Chapter 3 Decisions Making

Learning Objectives
• Describe the eight steps in the decision-making process .
Develop your skill at being creative.
• Explain the four ways managers make decisions .
• Classify decisions and decision-making conditions.
Know how to recognize when you’re using decision-making errors and
biases and what to do about it.
• Identify effective decision-making techniques.
 Making Decisions

 Managers at all levels( Top, Middle and fist-Line manager) and in all
areas of organizations make decisions.
 Decision:
A choice among two or more alternatives.
 Eight steps in the decision-making process. This process is as
relevant to personal decisions as it is to corporate decisions.
Decision-Making Process (8 steps)
Step 1: Identify a Problem
• Problem
An obstacle that makes it difficult to achieve a desired goal or purpose.
Now we have a problem a disparity between the existing condition and desired
condition.
For example a manager deciding what laptop/ computers to purchase.
Sales manager whose reps need new laptops because their old ones are outdated
for doing their job.
Now we have a problem a disparity between the sales reps’ current computers
(existing condition) and their need to have more efficient ones (desired
condition).
Manager has a decision to make.
Step 2: Identify Decision Criteria
Once a manager has identified a problem, he or she must identify the decision
criteria
Decision criteria
Criteria that define what’s important or relevant to resolving a problem.
In our example, Manager decides after careful consideration that memory and
storage capabilities, display quality, battery life and warranty are the
relevant criteria in decision.
Step 3: Allocate Weights to the Criteria
The decision maker must weight the items in order to give them the
correct importance in the decision.
A simple way is to give the most important criterion a weight of 10 and
then assign weights to the rest using that standard.
 Step 4: Develop Alternatives
 The fourth step in the decision-making process requires the
decision maker to list feasible alternatives that could resolve the
problem.
 In this step, a decision maker needs to be creative, and the
alternatives are only listed not evaluated just yet.
 For example our sales manager identifies seven laptops as possible
choices.
Step 5: Analyze Alternatives
 Once alternatives have been identified, a decision maker must
evaluate each one.
 For example the assessed values that manger gave each alternative
after doing some research (WOM, surveys,) on them. Keep in mind
that these data represent an assessment of the eight alternatives
using the decision criteria.
Contd.
 When you multiply each alternative by the assigned weight, you get
the weighted alternatives.
 If one alternative scores highest on every criterion, you wouldn’t
need to consider the weights because that alternative would already
be the top choice.
 Step 6: Select an Alternative

 The sixth step in the decision-

making process is choosing the
best alternative or the one that
generated the highest total in
Step 5.
 In our example Manger would
choose the Dell Inspiron because
it scored higher than all other
alternatives (249 total).
Step 7: Implement the Alternative
 Putting the chosen alternative into action.
 We know that if the people who must implement a decision
participate in the process, they’re more likely to support it than if
you just tell them what to do.
Step 8: Evaluate Decision
Effectiveness

• The last step in the decision-making process

involves evaluating the outcome or result of
the decision to see whether the problem was
resolved.

• If the evaluation shows that the problem still

exists, then the manager needs to assess
what went wrong.
 Approaches to decision making
Although everyone in an organization makes decisions, decision making
is particularly important to managers.
That’s why managers when they plan, organize, lead, and control are
called decision makers.

1. Rational decision making

2. Intuition decision making
3. Evidence-Based Management
1. Rational decision making
 Describes choices that are logical and consistent to maximize value.
 Bounded Rationality:
 Rationality is bounded because there are limit to our
1. Time constrain
2. Available information
3. Thinking capacity
 2. Intuitive/Intuition decision making
Making decisions on the basis of experience, feelings, and accumulated judgment.
Evidence-based management (EBMgt)
 The systematic use of the best available evidence to improve
management practice.
 “Any decision-making process is likely to be enhanced through the
use of relevant and reliable evidence,
whether it’s buying someone a birthday present or wondering which
new washing machine to buy.”
Types of problems & decisions.
 Managers in all kinds of organizations face different types of
problems and decisions as they do their jobs. Depending on the
nature of the problem, a manager can use one of two different types
of decisions.
1. STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS.
2. UNSTRUCTURED PROBLEMS AND NON-PROGRAMMED
DECISIONS.
 Structured problems
Straightforward, familiar, and easily defined problems.
 Programmed decision
A repetitive decision that can be handled by a routine approach.
Because the problem is structured, the manager doesn’t have to go to
the trouble and expense of going through an involved decision process.
 Three types of programmed decisions:
i. Procedure
ii. Rule
iii. policy.
 procedure
A series of sequential steps used to respond to a well-structured problem.
 Rule
An explicit(Clear) statement that tells managers what can or cannot be done.
 For example, rules about lateness and absenteeism permit supervisors to
make disciplinary decisions rapidly and fairly.
 policy
The third type of programmed decisions is a policy a guideline for making
decisions.
 UNSTRUCTURED PROBLEMS AND NON-PROGRAMMED DECISIONS

