1、The Essence of the Managers Job,Chapter 6,Decision-making,Decision Making,Decision Making a choice from two or more alternatives. The Decision-Making Process Identifying a problem and decision criteria and allocating weights to the criteria. Developing, analyzing, and selecting an alternative that c
2、an resolve the problem. Implementing the selected alternative. Evaluating the decisions effectiveness.,Exhibit 61 The Decision-Making Process,Step 1: Identifying the Problem,Problem A discrepancy between an existing and desired state of affairs. Characteristics of Problems A problem becomes a proble
3、m when a manager becomes aware of it. There is pressure to solve the problem. The manager must have the authority, information, or resources needed to solve the problem.,Step 2: Identifying Decision Criteria,Decision criteria are factors that are important (relevant) to resolving the problem. Costs
4、that will be incurred (investments required) Risks likely to be encountered (chance of failure) Outcomes that are desired (growth of the firm),Step 3: Allocating Weights to the Criteria,Decision are not of equal importance: Assigning a weight to each item places the items in the correct priority ord
5、er of their importance in the decision making process.,Exhibit 62 Criteria and Weights for Computer Replacement Decision,Step 4: Developing Alternatives,Identifying viable alternatives Alternatives are listed (without evaluation) that can resolve the problem.,Step 5: Analyzing Alternatives,Appraisin
6、g each alternatives strengths and weaknesses An alternatives appraisal is based on its ability to resolve the issues identified in steps 2 and 3.,Exhibit 63 Assessed Values of Laptop Computers Using Decision Criteria,Step 6: Selecting an Alternative,Choosing the best alternative The alternative with
7、 the highest total weight is chosen.,Step 7: Implementing the Alternative,Putting the chosen alternative into action. Conveying the decision to and gaining commitment from those who will carry out the decision.,Exhibit 64 Evaluation of Laptop Alternatives Against Weighted Criteria,Step 8: Evaluating
8、 the Decisions Effectiveness,The soundness of the decision is judged by its outcomes. How effectively was the problem resolved by outcomes resulting from the chosen alternatives? If the problem was not resolved, what went wrong?,Exhibit 65 Decisions in the Management Functions,Making Decisions,Ratio
9、nality Managers make consistent, value-maximizing choices with specified constraints. Assumptions are that decision makers: Are perfectly rational, fully objective, and logical. Have carefully defined the problem and identified all viable alternatives. Have a clear and specific goal Will select the
10、alternative that maximizes outcomes in the organizations interests rather than in their personal interests.,Exhibit 66 Assumptions of Rationality,Making Decisions (contd),Bounded Rationality Managers make decisions rationally, but are limited (bounded) by their ability to process information. Assump
11、tions are that decision makers: Will not seek out or have knowledge of all alternatives Will satisficechoose the first alternative encountered that satisfactorily solves the problemrather than maximize the outcome of their decision by considering all alternatives and choosing the best. Influence on
12、decision making Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong.,The Role of Intuition,Intuitive decision making Making decisions on the basis of experience, feelings, and accumulated judgment.,Exhibit 67 What is Intuition?,Source
13、: Based on L. A. Burke and M. K. Miller, “Taking the Mystery Out of Intuitive Decision Making,” Academy of Management Executive, October 1999, pp. 9199.,Types of Problems and Decisions,Structured Problems Involve goals that clear. Are familiar (have occurred before). Are easily and completely define
14、dinformation about the problem is available and complete. Programmed Decision A repetitive decision that can be handled by a routine approach.,Types of Programmed Decisions,Policy A general guideline for making a decision about a structured problem. Procedure A series of interrelated steps that a ma
15、nager can use to respond (applying a policy) to a structured problem. Rule An explicit statement that limits what a manager or employee can or cannot do.,Policy, Procedure, and Rule Examples,Policy Accept all customer-returned merchandise. Procedure Follow all steps for completing merchandise return
16、 documentation. Rules Managers must approve all refunds over $50.00. No credit purchases are refunded for cash.,Problems and Decisions (contd),Unstructured Problems Problems that are new or unusual and for which information is ambiguous or incomplete. Problems that will require custom-made solutions
