Week 5 - Chapter 6 - Decision Making

Management
Twelfth Edition
Stephen P. Robbins
Mary Coulter
Chapter
Managers
as
Decision Makers
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 decisions effectiveness.
Exhibit 61
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 resolve the problems 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 72 Criteria and Weights for Computer Replacement

Decision
Criterion
Weight
Memory and Storage
10
Battery life
Carrying Weight
Warranty
Display Quality
Step 4: Developing Alternatives

Identifying viable alternatives
Alternatives are listed (without evaluation) that can
resolve the problem.
Step 5: Analyzing Alternatives

Appraising each alternatives strengths and
weaknesses
An alternatives appraisal is based on its ability to
resolve the issues identified in steps 2 and 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.
Evaluation of Laptop Alternatives Against Weighted Criteria
Step 8: Evaluating the Decisions

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?
Managers Making Decisions

Rational Decision Making a type of decision
making in which choices are logical and
consistent and maximizes value to the firm.
Assumption of Rationality- the decision is made
to the best interest of the organization. These
decisions are not realistic.

Bounded Rationality-decisions making thats
rational but limited (bounded) by an individuals
ability to process information.
Satisfice- accept solution that is good enough.
Escalation of Commitment- an increase in
commitment to the previous decision despite of
high probability of failure or mistake.

The Role of Intuition- managers use their
intuition in making decisions. Most of this
managers have long managerial experiences
already.
2 Types of Decisions
Structured Problems and Programmed
decisions- a straightforward, familiar, and easily
defined problem that can be solved by a
repetitive decision that can be handled by a
routine approach.
Unstructured Problems and Non-Programmed
decisions: A problem that is new or unusual and
for which, information is ambiguous or
incomplete and usually resolved by a unique
and non recurring decision that requires custom
made solution.
Decision Making Conditions

Certainty- every
alternative gives the same
result.
Maximax- used by an
Risk- managers can
optimistic manager.
estimate the likelihood of
Maximizing of maximum
the possible results.
payoff
Uncertainty- no certain
Maximin- used by a
decisions can be made
pessimist manager.
because of the result
Maximizing the minimum
uncertainty and absence
payoff
of probable result
Minimax- minimize the
estimation.
maximum regret.
2 Types of Decision Making Styles

Linear preferences using the external data and
facts and processing the information through
rational and logical thinking.
Non-Linear- preferences using the internal data

and facts and processing the information
through intuition.
617

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Management

The Decision-Making Process

Step 1: Identifying the Problem

Step 2: Identifying Decision Criteria

Step 3: Allocating Weights to the Criteria

Exhibit 72 Criteria and Weights for Computer Replacement

Memory and Storage

Step 4: Developing Alternatives

Step 5: Analyzing Alternatives

Assessed Values of Laptop Computers Using Decision Criteria

Step 6: Selecting an Alternative

Step 7: Implementing the

Evaluation of Laptop Alternatives Against Weighted Criteria

Step 8: Evaluating the Decisions

Managers Making Decisions

Managers Making Decisions

Managers Making Decisions

Decision Making Conditions

2 Types of Decision Making Styles

Non-Linear- preferences using the internal data

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