, selected, analyzed and well-implemented
b. Developed, analyzed, selected and well-implemented
c. Analyzed, developed, selected and well-implemented
d. Developed and well-implemented

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 Explain the Three Ways
Managers Make Decisions

1. Discuss the assumptions of rational decision making.

2. Describe the concepts of bounded rationality, satisficing, and

escalation of commitment.

3. Explain intuitive decision making.

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Managers Making Decisions

• Decision making is part of all four managerial functions (next slide).

In fact, that is why we say that decision making is the essence of
management.

• And that is why managers ‒ when they plan, organize, lead, and
control ‒ are called decision makers.

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 Exhibit 6–5 Decisions Managers May Make

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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: Bounded Rationality

• Bounded Rationality says that 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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Making Decisions: The Role of Intuition

Intuitive decision making

• Making decisions on the basis of experience, feelings, and

accumulated judgment.
• Can complement bounded rational decision making.

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 Exhibit 6–6 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. 91–99.

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Quick Learning Review

Because they cannot possibly analyze all information on all

alternatives, managers:
a. Maximize rather than satisfice
b. Satisfice rather than maximize
c. Accept solutions that are “good enough”
d. b and c.

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 Quick Learning Review

Because they cannot possibly analyze all information on all

alternatives, managers:
a. Maximize rather than satisfice
b. Satisfice rather than maximize
c. Accept solutions that aren’t “good enough”
d. b and c.

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Classify Decisions and

Decision-Making Conditions

1. Explain the two types of problems and decisions.

2. Contrast the three decision-making conditions.

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 Types of 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.
With this type of a decision, the “develop-the-alternatives” stage of
the decision-making process either does not exist or is given little
attention.

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Types of Decisions (cont’d)

Procedure
• A series of interrelated steps that a manager can use to respond
(applying a policy) to a structured problem.

The only difficulty is identifying the problem.

Once the problem is clear, so is the procedure.

For instance, say that a purchasing manager receives a request from a

warehouse manager for 15 handheld computers for the inventory
clerks. The purchasing manager knows how to make this decision by
following the established purchasing procedure.

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 Types of Decisions (cont’d)
Rule
• An explicit statement that limits what a manager or employee can or
cannot do.

For example, rules about lateness and absenteeism permit supervisors

to make disciplinary decisions rapidly and fairly.

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Types of Decisions (cont’d)

Policy
• A general guideline for making a decision about a structured problem.

In contrast to a rule, a policy establishes general parameters for the

decision-maker rather than specifically stating what should or should
not be done.
• The customer always comes first and should always be satisfied.
• We promote from within whenever possible.
• Employee wages shall be competitive within community standards.

Notice that the terms satisfied, whenever possible, and competitive

require interpretation.

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 Types of 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 (the ideal)

• A situation in which a manager can make an accurate decision
because the outcome of every alternative choice is known.

Risk (the common situation)

• 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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Exhibit 6–8 Expected Value for Revenues from the

Addition of One Ski Lift

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 Decision-Making Conditions (cont’d)

Uncertainty
• Limited information prevents estimation of outcome probabilities for
alternatives associated with the problem and may force managers to
rely on intuition, hunches, and “gut feelings”.

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Quick Learning Review

A guideline for making decisions is a:

a. Policy
b. Rule
c. Procedure
d. None of the above

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 Quick Learning Review

A guideline for making decisions is a:

a. Policy
b. Rule
c. Procedure
d. None of the above

A situation in which the decision maker is able to estimate the

likelihood of certain outcomes is a:
a. Certainty
b. Risk
c. Uncertainty
d. Accuracy

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Quick Learning Review

A guideline for making decisions is a:

a. Policy
b. Rule
c. Procedure
d. None of the above

A situation in which the decision maker is able to estimate the

likelihood of certain outcomes is a:
a. Certainty
b. Risk
c. Uncertainty
d. Accuracy

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 Describe Different
Decision-Making Styles and
Discuss How Biases Affect
Decision Making
1. Describe two decision-making styles.

2. Discuss the twelve decision-making biases.

3. Explain the managerial decision-making model.

4. Describe decision-making practices in the Arab context.

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Decision-Making Styles

Linear thinking style

• A person’s preference for using external data and facts and
processing this information through rational, logical thinking.

Nonlinear thinking style

• A person’s preference for internal sources of information and
processing this information with internal insights, feelings and
hunches.

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 Exhibit 6–9 Common Decision-Making Errors
and Biases

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Decision-Making Biases and Errors

Heuristics
• Using “rules of thumb” to simplify decision making.
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.

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 Decision-Making Biases and Errors (cont’d)

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 and discounting
contradictory information.

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Decision-Making Biases and Errors (cont’d)

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.

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 Decision-Making Biases and Errors (cont’d)

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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Quick Learning Review

Two decision maker’s styles are:

a. Well structured and unstructured
b. Certainty and uncertainty
c. Linear and nonlinear
d. Programmed and non-programmed

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 Quick Learning Review

Two decision maker’s styles are:

a. Well structured and unstructured
b. Certainty and uncertainty
c. Linear and nonlinear
d. Programmed and non-programmed

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