17、. Nonprogrammed Decisions Decisions that are unique and nonrecurring. Decisions that generate unique responses.,Exhibit 68 Programmed versus Nonprogrammed Decisions,Decision-Making Conditions,Certainty A situation in which a manager can make an accurate decision because the outcome of every alternat
18、ive choice is known. Risk A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.,Exhibit 69 Expected Value for Revenues from the Addition of One Ski Lift,Expected Expected Probability = Value of Each Event
19、 Revenues Alternative Heavy snowfall $850,000 0.3 = $255,000 Normal snowfall 725,000 0.5 = 362,500 Light snowfall 350,000 0.2 = 70,000 $687,500,Decision-Making Conditions,Uncertainty Limited information prevents estimation of outcome probabilities for alternatives associated with the problem and may
20、 force managers to rely on intuition, hunches, and “gut feelings”. Maximax: the optimistic managers choice to maximize the maximum payoff Maximin: the pessimistic managers choice to maximize the minimum payoff Minimax: the managers choice to minimize maximum regret.,Exhibit 610 Payoff Matrix,Exhibit
21、 611 Regret Matrix,Decision-Making Styles,Dimensions of Decision-Making Styles Ways of thinking Rational, orderly, and consistent Intuitive, creative, and unique Tolerance for ambiguity Low tolerance: require consistency and order High tolerance: multiple thoughts simultaneously,Decision-Making Styl
22、es (contd),Types of Decision Makers Directive Use minimal information and consider few alternatives. Analytic Make careful decisions in unique situations. Conceptual Maintain a broad outlook and consider many alternatives in making decisions. Behavioral Avoid conflict by working well with others and
23、 being receptive to suggestions.,Exhibit 612 Decision-Making Matrix,Exhibit 613 Common Decision-Making Errors and Biases,Decision-Making Biases and Errors,Heuristics Using “rules of thumb” to simplify decision making. Overconfidence Bias Holding unrealistically positive views of ones self and ones p
24、erformance. Immediate Gratification Bias Choosing alternatives that offer immediate rewards and that to avoid immediate costs.,Decision-Making Biases and Errors (contd),Anchoring Effect Fixating on initial information and ignoring subsequent information. Selective Perception Bias Selecting organizin
25、g and interpreting events based on the decision makers biased perceptions. Confirmation Bias Seeking out information that reaffirms past choices and discounting contradictory information.,Decision-Making Biases and Errors (contd),Framing Bias Selecting and highlighting certain aspects of a situation
26、 while ignoring other aspects. Availability Bias Losing decision-making objectivity by focusing on the most recent events. Representation Bias Drawing analogies and seeing identical situations when none exist. Randomness Bias Creating unfounded meaning out of random events.,Decision-Making Biases an
27、d Errors (contd),Sunk Costs Errors Forgetting that current actions cannot influence past events and relate only to future consequences. Self-Serving Bias Taking quick credit for successes and blaming outside factors for failures. Hindsight Bias Mistakenly believing that an event could have been pred
28、icted once the actual outcome is known (after-the-fact).,Exhibit 614 Overview of Managerial Decision Making,Decision Making for Todays World,Guidelines for making effective decisions: Understand cultural differences. Know when its time to call it quits. Use an effective decision-making process. Habi
29、ts of highly reliable organizations (HROs) Are not tricked by their success. Defer to the experts on the front line. Let unexpected circumstances provide the solution. Embrace complexity. Anticipate, but also anticipate their limits.,Characteristics of an Effective Decision-Making Process,It focuses
30、 on what is important. It is logical and consistent. It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking. It requires only as much information and analysis as is necessary to resolve a particular dilemma. It encourages and guides the gathering of rele
31、vant information and informed opinion. It is straightforward, reliable, easy to use, and flexible.,Terms to Know,decision decision-making process problem decision criteria rational decision making bounded rationality satisficing escalation of commitment intuitive decision making structured problems programmed decision procedure rule,policy unstructured problems nonprogrammed decisions certainty risk uncertainty directive style analytic style conceptual style behavioral style heuristics business performance management (BPM) software,