 unstructured problems
Problems that are new or unusual and for which information is ambiguous
(Not clear) or incomplete.
 Non-programmed decisions
Unique and nonrecurring decisions that require a custom-made solution
Difference between Programmed and Non-Programmed
Decisions
 Decision Making Conditions

When making decisions, managers may face three different conditions:

1. Certainty,
2. Risk, and
3. uncertainty

 CERTAINTY: The ideal situation for making decisions is one of certainty, a situation where
a manager can make accurate decisions because the outcome of every alternative is known.
 For example, when Wyoming’s state treasurer decides where to deposit excess state funds,
he knows exactly the interest rate offered by each bank and the amount that will be earned on
the funds. He is certain about the outcomes of each alternative.
 Contd.
 Risk : Risk is the uncertainty of future outcome, The degree of probability that the
possible outcomes of a particular course of action will occurs. For example
 Decision Making Conditions
• Uncertainty exists, the probabilities of alternative outcomes cannot be determined and future
outcomes are unknown. Managers are working blind. Because the probability of a given outcome
occurring is not known, managers have little information to use in making a decision.
• Ambiguous information: Information that can be interpreted in multiple and often conflicting
ways.
Ambiguous Information:
What do you think while making decisions what biases and errors
mangers/Decision Makers have?

Personal viewpoint
overthinking/ lack of motivation
overconfident
social/ Culture influence
Lack of information/knowledge
lack of planning/ analyzing
  Decision- Making biases and errors
 12 Common Decision-Making errors of managers and biases they
may have.
1. Overconfidence bias.
When decision makers tend to think they know more than they do.
Hold unrealistically positive views of themselves and their performance.
2. Immediate gratification bias
In which manager makes the decision on the basis of the outcome by making that choice
which will give him the immediate or quick rewards.
He ignores the future outcomes and simply give importance to those decision choices which
have the quick outcomes.
3. Anchoring effect
Describes the common human tendency to rely too heavily on the first piece of information
offered when making decisions.
During decision making, anchoring occurs when individuals use an initial piece of information
to make subsequent judgments.
 Selective perception bias.
When decision makers selectively organize and interpret events based on their biased perceptions.
It is a broad term to identify the behavior all people exhibit to tend to "see things" based on their
particular frame of reference.
 Confirmation bias
Decision makers who seek out information that reaffirms their past choices.
A confirmation bias is a type of cognitive bias that involves favoring information that
confirms your previously existing beliefs or biases.
 The Framing bias
when decision makers select and highlight certain aspects of a situation while excluding
others.
By drawing attention to specific aspects of a situation and highlighting them, while at the
same time omitting other aspects, they change what they see and create incorrect reference
points.
 Availability bias
when decision makers tend to remember events that are the most recent
and vivid in their memory.
 When decision makers assess the likelihood of an event based on
how closely it resembles other events or sets of events, that’s the
Representation bias.

 Randomness bias
Describes the actions of decision makers who try to create meaning out
of random events.
They do this because most decision makers have difficulty dealing
with chance even though random events happen to everyone, and
there’s nothing that can be done to predict them.
 Sunk costs error
When decision makers forget that current choices can’t correct the
past.
 Self-serving bias.
Decision makers who are quick to take credit for their successes and to
blame failure on outside factors.
 Hindsight bias
The tendency for decision makers to falsely believe that they would
have accurately predicted the outcome of an event once that outcome is
actually known.
 Overview of Managerial Decision Making
 Because it’s in their best interests, managers want to make good decisions.
Guidelines for Effective Decision Making
 Guidelines for Effective Decision Making
• Understand cultural differences
The “best” way worldwide to make decisions depend on the values, beliefs, attitudes,
and behavioral patterns of the people.
• Create standards for good decision making.
Good decisions are forward-looking, use available information, consider all available
and viable options, and do not create conflicts of interest.

