Management tenth edition

Stephen P. Robbins Mary Coulter

Chapter
Managers
6 as
Decision Makers

6–1
 Decision?

A Choice from alternatives

 A
Challenge
Please write a One Sentence
Definition of
DECISION MAKING.
 What does decision means……

The decision is derived from latin word” de ciso”

which means
'a cutting away or a cutting off or in a practical
sense' to come to a conclusion
Definitio
n
Decision Making:

The process of examining your possibilities

options, comparing them, and choosing a course
of action.
 Related
Quotes
“Be sure you are right -- then go ahead.”
Davy Crocket.
“Doing what's right isn't hard -- Knowing
what's right is.” Lyndon B. Johnson.
“Mine own applause is the only applause which
matters.” Cicero.
“Once you've made your mark, watch out for
erasers!” Will Rogers.
What is a decision making process

The process of examining

possibilities, option,
Comparing them and choosing a
course of action
 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.
Six C's of Decision Making
 1. Construct.
 2. Compile.
 3. Collect.
 4. Compare.
 5. Consider.
 6. Commit.
Six C's of Decision Making
 Construct a clear picture of
precisely what must be decided.

 Compile a list of requirements that

must be met.

 Collect information on alternatives

that meet the requirements.
Six C's of Decision Making (3 of
3)
 Compare alternatives that meet
the requirements.

 Consider the "what might go

wrong" factor with each
alternative.

 Commit to a decision and follow

through with it.
When a Decision starts……….

PROBLEM
 Problem?

A Discrepancy between an
existing and desired state of
affairs
Decision Making Process
Exhibit 6–1
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

Assigning a weight to each item places the items in the
correct priority order of their importance in the decision-
making process.
What are the advantages and disadvantages of each
alternative? Managers should specify criteria, then evaluate.
Exhibit 6–2 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 6–3 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 6–4 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?
Exhibit 6–5 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.

6–26
 The Role of Intuition
Intuitive decision making
– Making decisions on the basis of experience,
feelings, and accumulated judgment.

6–27
 What is Intuition……

• The act or faculty of knowing or sensing

without the use of rational processes
Exhibit 6–6 What Is Intuition?
 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 (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.
• Non-programmed 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.

6–35
 Exhibit 6–8 Expected Value for Revenues
from the Addition of One Ski Lift

Expected
Expected × Probability = Value of Each
Event Revenues Alternative
Heavy snowfall $850,000 0.3 = $255,000
Normal snowfall 725,000 0.5 = 362,500
Light snowfall 350,000 0.2 = 70,000
$687,500
 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.”
• Maximax: the optimistic manager’s choice to maximize the
maximum payoff
• Maximin: the pessimistic manager’s choice to maximize the
minimum payoff
• Minimax: the manager’s choice to minimize maximum regret.
 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

6–38
Exhibit 6–11 Common Decision-Making Errors and Biases

Copyright © 2010 Pearson Education, Inc.

Publishing as Prentice Hall 6–39
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.
• Immediate Gratification Bias
– Choosing alternatives that offer immediate rewards
and that to avoid immediate costs.
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall 6–40
Decision-Making Biases and Errors
• Anchoring Effect
– Fixating on initial information and ignoring
subsequent information.
• Selective Perception Bias
– Selecting organizing and interpreting events based on
the decision maker’s biased perceptions.
• Confirmation Bias
– Seeking out information that reaffirms past choices
and discounting contradictory information.

6–41
Decision-Making Biases and Errors (cont’d)
• Framing Bias
– Selecting and highlighting certain aspects of a situation while
ignoring other aspects.
• Availability Bias
– Losing decision making objectivity by focusing on the most
recent events.
• Representation Bias
– Drawing analogies and seeing identical situations when none
exist.
• Randomness Bias
– Creating unfounded meaning out of random events.

6–42
Decision-Making Biases and Errors
• Sunk Costs Errors
– Forgetting that current actions cannot influence past
events and relate only to future consequences.
• Self-Serving Bias
– Taking quick credit for successes and blaming outside
factors for failures.
• Hindsight Bias
– Mistakenly believing that an event could have been
predicted once the actual outcome is known (after-the-
fact).
Exhibit 6–12 Overview of Managerial Decision Making

6–44
Decision Making for Today’s World
• Guidelines for making effective decisions:
– Understand cultural differences.
– Know when it’s time to call it quits.
– Use an effective decision making process.
• Habits of highly reliable organizations (HROs)
– 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 anticipate their limits.
 Characteristics of an Effective Decision-
Making Process
• 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.

6–46
 Terms to Know
• decision
policy
• Decision-making process
unstructured problems
• problem
nonprogrammed decisions
• decision
certaintycriteria
•• rational
risk decision making
•• bounded
uncertaintyrationality
•• satisficing
directive style
•• escalation of commitment
analytic style
•• intuitive
conceptualdecision
style making
•• structured
behavioralproblems
style
•• programmed
heuristics decision
• procedure
• business performance management (BPM) software
• rule

6–47