Decision Making

Decision making can be regarded as the

mental processes resulting in the selection of
a course of action among several alternatives.
Every decision making process produces a
final choice. The output can be an action or
an opinion of choice.

It’s an act of choosing the best alternative

from among a set of alternatives or options.
Decision Making

 Decision
 Making a choice from two or more alternatives.
 The selection of a course of action from among alternatives is called
decision-making.
 It refers to rational selection of a course of action. Decision-making is,
however, a step of planning process.
 The act of choosing one alternative from among a set of alternatives.
 Identify the
The Decision Making Problem

Develop Allocates Select

Decision Weight to Alternatives
Criteria Criteria

Implement
Alternatives
Process

Develop Analyze
Alternatives Alternatives
Evaluate
Results
 The Decision Making Process
Step 1: Identify A Problem
 The difference between what is and what it ought to be.
Problem:
A discrepancy between an existing and desired state of affairs.
Characteristics of Problems:
• A problem becomes a problem 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.

Example: I need to decide the best telecommunication service to purchase .

 The Decision Making Process
Step 2: Develop/Identifying Decision Criteria
Criteria that define what’s important or relevant to resolving a problem
Decision criteria are factors that are important (relevant) to resolving the problem such
as:
 Costs that will be incurred (investments required)
 Risks likely to be encountered (chance of failure)
 Outcomes that are desired (growth of the firm)
Example:
Call charge
Network
Sim Cost
Value added Service
Company Goodwill
The Decision Making Process
Step 3: Allocates Weight to 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.
Example:
- Criterion

Weight
Call charge

10
Network

9
 The Decision Making Process
Step 4: Develop Alternatives
Identifying viable alternatives
Alternatives are listed (without evaluation) that can resolve the
problem.
Example:
 Generate a list of possible telecommunication service provider
 Grameen Phone
 BanglaLink
 Robi
 Airtel
 Teletalk
The Decision Making Process
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.
Example: Assessment of telecom service provider alternatives (10 = Highest priority and 1 = Lowest
priority).
Alternative Call Network SIM Cost Value Company
Charge (9) (7) Added Goodwill
(10) Service (4)
(5)
GP 6 10 8 10 9
Banglalink 8 9 9 8 8
Robi 9 6 9 7 6
Warid 10 8 8 4 4
Teletalk 10 7 8 6 3
The Decision Making Process
Step 5: Analyze Alternatives(continued…)

 Assessment Criteria X Criteria Weight

Alternative Call Network SIM Cost Value Added Company Total
Charge Service Goodwill
(9) (7)
(10) (5) (4)
GP 6 × 10 10 × 9 8×7 10 × 5 9×4 292/35 =
8.342
Banglalink 8 × 10 9×9 9×7 8×5 8×4 296/35 =
8.457
Robi 9 × 10 6×9 9×7 7×5 6×4 266/35 = 7.60
Airtell 10 × 10 8×9 8×7 4×5 4×4 264/35 =
7.543
Teletalk 10 × 10 7×9 8×7 6×5 3×4 261/35 =
7.457
 The Decision Making Process
Step 6: Select Alternatives
 Choosing the best alternative
 The alternative with the highest total weight is chosen.
Example:
BanglaLink
Step 7: Implement Alternatives
 Putting the chosen alternative into action
 Conveying the decision to and gaining commitment from those who will carry out the
alternative
Example:
Buy Banglalink SIM
 The Decision Making Process
Step 8: Evaluate Result/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 evaluation shows that the problem still exists, then the manager
needs to assess what went wrong.
 Was the problem incorrectly defined? Were errors made when
evaluating alternatives? Was the right alternative selected but poorly
implemented?
 Evaluating Alternatives in the
Decision-Making Process

Are the alternative’s

Is the alternative Is the alternative Retain for further
Yes Yes consequences Yes
feasible? satisfactory? consideration
affordable?

No No No

Eliminate from Eliminate from Eliminate from

consideration consideration consideration

 Approaches to Decision
Making

 Rationality (Rational Decision Making)

 Managers make logical, 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 alternative that maximizes outcomes in the organization’s interests rather than in their personal
interests.
 Managers Making Decisions
 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.
They accept solutions that are “good enough.”
 Managers Making Decisions
 Bounded Rationality
 Influence on decision making (Most decisions that managers
make don’t fit the assumptions of perfect rationality, so they satisfice.)
 Their decision making is also likely influenced by the organization’s
culture, internal politics, power considerations, and by a phenomenon
called escalation of commitment.
 Escalation of commitment: an increased commitment to a previous
decision despite evidence that it may have been wrong.
 Managers Making Decisions
 Intuition: (Intuitive decision making)
 Making decisions on the basis of
 experience,
 feelings, and
 accumulated judgment
Aspects of Intuition?
 Managers Making Decisions
 Evidence-based Management (EM)
Any decision-making process can be
enhanced through the use of relevant
and reliable evidence or the systematic
use of the best available evidence to
improve management practice.
And that evidence might be hard
computer data, opinions of experts, or
the prior experience of colleagues. In
essence, EBMgt is an attempt to
operationalize rationality.
 Managers Making Decisions

 Essentials of Elements of EM
(1) The decision maker’s expertise and judgment;
(2) External evidence that’s been evaluated by the decision maker;
(3) Opinions, preferences, and values of those who have a stake in
the decision; and
(4) Relevant organizational (internal) factors such as context,
circumstances, and organizational members.
 Managers Making Decisions

 Crowdsourcing
In a decision-making context, the term refers to relying on a network of
people outside the organization’s traditional set of decision makers to
solicit ideas via the internet.

