Decision Making

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2 6-1
Describe the eight steps in the decision-making
process.
Explain the four ways managers make decisions.
Classify decisions and decision-making conditions.
Describe different decision-making styles and
discuss how biases affect decision making.
Identify effective decision-making techniques.

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 The Decision-Making Process

• Decision -
making a choice
from two or more
alternatives

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 Exhibit 6-1
Decision-Making Process

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 The Decision-Making Process (cont.)

• Step 1: Identify a Problem

– Problem - an obstacle that makes it difficult to achieve a
desired goal or purpose.
– Every decision starts with a problem, a discrepancy
between an existing and a desired condition
– Example - Amanda is a sales manager whose reps need
new laptops

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 The Decision-Making Process (cont.)

• Step 2: Identify Decision Criteria

– Decision criteria are factors that are important (relevant) to
resolving the problem
– Example - Amanda decides that memory and storage
capabilities, display quality, battery life, warranty, and carrying
weight are the relevant criteria in her decision.
• Step 3: Allocate Weights to the Criteria
– If the relevant criteria aren’t equally important, the decision
maker must weight the items in order to give them the correct
priority in the decision.
– The weighted criteria for our example are shown in Exhibit 6-2.
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 Exhibit 6-2
Important Decision Criteria

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 The Decision-Making Process (cont.)

• Step 4: Develop Alternatives

– List viable alternatives that could resolve the problem
– Example - Amanda, identifies eight laptops as possible
choices. (See Exhibit 6-3.)

• Step 5: Analyze Alternatives

– Appraising each alternative’s strengths and weaknesses
– An alternative’s appraisal is based on its ability to resolve
the issues related to the criteria and criteria weight.

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 The Decision-Making Process (cont.)

• Step 6: Select an Alternative

• Choosing the best alternative
– The alternative with the highest total weight is
chosen.
• Step 7: Implement the Alternative
• Putting the chosen alternative into action
- Conveying the decision to and gaining
commitment from those who will carry out the
alternative

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 Exhibit 6-4
Evaluation of Alternatives

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 The Decision-Making Process (cont.)

• Step 8: Evaluate Decision 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?

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 Exhibit 6-5
Decisions Managers May Make

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 Exhibit 6-5
Decisions Managers May Make (cont.)

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 Making Decisions: Rationality

• Rational Decision-Making - describes choices that

are logical and consistent while maximizing value.
• Assumptions of Rationality
– The decision maker would be fully objective and logical
– The problem faced would be clear and unambiguous
– The decision maker would have a clear and specific goal
and know all possible alternatives and consequences and
consistently select the alternative that maximizes achieving
that goal

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Making Decisions: Bounded Rationality

• Bounded Rationality - decision making that’s

rational, but limited (bounded) by an individual’s
ability to process information.
• Satisfice - accepting solutions that are “good
enough.”
• Escalation of commitment - an increased
commitment to a previous decision despite evidence
it may have been wrong

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Making Decisions: The Role of Intuition

• Intuitive decision-
making
– Making decisions on
the basis of
experience, feelings,
and accumulated
judgment.

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 Exhibit 6-6
What Is Intuition?

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 Making Decisions: The Role of Evidence-
Based Management

• Evidence-based management (EBMgt) - the

systematic use of the best available evidence to
improve management practice

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 Structured Problems and Programmed
Decisions

• Structured Problems - straightforward,

familiar, and easily defined problems.
• Programmed decision – a repetitive decision that
can be handled by a routine approach

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 Structured Problems and Programmed
Decisions (cont.)
• Procedure - a series of sequential steps used to
respond to a well-structured problem
• Rule - an explicit statement that tells managers what
can or cannot be done
• Policy - a guideline for making decisions

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 Unstructured Problems and
Nonprogrammed Decisions
• Unstructured Problems - problems that are new or
unusual and for which information is ambiguous or
incomplete.
• Nonprogrammed decisions - unique and
nonrecurring and involve custom made solutions.

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 Exhibit 6-7
Programmed Versus
Nonprogrammed Decisions

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 Decision-Making Conditions

• Certainty - a situation in which a manager can make

accurate decisions because all outcomes are known
• Uncertainty - a situation in which a decision maker
has neither certainty nor reasonable probability
estimates available
• Risk - a situation in which the decision maker is able
to estimate the likelihood of certain outcomes

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 Decision-Making Styles

• Linear Thinking Style - a person’s tendency to use

external data/facts; the habit of processing
information through rational, logical thinking.
• Nonlinear Thinking Style - a person’s preference for
internal sources of information; a method of
processing this information with internal insights,
feelings, and hunches.

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 Exhibit 6-11
Common Decision-Making Biases

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 Decision-Making Biases and Errors

• Heuristics - using “rules of thumb” to simplify decision

making.
• Overconfidence Bias - holding unrealistically positive views
of oneself and one’s performance.
• Immediate Gratification Bias - choosing alternatives that
offer immediate rewards and avoid immediate costs.
• Anchoring Effect - fixating on initial information and
ignoring subsequent information.
• Selective Perception Bias - selecting, organizing and
interpreting events based on the decision maker’s biased
perceptions.

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 Decision-Making Biases and Errors (cont.)

• Confirmation Bias - seeking out information that reaffirms

past choices while discounting contradictory information.
• Framing Bias - selecting and highlighting certain aspects of a
situation 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.

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 Decision-Making Biases and Errors (cont.)

• 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 predicted once the actual outcome is known (after-
the-fact).

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 Exhibit 6-12
Overview of Managerial Decision Making

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 Guidelines for Making Effective
Decisions:
• Understand cultural differences
• Create standards for good decision making
• Know when it’s time to call it quits
• Use an effective decision making process
• Build an organization that can spot the unexpected
and quickly adapt to the changed environment

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 Design Thinking and Decision Making

• Design thinking -
approaching
management problems
as designers approach
design problems.

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