Ch 3-MAGT 101

Managers as Decision Makers

 Learning Outcomes
• Follow this Learning Outline as you read and study this chapter.
•3.1 The Decision-Making Process
• Define decision.
• Describe the eight steps in the decision-making process.

3.2 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.
 Learning Outcomes
•3.3 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.

•3.4 Decision-Making Styles

• Describe two decision-making styles.
• Discuss the decision-making biases.
• Explain the managerial decision-making model.
• Describe decision-making practices in the Arab context.
 Learning Outcomes
3.5 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.
 3.1 The Decision-Making Process
1. Define decision.

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

 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.
 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old ones are outdated and inadequate for doing their job.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.
Exhibit 3–1
The Decision-Making
Process
 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.
 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.
Exhibit 3–2 Criteria and Weights for Computer
Replacement Decision
Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3
 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.
Exhibit 3–3 Assessed Values of Laptop
Computers Using Decision Criteria
 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
Exhibit 3–4 Evaluation of Laptop Alternatives
Against Weighted Criteria
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?
 3.2 Managers Making 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.

 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.
Exhibit 3–5 Decisions in the Management Functions
 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.
 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.
 The Role of Intuition
•Intuitive decision making
• Making decisions on the basis of experience, feelings, and accumulated
judgment.
Exhibit 3–6 What Is Intuition?
 3.3 Types Of Decisions and Decision-Making Conditions
1. Explain the two types of problems and decisions.

2. Contrast the three decision-making conditions.

3. Explain maximax, maximin, and minimax decision choice approaches.

 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.
 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.
 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.
 Problems and Decisions
•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.
Exhibit 3–7 Programmed Versus Nonprogrammed
Decisions
 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.
 Decision Making Conditions
•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”.
 3.4 Decision-Making Styles
1. Describe two decision-making styles.

2. Discuss the decision-making biases.

3. Explain the managerial decision-making model.

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

 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.
Exhibit 3–8 Common Decision-Making Errors and Biases

and Biases
 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.
 Decision-Making Biases and Errors (cont’d)
•Availability Bias
• Losing decision-making objectivity by focusing on the most recent events.

•Representation Bias
• Drawing analogies and seeing identical situations when none exist.
Exhibit 3–9 Overview of Managerial Decision
Making
 Practices Of Decision Making In The Arab World
•The traditional Arab decision-making process has been impacted by
several factors.
• A system of networking and collective decision making where the
leader/manager consults with other group members to arrive at a
decision that has the backing of the community.
• The concept of Shura is important. It is not restricted to the political
arena; it has its manifestations in different social institutions,
including the family and business organizations.
• The consultative style seems to be widespread in Arab organizations.
 3.5 Effective Decision Making In Today’s World
1. Explain how managers can make effective decisions in today’s world.

2. List the six characteristics of an effective decision-making process.

3. List the five habits of highly reliable organizations.

 Decision Making for Today’s World
•Guidelines for making effective decisions:
1. Understand cultural differences.
• In some cases, there is no best way to make decisions. The best way may depend on the
values, attitudes, and beliefs that prevail in a specific culture.
2. Know when it’s time to stop.
• Good decision makers are not afraid to change their minds. They do not become attached to
one course of thinking.
 Decision Making for Today’s World (cont’d)
Use an effective decision-making process. This process has six characteristics:
• It focuses on what is important.
• It is logical and consistent.
• It acknowledges both subjective and objective thinking and blends analytical with intuitive
thinking.
• It requires only as much information and analysis as is necessary to resolve a particular
dilemma.
• It encourages and guides the gathering of relevant information and informed opinion.
• It is straightforward, reliable, easy to use, and flexible.
 Decision Making for Today’s World (cont’d)
4. Build an organization that can spot the unexpected and quickly adapt to the changed environment. Karl
Weick calls such organizations highly reliable organizations (HROs) and says they share five habits:
 Are not tricked by their success.
 Defer to the experts on the front line.
 Let unexpected circumstances provide the solution.
 Embrace complexity.
 Anticipate, but also recognize their limits.
 Terms to Know
procedure
•decision rule
•decision-making process policy
•problem unstructured problems
•decision criteria nonprogrammed
•rational decision making decisions
•bounded rationality certainty
•satisficing risk
•escalation of commitment uncertainty
•intuitive decision making directive style
•structured problems analytic style
•programmed decision conceptual style
 Terms to Know (cont’d)
behavioral style
heuristics
business performance management (BPM) software