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Chapter
Foundations
of Decision
Making
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2. Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
Learning Outcomes
Describe the decision-making process
Explain the three approaches managers can use to make decisions
Describe the types of decisions and decision-making conditions managers face
Discuss group decision making
Discuss contemporary issues in managerial decision making
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3. How do managers make decisions??
Decision making is typically described as choosing among alternatives ( this view is overly simplistic because decision-making is a process rather than the simple act of choosing among alternatives.
Decision making process
is a set of eight steps that begins with identifying a problem; it moves through selecting an alternative that can alleviate the problems and concludes with evaluating the decision’s effectiveness.
This process is applicable to ur own decision-making as its to business decision making.
Managers work in organizations. We define organizations as A deliberate arrangement of people brought together to accomplish some are deliberate arrangements of people to accomplish a specific purpose. Examples include your college or university, the United Way, your neighborhood convenience store, the Dallas Cowboys football team, fraternities and sororities, the Cleveland Clinic and Nokia.
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It’s necessary, therefore, to allocate weights to
the items listed in step 2 in order to give them their relative priority in the decision (step 3).
Then the decision maker lists the alternatives that could succeed in resolving
the problem (step 4).
Once the alternatives have been identified, the decision maker must critically
analyze each one (step 5).
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5. What defines a decision problem??
Decision making process
The identification of a problem:
A discrepancy between an existing and a desired state of affairs
Most problems don’t come with neon sings identifying them as such.
Problem identification is subjective.
Problem identification is neither a simple nor an unimportant part of the decision making process.
For simplicities sake, we can divide organization members into two categories: nonmanagerial employees and managers. Nonmanagerial employees do not oversee the work of others. Managers direct and oversee the activity of the people in the organization.
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6. What defines a decision problem??
How do managers became aware they have a discrepancy
they have to make a comparison btw the current state of affairs and some standards ex past performance, previously set goals.
Managers are usually classified as top, middle or first-line. But be aware that they can have a variety of titles.
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7. Decision-Making Process
Identification of a problem :
For the sake of simplicity we’ll formulate an easy example to which we can all relate to :
the decision of buying a vehicle ( car ) .
The manager spent nearly 6000$ on auto repairs over the past few years, and now the car has a blowing engine .
Repair estimate that its not economical to fix the car .
furthermore , convenient public transportation is unavailable .
So now we can say that we have a problem

8. Decision-Making Process
2) identification of decision criteria :
Decision criteria :
Factors that are relevant in a decision.
How may I choose my car , on what basis my decision will be based upon .

9. Decision-Making Process
2) identification of decision criteria :
In our vehicle example the criteria's are:
model { two doors , one door } .
Price
Size
Manufacturer { French, German, American}.
Optional equipment { automatic transmission, side protection impact system, leather interior.
These criteria reflect what a manager think is relevant in her \ his decision

10. Decision-Making Process
2) identification of decision criteria :
Every decision maker has criteria ,whether clearly stated or not ,that guides the manager’s decision.
In this step if a manager did not identify a particular factor that means its irrelevant to this decision making
example : ( fuel economy ) wasn’t Identified as a decision criteria in this vehicle example .

11. Decision-Making Process
3) Allocation of weights to criteria :
The criteria's are not equally Important , therefore it is necessary to allocate weights to the items listed in step 2 .
We give the most important criterion a weight of 10 and then assign weights to the rest against the standards.
We use our personal preferences to assign priorities to the relevant

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Exhibit 3-2 lists the criteria
and weights that our manager developed for her vehicle replacement decision. Price is
the most important criterion in her decision, with performance and handling having low
weights.
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13. Decision-Making Process
4) Development of alternatives
The decision maker list the alternatives that could succeed in resolving the problem .
In our vehicle example the manager listed the following alternatives.
Volvo.
Ford focus.
Pontiac G6
Mazda CX7.
Audi A6.
Dodge Durango.
BMW 335
Toyota Camry.
Volkswagen passat.
Isuzu ascender.
Mercedes C230.

14. Decision-Making Process
5) Analysis of alternatives:-
Once the alternatives has been identified the decision maker must critically analysis each one .
Each alternative is evaluated by apprising (asses it)against the criteria .
The assessment is made by the manager.
We are using scale.
The weights of criteria are not included in this table.

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Exhibit 3-3 is only an assessment of the 12 alternatives against the decision criteria; it
does not reflect the weighting done in step 3. If one choice had scored 10 on every criterion,
you wouldn’t need to consider the weights.
Step 6 is the critical act of choosing the best alternative from among those assessed.
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In our vehicle example (Exhibit 3-4), the decision
maker would choose the Toyota Camry. On the basis of the criteria identified, the
weights given to the criteria, and the decision maker’s assessment of each vehicle’s
achievement on the criteria, the Toyota scored highest [224 points] and, thus, became the
best alternative.
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17. Decision-Making Process
6) Selection of an alternative :-
What determines the best choice ?
We simply choose the alternative that generate the highest score in step 5.
The choice process is completed in this step
The assumptions of scores represent an evaluation of each alternative against the criteria's weights

18. Decision-Making Process
7) implementation of the alternative .
What is decision implementation ?
Putting a decision into action; includes conveying the decision to the persons who will be affected by it and getting their commitment to it.
The decision may still fail if its not implemented properly
The persons who's going to implement the decision may achieve better outcome if they have participated in the making of it.

