1. The Manager as a Decision Maker
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating 8
Chapter
The Manager as a Decision Maker

2. Learning Objectives OBJECTIVES
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Learning Objectives
OBJECTIVES
After studying the chapter, you should be able to:
Describe the six steps that managers should take to make the best decisions.
Explain how cognitive biases can affect decision making and lead managers to make poor decisions.
Understand the characteristics of a decision and when organizations are facing the need to make a decision.

3. Learning Objectives (cont’d)
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Learning Objectives (cont’d)
OBJECTIVES
Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process.
Identify the advantages and disadvantages of group decision making, and apply techniques that can improve it.
Recognize the role that organizational learning and creativity play in helping managers to improve their decisions.

4. Chapter Outline CHAPTER OUTLINE
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Chapter Outline
CHAPTER OUTLINE
The Nature of Managerial Decision Making
Decision-Making Dilemmas in Canada
Programmed and Nonprogrammed Decision Making
The Classical Model
The Administrative Model
Steps in the Decision-Making Process
Recognize the Need for a Decision
Generate Alternatives
Evaluate Alternatives
Choose Among Alternatives
Implement the Chosen Alternative
Learning from Feedback

5. Chapter Outline (cont’d)
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Chapter Outline (cont’d)
CHAPTER OUTLINE
Cognitive Biases and Decision Making
Prior Hypothesis Bias
Representative Bias
Illusion of Control
Escalating Commitment
Group Decision Making
Perils of Groupthink
Devil’s Advocacy and Dialectical Inquiry
Diversity Among Decision Makers

6. Chapter Outline (cont’d)
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Chapter Outline (cont’d)
CHAPTER OUTLINETER
Organizational Learning and Creativity
Creating a Learning Organization
Promoting Individual Creativity
Promoting Group Creativity
Promoting Creativity at the Global Level

7. The Nature of Managerial Decision Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
The Nature of Managerial Decision Making
THE NATURE OF MANAGERIAL DECISION MAKING
Decision Making
The process by which managers respond to opportunities and threats by analyzing options, and making choices about goals and courses of action.
Decisions in response to opportunities
occurs when managers respond to ways to improve performance.
Decisions in response to threats
occurs when managers are impacted by adverse events to the organization.

8. Decision-Making Dilemmas in Canada
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Decision-Making Dilemmas in Canada
DECISION- MAKING DILEMMAS IN CANADA
‘Triple Bottom Line’ Approach
Economic
Social
Environmental
Sustainability
need to pursue social and environmental agendas
Need a systematic approach to decision-making that considers all aspects

9. Programmed Decision PROGRAMMED & NONPROGRAMMED DECISION
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
PROGRAMMED & NONPROGRAMMED DECISION
Programmed Decision
Routine, virtually automatic decision making that follows established rules or guidelines.
same decision made many times before.
rules or guidelines to follow
based on past experience
Example: Disciplinary action
to be taken concerning a tardy
employee.

10. Judgment Information Intuition
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
PROGRAMMED & NONPROGRAMMED DECISION
Non-Programmed Decisions
Nonroutine decision making that occurs in response to unusual, unpredictable events.
no rules to follow since the decision is new.
Example: Deciding to invest in additional production equipment to meet forecasted demand.
based on:
Judgment
Information
Intuition

11. Classical Model of Decision Making
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
THE CLASSICAL MODEL
Classical Model of Decision Making
Prescriptive model (how decisions should be made)
Assumes can identify and evaluate:
all possible alternatives and their consequences
preferences for each alternative
the most appropriate course of action.
Make the Optimum decision
The most appropriate decision in light of what managers believe to be the most desirable future consequences for their organization.

12. THE CLASSICAL MODEL OF DECISION MAKING
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
THE CLASSICAL MODEL OF DECISION MAKING
Figure 8.1

13. THE CLASSICAL MODEL Organizational Steps in the Biases & Group
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
THE CLASSICAL MODEL
Figure 8.1

14. Administrative Model of Decision Making
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
THE ADMINISTRATIVE OF DECISION MAKING
Administrative Model of Decision Making
An approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions.
March and Simon

15. Administrative Model of Decision Making
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Administrative Model of Decision Making
Bounded rationality
Too much information to consider
Decisions are limited by people’s cognitive abilities.
Incomplete information
most managers do not see all alternatives and decide based on incomplete information.
Caused by:
Ambiguous
information
Time constraints
and Costs
Uncertainty
and Risk

