Presentation on theme: "Chapter 5 Decisions-making"— Presentation transcript:
1 Chapter 5 Decisions-making The decision-making processThe rational modelThe common errors in the decision-makingTypes of problems, decisions and level in the organizationDecision-making stylesMaking-decision in groups
2 Exhibit 5-1 The Decision-Making Process Identificationof aproblemof decisioncriteriaAllocationof weightsTo criteriaDevelopmentofalternativesAnalysisSelectionof analternativeImplementationof theEvaluationeffectiveness
3 Exhibit 5-2 Assumptions of Rationality The problem A single, All alternatives Preferences Preferences No time Final choiceis clear and well-defined and are clear are constant or cost will maximizeunambiguous goal is to consequences and stable constraints economicbe achieved are known exist payoffLeadtoRational Decision MakingExhibit 5-2 Assumptions of Rationality
4 Bounded RationalityThis 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 heuristicThis is the tendency for people to base judgments of probability on things with which they are familiar.Escalation of commitmentIt 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-structuredType of problemWell-structuredTopLowerProgrammeddecisionsNonprogrammed
7 Types of ProblemsWell-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 DecisionsProgrammed 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 HighLowRationIntuitiveAnalyticConceptualDirectiveBehavioralWay of ThinkingTolerance for Ambiguity
10 The Advantages and Disadvantages of Group Decision Making More complete informationMore alternativesIncreasing acceptance of a solutionIncreasing legitimacy and democracyAdvantagesTime-consumingMinority dominationPressures to conform (groupthink)Ambiguous responsibilityDisadvantages
11 Several Effective Ways of Group Decision-Making BrainstormingThis is an idea-generating process that encourages alternatives while withholding criticism.Nominal group techniqueThis is a decision-making technique in which group members are physically present but operate independently.
12 Delphic techniqueThis 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 meetingThis 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
15 Payoff Matrices Maximax choice Optimistic decision, maximizing the maximum possible payoffMaximin choicePessimistic decision , maximizing the minimum possible payoffRegret choiceMinimizing the maximum regret
16 Exhibit Payoff Matrix for Discover Discover Marketing strategy Visa’s Response(in millions of $)CA CA CA3SSSS
17 Exhibit 6-2 Maximax Choice Discover Marketing strategy Visa’s Response(in millions of $)CA CA CA3SSSSMaxS428
18 Exhibit 6-3 Maximin Choice Discover Marketing strategy Visa’s Response(in millions of $)CA CA CA3SSSSMinS315
19 Exhibit 6-3 Regret Choice Discover Marketing strategy Visa’s Response(in millions of $)CA CA CA3S (11) (7) (17)S (15) (6) (10)S (0) (0) (13)S (6) (7) (0)MaxS47
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.ft20,000sq.ftStrong.70Weak.30$320,000$50,000$130,000Expected value(in 000s).70+.30=239$240,000Expected value(in 000s).70+.30=207
22 1.0 1.0 2 years 8 years Strong .70 $320,000 Rent 20,000sq.ft Weak .30 $50,000Add 4000$10,0001.0$300,000Strong.70Rent12,000sq.ft$240,000No expansion1.0Weak.30$130,0002 years8 years
23 Break-Even AnalysisThis is a technique for identifying the point at which total revenue is just sufficient to cover total costs.