CHAPTER 3: DECISION MAKING
LEARNING OUTCOMES:
1. Describe the eight steps in the decision-making process
2. Explain the four approaches managers can use when making decisions
3. Classify decisions and decision-making styles
4. Describe how biases affect decision-making
5. Explain how technology can improve decision-making
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1. Describe the eight steps in the decision-making process
- Identify the problem
- Identify decision criteria
- Allocate weights to the criteria
- Develop alternatives
- Analyse alternatives
- Select an alternative
- Implement the alternative
- Evaluate decision effectiveness
2. Explain the four approaches managers can use when making decisions
Appro Rationality Bounded Intuition Evidence-
ach Rationality Based
Managemen
t (EBMgt)
Problem is Limited by Based on the basis Systematically
clear and their ability of experience, based on the
well-defined to process feelings and best available
goal is to be information accumulated evidence
achieved judgement
Fully Limits could Improves
objective be due to no management
and logical time, cost or practises
cognitive
limits
All Satisfice: - Values/ Evidence can
alternatives choosing a ethics be in the form
and good enough - Experience of hard
consenquen solution - Affect- computer
ces are rather than initiated data, opinions
known the best one - Cognitive of experts, or
- Subconscio prior
us experience
Final choice Rational Complements both Four essential
will within the rationality and elements
maximise bounds of bounded-rationality
goal limits
achievemen
t
Best Situations Time- Situations requiring Unique
for with clear constrained quick responses or problems or
goals and or complex when experience is when
sufficient decisions strong innovation is
data needed
EBMgt Essential elements:
- Decision makers expertise and judgement
- External evidence that has been evaluated by the decision maker
- Opinions, preferences and values of those who have a stake in the
decision
- Relevant organisational (internal) factors such as context,
circumstances and organisational members
3. Classify decisions and decision-making styles
- Programmed decision: Routine, repetitive, made using
established rules, policies or procedures
- Know the definition of rule, policy and procedures
- Structured problems
- Example: Reordering monthly office supplies
- Non-programmed decision: Unique or unstructures decisions
requiring custom solutions and judgement
- Unstructured problems
- Example: Responding to a crisis like a product recall
Managers or people respond to problems or situations differently, and this
can be caused by various factors, but narrowed down to their decision-
making styles. These have been classified according to two dimensions: way
of thinking (rational or intuitive) and tolerance for high ambiguity
(low or high). These dimensions result in four styles of decision-making:
- Directive: Quick, clear decisions, minimal information
- Analytic: Careful and data-driven, considers many options
- Conceptual: Focuses on long-term, innovative and values creativity
- Behavioural: People-oriented, based on input and harmony
4. Describe how biases affect decision-making
- Overconfidence: Overestimating your own abilities, knowledge or
decision-making accuracy
- Immediate gratification: Preferring short-term rewards over long-
term benefits, even when it’s irrational
- Anchoring: Relying too heavily on the first piece of information
when making decisions
- Selective perception: Interpreting information based on your
personal expectations or beliefs
- Confirmation: Seeking out and favouring information that confirms
your preexisting views
- Framing: Being influenced by how information is presented rather
than the actual content
- Availability: Making judgements based on information that its
easiest to recall, not necessarily most relevant
- Representation: Judging the likelihood of something based on how
closely it matches the existing stereotype
- Randomness: Believing you can find patterns in random events or
outcomes
- Sunk costs: Continuing a course of action due to previously
invested resources, despite negative outcomes
- Self-serving: Attributing success to personal traits and blaming
failures on external factors
- Hindsight: Believing past events were more predicatable than they
actually were after they’ve occurred
These kinds of biases can be avoided or minimised by:
- Increase awareness of biases
- Training to recognise biases
- Paying attention to how decisions are made
- Asking others to identify weaknesses in decision making
5. Explain how technology can improve decision-making
Dramatic change in the ability of managers to access data and information. A
major force for this change is TECHNOLOGY
Approaches to improve decision-making:
- Big Data: Huge and complex sets of data can be analysed and
processed quickly
- Artificial intelligence (AI): Uses computing power to solve
complex problems
- Machine learning and deep learning
- Analytics