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Chapter 4 Decision Making

Chapter 4 discusses the nature of managerial decision-making, distinguishing between programmed and non-programmed decisions, and outlining the decision-making process. It highlights the importance of understanding cognitive biases, the advantages and disadvantages of group decision-making, and techniques like Devil’s Advocacy and Dialectical Inquiry to improve outcomes. Additionally, it emphasizes Senge’s principles for creating a learning organization to enhance decision-making capabilities.

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Agumon Gabumon
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17 views5 pages

Chapter 4 Decision Making

Chapter 4 discusses the nature of managerial decision-making, distinguishing between programmed and non-programmed decisions, and outlining the decision-making process. It highlights the importance of understanding cognitive biases, the advantages and disadvantages of group decision-making, and techniques like Devil’s Advocacy and Dialectical Inquiry to improve outcomes. Additionally, it emphasizes Senge’s principles for creating a learning organization to enhance decision-making capabilities.

Uploaded by

Agumon Gabumon
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 4: Decision Making

1.1 The Nature of Managerial Decision Making


1) Decision Making
The process managers use to address opportunities and threats by evaluating options and deciding
on specific goals and actions for the organization.
2) Decisions in Response to Opportunities
When managers find ways to improve the organization's performance, these decisions aim to benefit
customers, employees, and other stakeholders.
3) Decisions in Response to Threats
When events within or outside the organization negatively impact performance, managers make
decisions to counter these challenges and improve results.

1.2 Programmed Decisions


1) Definition: Programmed decisions are routine and nearly automatic. They follow established rules or
guidelines.
2) Characteristics: These decisions are made frequently, so managers have created rules to handle
specific, recurring situations.
3) Example: A manufacturing supervisor hires new workers if the existing workers’ overtime exceeds
10%.

1.3 Non-programmed Decisions


1) Definition: These are non-routine decisions made in response to unexpected, unpredictable
opportunities or threats.
2) Characteristics: There are no preset rules, as the situation is unusual, and managers often lack the
information needed to create guidelines.

1.5 Intuition
▪ Quick, on-the-spot decisions based on feelings, beliefs, or instincts. These decisions don’t require
much effort or information gathering.

1.6 Reasoned Judgment


▪ Decisions made through careful information gathering, creating different options, and evaluating
them. This process takes time and effort.

1.7 The Classical Model of Decision Making


• A structured approach assumes decision makers can identify and assess all possible options and
their outcomes, then choose the best course of action.
1. List all possible alternatives and their consequences
2. Rank the alternatives from least to most preferred
3. Select the alternative that leads to the best future outcomes
1.8 Optimum Decision
• The choice that managers believe will lead to the most desirable outcomes for the organization.

1.9 The Administrative Model


This model explains why decision-making often involves uncertainty and risk, leading managers to make
satisfactory rather than optimal choices.
Key Concepts:
I. Incomplete Information: Due to risks, ambiguity, and time constraints, managers rarely have all
the information needed for decisions.
II. Bounded Rationality: Cognitive limitations restrict a manager’s ability to fully analyze and
process information.
III. Satisficing: Rather than searching for the perfect solution, managers choose the first acceptable
option that meets minimum requirements.

2.0 Cause of Incomplete Information


1) Risk: The likelihood that specific outcomes will happen, though they aren’t guaranteed.
2) Uncertainty: Future outcomes are unknown, and it’s impossible to predict the probabilities of
different results.
3) Ambiguous Information: Information that can be understood in different, sometimes conflicting
ways.
4) Time Constraints and Information Costs: Limited time and resources prevent a thorough search
for all possible options and consequences.
5) Satisficing: Choosing a satisfactory option rather than spending excessive time seeking the
perfect solution.

2.1 Six Steps in Decision Making


1) Recognize the Need for a Decision
Identify the problem or opportunity that requires a decision.
2) Generate Alternatives
Develop a list of possible solutions or courses of action.
3) Assess Alternatives
Evaluate each option by considering its pros, cons, and potential impact.
4) Choose the Best Alternative
Select the option that best addresses the issue or opportunity.
5) Implement the Chosen Alternative
Put the selected solution into action within the organization.
6) Learn from the Feedback
Collect feedback on the decision’s outcomes and use it to improve future decision-making
processes.
2.2 Feedback Procedure
1) Compare Actual Outcomes to Expected Outcomes
2) Investigate why the decision didn’t meet expectations, identifying any gaps or issues.
3) Use the insights gained to create guidelines that can improve decision-making in the future.

2.3 Cognitive Biases and Decision Making


Heuristics: Simple rules or shortcuts that help speed up the decision-making process.

Systematic Errors: Repeated mistakes that occur due to biases, leading to poor decision-making.

2.3.1 Sources of Cognitive Biases


Confirmation Bias: The tendency to make decisions based on existing beliefs, even when evidence
contradicts those beliefs.
Representativeness Bias: The tendency to generalize based on a small sample or a single, memorable
event.
Illusion of Control:
• The tendency to overestimate one’s ability to control events or activities.
• This bias is common among top managers
Escalating Commitment
• A cognitive bias where individuals continue to invest resources in a failing project, even when
evidence shows it is failing.

2.3.2 Group Decision Making


✔ Advantages:
• Often better than individual decision-making.
• Less likely to fall prey to biases.
• Utilizes the combined skills and knowledge of the group.
• Improves the ability to generate feasible alternatives.

X Disadvantages:
▪ Decision-making can take longer in groups compared to individuals.
▪ Getting agreement can be difficult due to differing interests and preferences.
▪ Group decisions can still be influenced by biases.

Groupthink

• A pattern of flawed decision-making where group members prioritize consensus over critically
evaluating relevant information, leading to biased or poor decisions.
3.0 Devil’s Advocacy and Dialectical Inquiry
Devil’s Advocacy
• A decision-making technique where one group member is assigned to challenge the assumptions
and decisions of the group. This is done to ensure that all sides of an issue are considered and
that the decision is not biased.
Dialectical Inquiry
• A method where two opposing viewpoints are debated in a structured way, helping to identify the
best solution by critically examining all aspects of the issue.

4. 0 Senge’s Principles for Creating a Learning Organization:


Develop Personal Mastery
• Focus on continuous personal growth and learning.
Build Complex, Challenging Mental Models
• Encourage thinking that challenges existing assumptions and embraces complexity.
Promote Team Learning
• Foster collaboration and shared learning within teams.
Build a Shared Vision
• Create a common purpose and direction that everyone in the organization works towards.
Encourage Systems Thinking
• Promote understanding of how different parts of the organization interact and influence each
other.
Assess of Alternatives

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