DECISION MAKING chap 2, Slides of Management Theory

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DECISION MAKING

Chapter 2

Table of Contents

 The Decision-Making Process

 The Manager as Decision Maker

 The assumptions of rational decision making.

 The concepts of bounded rationality.

 Intuitive decision making.

 Programmed and nonprogrammed decisions.

 The three decision-making conditions.

 Decision choice approaches.

 The decision making styles.

 Biases and error.

Exhibit 3.

The Decision-Making Process

Step 2: Identifying Decision Criteria

 Decision criteria are factors that are important (relevant) to

resolving the problem.

 (^) Costs 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 criteria are not of equal importance:

 Assigning a weight to each item places the items in

the correct priority order of their importance in the

decision making process.

Exhibit 3–2 Criteria and Weights for Computer Replacement Decision

Criterion Weight

Memory and Storage 10

Battery life 8

Carrying Weight 6

Warranty 4

Display Quality 3

Exhibit 3–3 Assessed Values of Laptop Computers

Using Decision Criteria

Step 6: Selecting an Alternative

 Choosing the best alternative

 (^) The alternative with 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.

Step 8: Evaluating the Decision’s 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 3–5 Decisions in the Management Functions

Exhibit 3–6 Assumptions of Rationality

Making Decisions (cont’d)

 Bounded Rationality

 (^) Managers make decisions rationally, but are limited (bounded) by their ability to process information.  (^) Assumptions are that decision makers:  (^) Will not seek out or have knowledge of all alternatives  (^) Will satisfice —choose the first alternative encountered that satisfactorily solves the problem—rather than maximize the outcome of their decision by considering all alternatives and choosing the best.  (^) Influence on decision making  (^) An increased commitment to a previous decision despite evidence that it may have been wrong.

Exhibit 3–7 What is Intuition?

Types of Problems and Decisions

 Structured Problems

 (^) Involve goals that are clear.  (^) Are familiar (have occurred before).  (^) Are easily and completely defined—information about the problem is available and complete.

 Programmed Decision

 (^) A repetitive decision that can be handled by a routine approach.