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CH 02. Decision Making

The document discusses decision making by managers at different levels in organizations. It describes the decision making process which includes identifying problems and criteria, developing and analyzing alternatives, selecting an alternative, implementing it, and evaluating the decision. The document also discusses different types of decisions, factors that influence decision making, and conditions under which decisions are made.

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Kashif Ullah Khan
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100 views24 pages

CH 02. Decision Making

The document discusses decision making by managers at different levels in organizations. It describes the decision making process which includes identifying problems and criteria, developing and analyzing alternatives, selecting an alternative, implementing it, and evaluating the decision. The document also discusses different types of decisions, factors that influence decision making, and conditions under which decisions are made.

Uploaded by

Kashif Ullah Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Management

Ch-02: Managers as Decision Makers


Decision Making

 Managers at all levels and in all areas of organizations make decisions i.e. they make
choices.
 For instance, top-level managers make decisions about their organization’s goals, where
to locate manufacturing facilities, or what new markets to move into.
 Middle- and lower-level managers make decisions about production schedules, product
quality problems, pay raises, and employee discipline.
 All organizational members make decisions that affect their jobs and the organization
they work for.
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.
Exhibit 2–1
The Decision-Making Process
Step 1: Identifying the Problem
• Problem
 A discrepancy between an existing and desired state of affairs.
 There is a difference between a problem and symptoms of problem e.g. Sales
decline (5%)

• 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.
 Problem identification is subjective.
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 2–2 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 action and gaining commitment from those
who will carry out the decision.
 Participation-support decision
 Reassessment of the environment for changes
Exhibit 6–4 Evaluation of LaptopAlternatives
Against Weighted Criteria
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?
Exhibit 6–5 Decisions in the Management Functions
Making Decisions
• Rationality
• Managers make logical, consistent and 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.

 These assumptions apply to any decision—personal or managerial.


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:
 Cannot possibly analyze all information on 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
 Why would decision makers escalate commitment to a bad decision?
Intuition

Intuitive Decision Making: It’s making decisions on the basis of experience,


feelings, and accumulated judgment.

 Five different aspects of intuition-See exhibit-2.6

 Intuitive decision making can complement both rational and bounded rational decision
making
 Individuals who experienced intense feelings and emotions when making decisions actually
achieved higher decision-making performance.
Evidence-Based Management

 Is the “systematic use of the best available evidence to improve


management practice.”

The four essential elements of EBMgt are


 The decision maker’s expertise and judgment;
 External evidence that’s been evaluated by the decision maker;
 Opinions, preferences, and values of those who have a stake in the decision;
and
 Relevant organizational (internal) factors such as context, circumstances,
and organizational members.
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.
 Examples include when a customer returns a purchase to a store, when a supplier is late
with an important delivery,

• 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.
 E.g. rules about lateness and absenteeism permit
• Policy: A general guideline for making a decision about a structured problem. E.g.
 The customer always comes first and should always be satisfied.
 Employee wages shall be competitive within community standards
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.
Problems and 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.
Exhibit 6–7 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.

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