19. Decision-Making Process
8)Evaluation of decision effectiveness.
Is to appraises the result
Did the alternative chosen in step 6 and implemented in step 7 accomplished the desired result.

20. Common Errors in the Decision-Making Process
Heuristics or ( rules of thumb)
Heuristics refers to experience-based techniques for problem solving, learning, and discovery
Rules of thumb helps in making sense of complex ,uncertain and ambiguous info.
Managers use both concepts to simplify their decision making, but that doesn't make it always reliable due to the errors and biases that may occur in processing and assessing the info
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21. Common Errors in the Decision-Making Process
Overconfidence bias when managers think they know everything, hold unrealistically positive view of themselves and their performance.
The immediate gratification bias describe decision makers who want immediate rewards and avoid immediate cost.
Framing bias when the managers highlight some aspects and ignore the others.
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22. Common Errors in the Decision-Making Process
The representative bias when decision makers asses the likelihood of an event based on how closely it resembles other events ( seeing identical situation where they don't exist)
Self-serving bias the decision makers who quickly take the credit for their successes and blame failure on outside factors.
+ plus other biases (book pg89)
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When managers make decisions, they not only use their own particular style, but may
use “rules of thumb” or heuristics, to simplify their decision making.7 Rules of thumb can
be useful because they help make sense of complex, uncertain, and ambiguous information.
Even though managers may use rules of thumb, that doesn’t mean those rules are
reliable
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25. 3 approaches managers use to make decisions
Rational Model assumes
that managers’ decision making will be rational, objective, logical and consistent choices to maximize value.
Maximizing the decision by searching all possible alternatives.
The problem faced would be clear and unambiguous
the decision maker would have
a clear and specific goal
know all possible alternatives and consequences
Decisions are made in the best interest of an org
We assume that managers’ decision making will be rational; that is, they’ll make
logical and consistent choices to maximize value. After all, managers have all sorts of
tools and techniques to help them be rational decision makers
A rational decision maker would be fully objective and logical. The problem faced
would be clear and unambiguous, and the decision maker would have a clear and specific
goal and know all possible alternatives and consequences. Finally, making decisions
rationally would consistently lead to selecting the alternative that maximizes the likelihood
of achieving that goal
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26. 3 approaches managers use to make decisions
The bounded rationally which says that managers make decision rationally , but are limited by their ability to process info.
managers cant possibly analyse all info
Managers accept solutions that are “good enough” or satisfied rather than maximizing decision by searching all possible alternative and then choosing the best.
Decision making is also influenced by org’s culture and internal politics and by a phenomenon called Escalation of commitment is an increase commitment to a pervious decision despite evidence that it may have been wrong
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27. the intuitive decision-making models
Making decisions on the basis of experience, feeling, and accumulated judgment.
The idea here is that there may be absolutely no reason or logic to the decision making process.
there is an inner knowing, or intuition, or some kind of sense of what the right thing to do is.
There are also a variety of ways for people to receive information, either in pictures or words or voices.
It can complement both bounded rationally and rational decision making .
The advantage of acting quickly with limited info due to past experiences of similar type of problem or situation .

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How Do Problems Differ?
Structured Problem
A straightforward, familiar, and the information about the problem easily defined and complete.
Ex: Customer wanting to return his purchase
Unstructured Problem
A problem that is new or unusual for which
information is ambiguous or incomplete.
- ex: Decision to enter new market segment, to merge two organizations
Some problems are straightforward. The goal of the decision maker is clear, the problem
familiar, and information about the problem easily defined and complete. Examples might
include a supplier’s tardiness with an important delivery, a customer’s wanting to return an
Internet purchase, etc.
Many situations faced by managers, however, are unstructured problems. They are new
or unusual. Information about such problems is ambiguous or incomplete.
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29. Non-programmed decision
Types of decision.
Types of decisions
Programmed decision
Non-programmed decision

30. What Are Programmed and Nonprogrammed Decisions?
Programmed-routine Decisions
A repetitive decision that can be handled using an specific approach that been designed specially for solving them ex, refunding or exchanging of a product.
It is the most efficient way to handle structured problems
Manager do not have to go to the trouble and expense of an involved decision process.
It relay heavily on pervious solutions and the stage of developing the alternatives is not exist
Programmed, or routine, decision making is the most efficient way to handle structured problems. However,
when problems are unstructured, managers must rely on nonprogrammed decision making
in order to develop unique solutions.
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31. Three guide lines to make a programmed decisions
Procedure :
A series of interrelated sequential steps that can be used to respond to a well-structured problem (policy implementation).
Rule :
An explicit statement that tells managers or employees what they ought or ought not to do (limits on procedural actions).
Policy :
A general guide that establishes parameters for making decisions about recurring problems.