16. WHY INFORMATION IS COMPLETE
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
WHY INFORMATION IS COMPLETE
Uncertainty
& Risk
Ambiguous
Information
INCOMPLETE
INFORMATION
Time constraints &
Information costs

17. CAUSE OF INCOMPLETE INFORMATION
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
CAUSE OF INCOMPLETE INFORMATION
Risk
Degree of probability that possible outcomes will occur.
If can assign probabilities for the likelihood of an outcome’s failure or success
Uncertainty
Probabilities cannot be given for outcomes and the future is unknown.
Many decision outcomes are not known such as the success of a new product introduction.

18. CAUSE OF INCOMPLETE INFORMATION Young Woman or Old Woman?
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
CAUSE OF INCOMPLETE INFORMATION
Ambiguous Information
Information whose meaning is not clear allowing it to be interpreted in multiple or conflicting ways.
Young Woman or Old Woman?
Figure 8.3

19. Satisficing CAUSE OF INCOMPLETE INFORMATION (Cont’d)
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
CAUSE OF INCOMPLETE INFORMATION (Cont’d)
Satisficing
Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision.
explore a limited number of options.
assume that the limited options represent all options.
A typical response when dealing with incomplete information.

20. SIX STEPS IN DECISION MAKING
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
SIX STEPS IN DECISION MAKING
Recognize the need for a decision
Step 1
Generate Alternatives
Step 2
Assess Alternatives
Step 3
Choose among Alternatives
Step 4
Implement the choose Alternatives
Step 5
Step 6
Learn from feedback

21. Step 1. Recognize Need for a Decision
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Step 1. Recognize Need for a Decision
Sparked by an event such as environment changes.
Step 2. Generate Alternatives
Develop feasible alternative courses of action.
if miss good alternatives,
the resulting decision is poor
hard to develop creative
alternatives, need to look
for new ideas.

22. Step 3. Evaluate Alternatives
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Step 3. Evaluate Alternatives
What are the advantages and disadvantages of each alternative?
Managers should specify criteria, then evaluate.
Step 4. Choose Among Alternatives
When ranking,consider all information.

23. General Criteria for Evaluating Possible Courses of Action
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Legal?
General Criteria for Evaluating Possible Courses of Action
Ethical?
Economical?
Practical?

24. Often a decision is made and not implemented.
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Step 5. Implement Chosen Alternative
carry out the alternative
assign responsibility and resources
Often a decision is made and not implemented.
Step 6. Learn From Feedback
consider what went right and wrong and learn for the future.
Without feedback, managers do not learn from experience and will repeat the same mistake over.

25. Heuristics Rules of thumb to deal with complex situations.
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Heuristics
Rules of thumb to deal with complex situations.
use heuristics to deal with bounded rationality.
Systematic errors can result from use of an incorrect heuristic and will appear over and over since the rule used to make decision is flawed.

26. Cognitive Biases Illusion of control Prior hypothesis
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
SOURCES OF COGNITIVE BIASES AT THE INDIVIDUAL & GROUP LEVEL
Illusion of control
Prior hypothesis
Cognitive
Biases
Escalating commitment
Representativeness

27. TYPES OF COGNITIVE BIASES
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
TYPES OF COGNITIVE BIASES
Prior Hypothesis Bias
Allowing strong prior beliefs about a relationship between variables to influence decisions based on these beliefs even when evidence shows they are wrong.
Representativeness
The decision maker incorrectly generalizes a decision from a small sample or a single incident.

28. TYPES OF COGNITIVE BIASES
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
TYPES OF COGNITIVE BIASES
Illusion of Control
The tendency to overestimates one’s own ability to control activities and events.
Escalating Commitment
Committing considerable resources to project and then committing more even if evidence shows the project is failing.

29. Most decisions are made in group settings.
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
GROUP DECISION MAKING
Most decisions are made in group settings.
BETTER ALTERNATIVES
Draw on combined skills and knowledge
Generate more feasible alternatives
Process more information
MORE ACCURATE
Correct each other’s errors and biases
MORE ACCEPTABLE
Increased cooperation and chances of successful implementation

30. Groupthink GROUP DECISION MAKING
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
GROUP DECISION MAKING
Groupthink
Biased decision making resulting from group members striving for agreement.
Group members rally around a central manager’s idea, and blindly commit to the idea without considering alternatives.
The group’s influence tends to convince each member that the idea must go forward.