Crowdsourcing can help managers gather insights from customers,

suppliers, or other groups to help make decisions such as what
products to develop, where they should invest, or even who to
promote.
 Types of Problems and
Decisions

 Structured Problems (Straightforward, familiar, and easily defined 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.
 Types of Programmed
 Decisions
Procedure
 A series of sequential (interrelated) steps that a manager 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
 A general guideline for making a decision about a structured problem.
 Policy, Procedure, and Rule
Examples
 Policy
 Accept all customer-returned merchandise.
 Procedure
 Follow all steps for completing merchandise return documentation.
 Rules
 Managers must approve all refunds over $50.00.
 No credit purchases are refunded for cash.
 Types of Problems and
Decisions…
 Unstructured Problems
 Problems that are new or unusual and for which information is ambiguous or
incomplete.
 Problems that will require custom-made solutions.
 Non-programmed Decisions
 Decisions that are unique and non-recurring.
 Decisions that generate unique responses.
 Types of Problems and
Decisions…
Unstructured Top
Non-programmed
Decisions
Type of
Problem Level

Programmed
Decisions

Structured Lower
Programmed Versus Non-programmed
Decisions
Examples: Types of Decision
 Levels of Management & Decision
Structure
Levels of Nature of Nature of
Management Problems Decisions

Nonprogrammed

Unstructured
Decision:
Significant,
nonrecurring, and
nonroutine
(Longer period of time
to make decisions)
Structured
Programmed
Decision:
Nonsignificant,
recurring, and
routine
(Shorter period of
time to make
decisions)
 Decision-Making Conditions

The decision
maker faces
conditions of…

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

 Decision-Making Conditions
 Certainty
 A situation in which a manager can make an accurate decision
because the outcome of every alternative choice is known.
 In a situation involving certainty, people are reasonably sure
about what will happen when they make a decision.
 Example: if it is raining, the person knows the outcome of

each alternative and therefore can choose the best alternative

(take an umbrella).
 Decision-Making Conditions
 Risk
 A situation in which the manager is able to estimate the likelihood
(probability) of outcomes that result from the choice of particular
alternatives.
 In a situation of risk, factual information may exist, it may be
incomplete.
 Example: if the weather forecast has said that there is a 40% chance
of rain the decision maker is operating in a situation of risk.
 Under condition of risk, managers can use expected value analysis to
help arrive at a decision.
 Decision-Making Conditions
 Uncertainty
 Limited information prevents estimation of outcome probabilities for
alternatives associated with the problem and may force managers
psychological orientation to rely on intuition, hunches, and “gut
feelings.”
 Maximax: the optimistic manager’s choice to maximize the maximum possible
payoff
 Maximin: the pessimistic manager’s choice to maximize the minimum possible
payoff
 Minimax: the manager’s choice to minimize the maximum possible regret.
 Decision-Making Styles
 Linear thinking style
 A person’s preference for using external data and facts and processing
this information through rational, logical thinking.

 Nonlinear thinking style

 A person’s preference for internal sources of information (feelings
and intuition) and processing this information with internal insights,
feelings, and hunches
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 oneself and one’s performance.
 Immediate Gratification Bias
 Choosing alternatives that offer immediate rewards and that to avoid
immediate costs.
 Decision-Making Biases and
Errors…
 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.
 Confirmation Bias
 Seeking out information that reaffirms past choices and discounting
contradictory information.
 Decision-Making Biases and
Errors…
 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.
 Decision-Making Biases and
Errors…
 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).
 Cutting–Edge Approaches for Improving
Decision Making

Design Thinking
Approaching management problems as designers approach design
problems. To think like a designer means to consider how an
object or process might be redesigned—sometimes to the point of
being completely redone. And an increasing number of
organizations are beginning to recognize how design thinking can
benefit them.
 Cutting–Edge Approaches for Improving
Decision Making

Big Data and Artificial Intelligence

Big data is a term that refers to huge and complex sets of data.
These data sets are composed of so much information that
traditional data-processing application software is unable to deal
with them.
 Cutting–Edge Approaches for Improving
Decision Making
Machine Learning
Big data has opened the door to widespread use of artificial
intelligence (AI). AI increasingly facilitates machine learning and
deep learning. The former (AI) is a method of data analysis that
automates analytical model building. Machine learning is a branch
of AI based on the idea that systems can learn from data, identify
patterns, and make decisions with little or no human assistance.
 Cutting–Edge Approaches for Improving
Decision Making
Deep Learning
Deep learning is a subset of machine learning. It uses
algorithms to create a hierarchical level of artificial
neural networks that simulate functions of the human
brain. Imitating the human brain, the nodes are
connected like a web. This enables machines to process
data in a nonlinear fashion.
 Cutting–Edge Approaches for Improving
Decision Making
Analytics
Analytics is the use of mathematics, statistics,
predictive modeling, and machine learning to
find meaningful patterns and knowledge in a
data set.
Overview of Managerial Decision Making
1. What were your expectations from
this course?
2. Describe your observations you have
seen by this time regarding your
courses.
3. Explain your learnings in your first
chapter.
4. Draw relationships among functions,
Decision Making for Today’s
World
Guidelines for making effective decisions:
 Understand cultural differences.
 Know when it’s time to call it quits.
 Use an effective decision making process.
 Spot the unexpected and quickly adapt to the changed
environment by building and HRO
 Habits 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.