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Decision Making

The document discusses decision making and the decision-making process. It describes decision making as choosing from two or more alternatives. The decision-making process involves 8 steps: 1) identifying the problem, 2) identifying decision criteria, 3) allocating weights to criteria, 4) developing alternatives, 5) analyzing alternatives, 6) selecting an alternative, 7) implementing the alternative, and 8) evaluating the decision. The document also discusses rational decision making, bounded rationality, different types of problems and decisions, and biases that can affect decision making.

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24 views17 pages

Decision Making

The document discusses decision making and the decision-making process. It describes decision making as choosing from two or more alternatives. The decision-making process involves 8 steps: 1) identifying the problem, 2) identifying decision criteria, 3) allocating weights to criteria, 4) developing alternatives, 5) analyzing alternatives, 6) selecting an alternative, 7) implementing the alternative, and 8) evaluating the decision. The document also discusses rational decision making, bounded rationality, different types of problems and decisions, and biases that can affect decision making.

Uploaded by

hafizmuhammad1122square
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Decision Making

1
Decision Making
• Decision
• Making a choice from two or more alternatives

2
Decision Making Process
• Step 1: Identification of a Problem
• Step 2: Identification of Decision Criteria
• Step 3: Allocation of Weights to Criteria
• Step 4: Development of Alternatives
• Step 5: Analysis of Alternatives
• Step 6: Selection of an Alternative
• Step 7: Implementation of the Alternative
• Step 8: Evaluation of Decision Effectiveness
3
Step 1: Identification of a
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
4
Step 2: Identification of
Decision Criteria
• Decision criteria are factors that are important
(relevant) to resolving the problem:

Step 3: Allocation of Weights to


Criteria
• Decision criteria are not equally importance:
– Assigning a weight to each item places the items in the
5
correct priority order of their importance in the
decision- making process
Step 4: Development of
Alternatives
• Identifying viable alternatives
• Alternatives are listed (without evaluation)
that can resolve the problem

Step 5: Analysis of Alternatives


• Evaluating each alternative’s strengths and
weaknesses
– An alternative’s appraisal is based on its ability to
6
resolve the issues identified in steps 2 and 3.
Step 6: Selection of an
Alternative
• Choosing the best alternative
• The alternative with the highest total weight is
chosen

Step 7: Implementation of the


Alternative
• Putting the chosen alternative into action
– Conveying the decision to and gaining commitment
from those who will carry out the decision
7
Step 8: Evaluation of 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?

8
Making Decisions

• Rationality
• Managers make consistent, value-maximizing choices
with specified constraints
• Assumptions of Rationality:
• 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
9
Making Decisions

• Bounded Rationality
– Managers make decisions rationally, but are
limited (bounded) by their ability to process
information
• Role of Intuition
– Intuitive decision making
• Making decisions on the basis of experience, feelings,
and accumulated judgment
10
Types of Problems and
Decisions
• Structured Problems
– Have clear goals
– Are familiar
– Are easily and completely defined
• Programmed Decision
– A repetitive decision that can be handled by a
routine approach
11
Types of Programmed
Decisions
• A Procedure
– A series of interrelated steps to respond to a
structured problem
• A Rule
– An explicit statement that limits what a
manager or employee can or cannot do
• A Policy
– A general guideline for making a decision
about a structured problem 12
Problems and Decisions

• Unstructured Problems
– Problems are new or unusual; information is
ambiguous or incomplete
• Non-programmed Decisions
– Decisions are unique and nonrecurring; they
require custom-made solutions

13
Decision-Making Conditions
• Certainty
• Accurate decisions possible because the outcome of
every alternative is known
• Risk
• Decision maker estimates the likelihood of outcomes
that result from the choice of particular alternatives
• Uncertainty
• Limited information prevents estimation of outcome
probabilities; may force managers to rely on intuition,
hunches, and “gut feelings”
14
Decision-Making Styles
• Types of Decision Makers
– Directive
• Use minimal information and consider few alternatives
– Analytic
• Make careful decisions in unique situations
– Conceptual
• Maintain a broad outlook and consider many alternatives in
making long-term decisions
– Behavioral
• Avoid conflict by working well with others and being
approachable to suggestions
15
Decision-Making Biases and
Errors
• Anchoring Effect
• Fixating on initial information and ignoring later
information
• Selective Perception
• 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

16
Decision-Making Biases and
Errors
• Heuristics
• Using “rules of thumb” to simplify decision making
• Overconfidence Bias
• Holding unrealistically positive views of one’s self and
one’s performance
• Immediate Gratification Bias
• Choosing alternatives that offer immediate rewards
and avoid immediate costs

17

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