1. Understanding Decision Making
A choice made between available alternatives.
So, the decision is not nearly as important as the set of alternatives
We spend so much time agonizing over decisions with limited (bounded) alternatives
Decision Making
The process of developing and analyzing alternatives and choosing from among them.
How can we ensure that we have the best possible set
What are some of the approaches used to achieve this
This chapter deals with many of these issues
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2. Understanding Decision Making
Problem
A discrepancy between a desirable and an actual situation.
Yet another step in the decision-making process
What truly is the problem at hand…
If you miss diagnose the problem
How you can you create effective, plausible alternatives
Judgment
The cognitive, or “thinking,” aspects of the decision-making process.
Many issues to deal with here.
This is where most of the errors occur
Why?
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3. Types of Decisions Programmed Decision Nonprogrammed Decision
A decision that is repetitive and routine and can be made by using a definite, systematic procedure.
Really has no cognitive function
Can be handled through automation/planning
90% of problems / 10 % of the influence
Nonprogrammed Decision
A decision that is unique and novel.
No past information to help make the decision
Requires a whole new set of alternatives
Creativity and Innovation
10% of the problems / 90 % of the influence
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4. Types of Decisions The Principle of Exception
“Only bring exceptions to the way things should be to the manager’s attention. Handle routine matters yourself.”
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5. Decision-Making Models
The Classical Approach
Know all alternatives and can assess each one against each criterion.
Again, an issue of bounded rationality
Resource allocation (theory)
Accurately calculate and choose the alternative with the highest perceived value.
Perceived by who and under what conditions
This is where guidelines and procedures help
Make an “optimal” choice without being confused by “irrational” thought processes.
Remove the individual from the decision-making process
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6. Decision-Making Models
The Classical Approach
Have complete or “perfect” information about the situation.
Bounded Rationality
Assumption that managers had comprehensive and perfect information when making decisions
Reality  Most decisions made based on imperfect information
Distinguish perfectly between the problem and its symptoms.
Assumption that managers could distinguish really see the problem
Reality  Often times the two are very difficult to separate
Identify all criteria and accurately weigh all the criteria according to preferences.
Assumption that managers could objectively assess and rank all the issues related to a given problem
Reality  Even if we wanted to…
Human’s can only handle a finite limited amount of information
Very time contingent
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7. Decision-Making Models (cont’d)
The Administrative Approach
Bounded Rationality (Herbert Simon)
The boundaries on rational decision making imposed by one’s:
Values
Beliefs, Norms, and Attitude
Abilities
Skill sets, Education, etc.
Limited capacity for processing information. IQ
Satisfice
To stop the decision-making process when satisfactory alternatives are found
Rather than to review solutions until an optimal alternative is discovered.
How/Why do we do this?
Is it the same for all decisions made…
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8. Checklist 3.1 The Decision-Making Process
Define the problem.
Accurately diagnose the problem
Separate from symptoms
Clarify your objectives.
What do you want to do about it
Identify alternatives.
Make sure to get maximum input and coverage
Analyze the consequences.
One answer may seem ad hoc / post hoc
Make a choice.
There is no choice…
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9. Step 1. Define the Problem
Start by writing down your initial assessment of the problem.
We know this is limited (bounded)
Still, it helps get at the true nature of the problem
Dissect the problem.
What is the trigger of this problem?
What were the antecedents that creates this problem
Is it my problem to solve?
Many times the problem is beyond our scope or influence
What is the connection between the trigger and the problem?
How do we keep this problem from recurring
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10. Step 2. Clarify Your Objectives
Specific, understandable, action oriented
Write down all the concerns you hope to address through your decision.
Convert your concerns into specific, concrete objectives.
Separate ends from means to establish your fundamental objectives.
Clarify what you mean by each objective.
Test your objectives to see if they capture your interests.
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11. How to Clarify Your Objectives Goal-Setting Theory
Write down all the concerns you hope to address through your decision.
Convert your concerns into specific, succinct objectives.
Separate ends from means to establish your fundamental objectives.
Clarify what you mean by each objective.
Test your objectives to see if they capture your interests.
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12. Step 3. Identify Alternatives
Generate as many alternatives as you can yourself.
Even if they don’t make sense
The goal here is to assess all possible solutions
Expand your search
Checking with other people
Experts.
Help remove the biases
How will these alternatives be implemented
Are the plausible, doable
Know when to stop.
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13. Step 4. Analyze the Consequences
Mentally put yourself into the future.
Process Analysis
Solving problems by thinking through the process involved from beginning to end
Holistic view of the process
Eliminate any clearly inferior alternatives.
Organize your remaining alternatives into a table (matrix)
That provides a concise
All-encompassing view of the consequences of pursuing each alternative.
Find a way to have as much information as possible
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14. Step 5. Make a Choice
Analyses are useless unless the right choice is made.
Under perfect conditions
Simply review the consequences of each alternative
Choose the alternative that maximizes benefits.
In practice, making a decision
Even a relatively simple one like choosing a computer
Usually can’t be done so accurately or rationally.
What you want
Create a system that allows for “subjective” inputs into an “objective” checks and balances in decision-making
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15. How To Make Better Decisions
Increase Your Knowledge
Ask questions.
Get experience.
Use consultants.
Do your research.
Force yourself to recognize the facts when you see them (maintain your objectivity).
Use Your Intuition
A cognitive process whereby a person instinctively makes a decision based on his or her accumulated knowledge and experience.
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16. How To Make Better Decisions (cont’d)
Weigh the Pros and Cons
Quantify realities by sizing up your options, and taking into consideration the relative importance of each of your objectives.
Sometimes big decisions are actually a collection of much smaller decisions that can be taken one at a time
Don’t Overstress the Finality of Your Decision
Remember that few decisions are forever.
Knowing when to quit is sometimes the smartest thing a manager can do.
Make Sure the Timing Is Right
At the end of the day  you can only make a decision based on the information in front of you
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17. Are You More Rational or More Intuitive?
Source: Adapted and reproduced by permission of the Publisher, Psychological Assessment Resources. Inc., Odessa FL 33556, from the Personal Style Inventory by William Taggart, Ph.D., and Barbara Hausladen. Copyright 1991, 1993 by PAR, Inc.
Copyright © 2004 Prentice Hall. All rights reserved.
FIGURE 3–2