32. Difference between policy and rule?
Example :-
policy :-
"All organizations must not discriminate on the basis of race, color, creed, or sexual orientation.“
It require judgment and interpretation.
A rule :-
"All organizations that discriminate on the basis of race, color, creed, or sexual orientation will be disbanded. "
Specifically stating what should or should not be done.

33. Non-programmed decisions
They are unique and nonrecurring decision that requires a custom made solution.
Suitable for un- structured problems .
The issue is new, a different set of environmental factors are exist, therefore, the decision should be different than the previous one.
Example :
Deciding whether to acquire another organization .
Deciding which global markets offer the most potential

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Exhibit 3-8 describes the relationship among types of problems, types of decisions,
and level in the organization. Structured problems are responded to with programmed decision
making. Unstructured problems require nonprogrammed decision making.
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35. Types of Problems, Types of Decisions, and Level in the Organization
structured problems requires programmed decision making
un structured problems requires non programmed decision making
- Lower level manager always face repetitive problems, why?? because they handle the routine decision
Top level managers are concerned with decisions which are unique and difficult and requires more managerial skills .

36. What Decision Making Conditions Do Managers Face?
Certainty
A situation in which a decision maker can make accurate decisions because all outcomes are known (ideal situation)
Uncertainty
A situation in which a decision maker has neither certainty of the outcomes nor reasonable probability estimates available ( in this situation the choice of alternative is influenced by the limited amount of available info + perspective of the manager)
Risk: A situation in which a decision maker is able to estimate the likelihood of certain outcomes. Secondary info, past info and personal experiences are used.
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37. Making decisions in groups.
Many decision in organizations especially important decisions that have far reaching effects on organizational activities and personnel are typically made in groups by forming committees , task forces , review panels and work teams why ?
These groups represent the people who will be most affected by the decisions being made.
Because of their expertise .

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Group Decision Making
Advantages
Group decisions provide more complete information
Diversity of experiences and perspectives.
Groups generate more alternatives
Group decisions increase acceptance of a solution
Disadvantages
Group decisions are time consuming
May be subject to minority domination
pressure to conform
Responsibility is ambiguous
Subject to Groupthink (when group exerts extensive pressure on an individual to withhold his different views in order to appear in agreement) which undermines critical thinking
Individual and group decisions have their own set of strengths. Neither is ideal for all
situations.
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39. When Are Groups Most Effective?
Groups are more effective for decisions requiring
Accuracy
Creativity
Acceptance
Speed( individual
Ideal Group Size
5-15
5-7 most effective
The effectiveness of group decision making is also influenced by the size of the group.
The larger the group, the greater the opportunity for heterogeneous representation
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40. Improving Group Decision Making
Brainstorming :
The idea- generating process that encourages alternatives while withholding criticism.
People sit around a table , the group leader state the problem in a clear manner that understood by all participants.
Members are free to discuss as many alternatives as they can in a given time .
No criticism is allowed
All alternatives are recorded for later discussion & analysis
Brainstorming is a process for generating ideas and discuss alternatives.

41. Improving Group Decision Making
Nominal group technique :
A decision making technique in which group members are physically present but operate independently.
Group members must be present , as if they are in a traditional committee meeting.
The discussion is not allowed or restricted.
Participant are required to operate independently .
They secretly write down a list of potential solutions.

42. Improving Group Decision Making
Electronic meeting :
A type of nominal group technique in which participants are linked by computer.
Numerous people sit together and they are linked to the computer.
Issues are presented to the participants
Participant start typing their response onto their computer .
Individuals start comments as well and all is been displayed on a projection screen in the room .
Advantages:
Honesty , Speed, Anonymity, faster and cheaper than the face to face communication
Cutting down chitchat .
Many participant can explain their point of view without interrupting others
Connecting people all over the world and cutting down the cost
Enhance feedback among the members

43. Improving Group Decision Making
Disadvantages :
Slow tippers may not have the chance to speak up their mind .
There is no credit for the one with the best idea.
Lack of informational richness compared with oral communications .

44. Developing your Creativity in decision making, How?
The three component model of creativity
expertise ( person’s ability and knowledge)
Creative thinking skills ( personal characteristics) it is the talent to see the familiar in different light.
Intrinsic task motivation ( the design to work on something because its interesting , involving, exciting, challenging and satisfying
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45. Developing your Creativity in decision making, How?
1. think of yourself as creative
2. pay attention to your intuition
3. move away from your comfort zone
4. engage in activities that put you outside your comfort zone
5.seek a change of scenery
6.find several right answers
7.challeng your self to defend your solution.
8. believe in finding a workable solution
9. brainstorm with others
10.turn creative idea into action.
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