31. IMPROVED GROUP DECISION MAKING
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
IMPROVED GROUP DECISION MAKING
Devil’s Advocacy
A group member who defends unpopular or opposing alternatives for the sake of argument
One member of the group who acts as the devil’s advocate by critiquing the way the group identified alternatives and pointing out problems with the alternative selection.

32. IMPROVED GROUP DECISION MAKING
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
IMPROVED GROUP DECISION MAKING
Dialectical Inquiry
Two different groups are assigned to the problem and each group evaluates the other group’s choice of alternatives.
Top managers then hear each group present their alternatives and each group can critique the other.
Promote Diversity
Increasing the diversity in a group may result in consideration of a wider set of alternatives.

33. DEVIL’S ADVOCACY & DIALECTICAL INQUIRY
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
DEVIL’S ADVOCACY & DIALECTICAL INQUIRY
Source:

34. Organizational Learning
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
Organizational Learning
Managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness.
The Learning Organization
Managers try to maximize the people’s ability to behave creatively to maximize organizational learning.

35. SENGE’S PRINCIPLES FOR CREATING A LEARNING
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
SENGE’S PRINCIPLES FOR CREATING A LEARNING
Develop
Personal
Mastery
2. Build complex,
challenging mental
models
5. Encourage systems
Thinking
4. Build Share
Vision
3. Promote Team
Learning
Figure 8.8

36. ORGANIZATIONAL LEARNING & CREATIVITY
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
ORGANIZATIONAL LEARNING & CREATIVITY
Creativity
The ability of the decision maker to discover novel ideas leading to a feasible course of action.
A creative management staff and employees are the key to the learning organization.

37. CREATING A LEARNING ORGANIZATION
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
CREATING A LEARNING ORGANIZATION
Personal Mastery
Managers empower employees and allow them to create and explore.
Mental Models
Challenge employees to find new, better methods to perform a task.
Team Learning
Is more important than individual learning since most decisions are made in groups.

38. CREATING A LEARNING ORGANIZATION
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
CREATING A LEARNING ORGANIZATION
Build a Shared Vision
People share a common mental model of the firm to evaluate opportunities.
Systems Thinking
Knowing and understanding how actions in one area of the firm will impact other areas of the firm.

39. PROMOTING INDIVIDUAL CREATIVITY
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
PROMOTING INDIVIDUAL CREATIVITY
Organizations can build an environment supportive of creativity.
Managers must provide employees with the ability to take risks.
If people take risks, they will occasionally fail.
To build creativity, periodic failures must be rewarded.
This idea is hard to accept for some managers.

40. Brainstorming PROMOTING GROUP CREATIVITY meet face-to-face
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
PROMOTING GROUP CREATIVITY
Brainstorming
meet face-to-face
generate and debate many alternatives.
not allowed to evaluate until all alternatives are listed
then the pros and cons of each are discussed and a short list created.
Production blocking
Members cannot absorb all information being presented during the session and can forget even their own alternatives.

41. Nominal Group Technique
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
PROMOTING GROUP CREATIVITY
Nominal Group Technique
each member writes down all alternatives he or she would suggest.
alternatives are then read aloud without discussion until all have been listed
then discussion occurs
then each person ranks the alternatives and
highest ranking alternatives are chosen
a more structured way to generate alternatives in writing
avoids the production blocking problem

42. PROMOTING GROUP CREATIVITY Allows distant managers to participate.
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
PROMOTING GROUP CREATIVITY
Delphi Technique
Provides a written format without having all managers meet face-to-face.
Allows distant managers to participate.
Problem is distributed in written form to managers who then generate written alternatives.
Responses are received and summarized by top managers.
These results are sent back to participants for feedback, and ranking.
The process continues until consensus is reached.

43. SUMMARY Organizational Steps in the Biases & Group Learning &
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
SUMMARY

44. THE END Organizational Steps in the Biases & Group Learning &
The nature of
Managerial
Decision
Making
Steps in the
Decision-
Process
Cognitive
Biases &
Group
Organizational
Learning &
Creating
THE END