18. Decision Matrix FIGURE 3–3
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FIGURE 3–3

19. Checklist 3.3 Making a Choice
Increase your knowledge.
Use your intuition.
Weigh the pros and cons.
Don’t overstress the finality of your decision.
Make sure the timing is right.
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20. Creativity and Decision Making
The process of developing original, novel responses to a problem.
Best fostered in a neutral context
Culture for creativity
Brainstorming
A creativity-stimulating technique in which
Prior judgments and criticisms are specifically forbidden from being expressed
Meant to encourage the free flow of ideas
Must ensure that all influences are removed
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21. Checklist 3.4 How to be More Creative
Create a culture of creativity.
Encourage brainstorming.
Suspend judgment.
Get more points of view.
Provide physical support for creativity.
Encourage anonymous input.
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22. Decision-making Shortcuts and Traps
Using a Heuristic
Applying a rule of thumb or an approximation as a shortcut to decision making.
They do have there place
They are very helpful in the montage of decisions we make on a daily basis
Similarity
Using a affirmed short-cut to make decision
We wouldn’t use it if it did not serve us
Availability
Recent and readily available information
Think about this
How pervasive is this…
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23. Decision-making Shortcuts and Traps
Anchoring
Unconsciously giving disproportionate weight to the first information available.
Negative impact
Surprising effect
No matter what anyone says perceptions are set
Adopting a Psychological Set
The tendency to rely on a rigid strategy or approach when solving a problem.
Confining yourself to a familiar, effective way of handling problems
Can lead to entrenchment
Very close-minded view of possible solution sets
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24. Decision-making Shortcuts and Traps (cont’d)
Perception (Personal Bias)
The unique way each person defines stimuli
Depending on the influence of past experiences
The person’s present needs and personality.
Perception is reality
This is not a bad thing
It gives us the ability to provide multiple, varying solutions
We are slaves to our five senses (cognition)
Realist vs. Constructivist
Where so you stand?
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25. Looking at the Problem In Just One Way
Source: Lester A. Lefton and Laura Valvatine, Mastering Psychology, 4th ed. Copyright © 1992 by Allyn & Bacon. Reprinted by permission.
Copyright © 2004 Prentice Hall. All rights reserved.
FIGURE 3–4

26. The Advantage of Not Just Looking at the Problem in One Way
Source: Max H. Bazerman, Judgment in Managerial Decision Making. Copyright © 1994 Wiley, p. 93. Reprinted by permission of Wiley.
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FIGURE 3–5

27. Using Creativity to Find a Solution
Source: Applied Human Relations, 4th ed., by Benton/Halloran cW Reprinted by permission of Prentice-Hall, Upper Saddle River, NJ.
Copyright © 2004 Prentice Hall. All rights reserved.
FIGURE 3–6