1. Chapter 5 Decisions-making
The decision-making process
The rational model
The common errors in the decision-making
Types of problems, decisions and level in the organization
Decision-making styles
Making-decision in groups

2. Exhibit 5-1 The Decision-Making Process
Identification
of a
problem
of decision
criteria
Allocation
of weights
To criteria
Development of
alternatives
Analysis
Selection
of an
alternative
Implementation
of the
Evaluation
effectiveness

3. Exhibit 5-2 Assumptions of Rationality
The problem A single, All alternatives Preferences Preferences No time Final choice
is clear and well-defined and are clear are constant or cost will maximize
unambiguous goal is to consequences and stable constraints economic
be achieved are known exist payoff
Lead to
Rational Decision Making
Exhibit 5-2 Assumptions of Rationality

4. Bounded Rationality
This is the behavior that people construct simplified models that extract the essential features from problems without capturing all of their complexities in order to decide rationally.

5. Availability heuristic
This is the tendency to base judgments on information that is readily available.
Representative heuristic
This is the tendency for people to base judgments of probability on things with which they are familiar.
Escalation of commitment
It refers to an increased commitment to a previous decision despite negative information

6. Exhibit 5-3 Types of Problems , Decisions and Level in the Organization
Ill-structured
Type of problem
Well-structured
Top
Lower
Programmed
decisions
Nonprogrammed

7. Types of Problems
Well-structured problems are problems that are straightforward, familiar to the decision maker, and the goal is clear, the information about them are complete.
Ill-structure problems are new, or unusual, and information about such problems is ambiguous or incomplete.

8. Types of Decisions
Programmed decision is a repetitive decision that can be handle by a routine approach. (Procedure, rule, policy)
Non-programmed decision is a decision that must be custom-made to solve unique and non-recurring problems.

9. Exhibit 5-4 Decision-Making
High
Low
Ration
Intuitive
Analytic
Conceptual
Directive
Behavioral
Way of Thinking
Tolerance for Ambiguity

10. The Advantages and Disadvantages of Group Decision Making
More complete information
More alternatives
Increasing acceptance of a solution
Increasing legitimacy and democracy
Advantages
Time-consuming
Minority domination
Pressures to conform (groupthink)
Ambiguous responsibility
Disadvantages

11. Several Effective Ways of Group Decision-Making
Brainstorming
This is an idea-generating process that encourages alternatives while withholding criticism.
Nominal group technique
This is a decision-making technique in which group members are physically present but operate independently.

12. Delphic technique
This is a decision-making technique in which participants are specialist in some field, they are not necessary to assemble together, and required to write solution alternatives anonymously.
Electronic meeting
This is a type of nominal group technique in which participants are linked by computers.

13. Study & Practice How to organize an effective meeting?
What’s the actions of the bounded-rational decision maker?
What’s the advantages and disadvantages of group decisions?
Understand several important ways of group decision

14. Quantitative Decision-Making Techniques
Payoff Matrices
Decision Trees
Break-Even Analysis

15. Payoff Matrices Maximax choice
Optimistic decision, maximizing the maximum possible payoff
Maximin choice
Pessimistic decision , maximizing the minimum possible payoff
Regret choice
Minimizing the maximum regret

16. Exhibit Payoff Matrix for Discover
Discover Marketing strategy Visa’s Response(in millions of $)
CA CA CA3 S S S S

17. Exhibit 6-2 Maximax Choice
Discover Marketing strategy Visa’s Response(in millions of $)
CA CA CA3 S S S S
Max S4 28

18. Exhibit 6-3 Maximin Choice
Discover Marketing strategy Visa’s Response(in millions of $)
CA CA CA3 S S S S
Min S3 15

19. Exhibit 6-3 Regret Choice
Discover Marketing strategy Visa’s Response(in millions of $)
CA CA CA3
S (11) (7) (17)
S (15) (6) (10)
S (0) (0) (13)
S (6) (7) (0)
Max S4 7

20. Exhibit 6-4 Decision Trees
=Decision point
=Alternatives branch
=Probability branch
=Possible value
=Outcome point

21. Exhibit 6-4 Decision Tree and Expected Values for Renting a Large or Small Retail Space
12,000sq.ft
20,000sq.ft
Strong
.70
Weak
.30
$320,000
$50,000
$130,000
Expected value(in 000s)
.70[320]+.30[50]=239
$240,000
Expected value(in 000s)
.70[240]+.30[130]=207

22. 1.0 1.0 2 years 8 years Strong .70 $320,000 Rent 20,000sq.ft Weak .30
$50,000
Add 4000
$10,000
1.0
$300,000
Strong
.70
Rent
12,000sq.ft
$240,000
No expansion
1.0
Weak
.30
$130,000
2 years
8 years

23. Break-Even Analysis
This is a technique for identifying the point at which total revenue is just sufficient to cover total costs.

24. Exhibit 6-5 The Break-Even Analysis
Revenues/cost
Output
S(Total revenue) O A
C(Total cost)
Variable cost
Fixed cost E
Break-even point B
F(Total fixed cost)