• Know when it’s time to call it quits.

When it’s evident that a decision isn’t working, don’t be afraid to pull the plug.

Decision makers block negative information because they don’t want to believe their
decision was bad. They become so attached to a decision that they refuse to recognize
when it’s time to move on.
Today’s dynamic environment, this type of thinking simply won’t work.
• Use an effective decision-making process.
Effective decision making process has these characteristics:
1) It focuses on what’s important.
(2) It’s logical and consistent.
(3) It requires only as much information and analysis as is necessary to
resolve a particular problem.
(4) Encourages and guides the gathering of relevant information.
(5) It’s straightforward, reliable, easy to use, and flexible.
 • Develop your ability to think clearly
Develop your ability to think clearly so you can make better choices at
work and in your life.
Making good decisions doesn’t come naturally. You have to work at it.
Read and study about decision making.
Keep a journal of decisions in which you evaluate your decision-making
successes and failures by looking at the process you used and the
outcomes you got.
 Organizational Learning and Creativity
 Explain the role that organizational learning and creativity play in helping managers
to improve their decisions.
 Organizational learning:
The process through which managers seek to improve employees’ desire and ability to
understand and manage the organization and its task environment.
 Learning organization:
An organization in which managers try to maximize the ability of individuals and groups to
think and behave creatively and thus maximize the potential for organizational learning to take
place.
 Creating a Learning Organization
 How can managers foster a learning organization? Learning theorist Peter Senge
identified five principles for creating a learning organization?
 Promoting Individual Creativity
 Research suggests that when certain conditions are met, managers are more likely to be
creative. People must be given the opportunity and freedom(DOF) to generate new ideas.
Creativity declines when managers look over the shoulders of talented employees and try to
“hurry up” a creative solution.

 Promoting Group Creativity

 To encourage creativity at the group level, organizations can use group problem solving
techniques that promote creative ideas and innovative solutions. These techniques can also
prevent groupthink and help managers uncover biases.
 Here we look at three group decision-making techniques:
 Brainstorming,
 The nominal group technique, and
 The Delphi technique
1. BRAINSTORMING: Brainstorming is a group problem-solving technique in which managers meet
face-to-face to generate and debate a wide variety of alternatives from which to make a decision.
Generally, from 5 to 15 managers meet in a closed-door session and proceed like this:
Drawback:
Production blocking. (due to unstructured nature of brainstorming)
2. Nominal group technique
A decision-making technique in which group members write down ideas and solutions, read their
suggestions to the whole group, and discuss and then rank the alternatives.
Nominal group technique is more structured.
3. Delphi technique: A decision-making technique in which group members do not meet face-to-face
but respond in writing to questions posed by the group leader.
 The Delphi technique works like this:
• The group leader writes a statement of the problem and a series of questions to which participating managers are
to respond.
• The questionnaire is sent to the managers and departmental experts who are most knowledgeable about the
problem. They are asked to generate solutions and mail the questionnaire back to the group leader.
• A team of top managers records and summarizes the responses. The results are then sent back to the participants,
with additional questions to be answered before a decision can be made.
• The process is repeated until a consensus is reached and the most suitable course of action is apparent.
Small Group Breakout Exercise!
Brainstorming
 Form groups of three or four people, and appoint one member as the
spokesperson who will communicate your findings to the class when called
on by the instructor. Then discuss the following scenario:
 You and your partners are trying to decide which kind of restaurant to open
in a centrally located shopping center that has just been built in your city.
The problem confronting you is that the city already has many restaurants
that provide different kinds of food at all price ranges. You have the
resources to open any type of restaurant. Your challenge is to decide which
type is most likely to succeed. Use brainstorming to decide which type of
restaurant to open. Follow these steps