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3ChapterFoundationsof DecisionMaking    Copyright ©2013 Pearson Education   4-1
Learning Objectives• Describe the decision making process.• Explain the three approaches managers can  use to make decisio...
Copyright ©2013 Pearson Education   4-3
How Do Managers Make Decisions?           Copyright ©2013 Pearson Education   4-4
Decision making process8 steps1. Identify problems2. Identify decision criteria (critical success factors)3. Weight the cr...
What Defines a Decision Problem?Problem – A  discrepancy  between an  existing and a  desired state of  affairs.          ...
Factors in the Decision-MakingProcessRelevant decision criteria:•   Price•   Model (two-or four-door)•   Size•   Manufactu...
Weighing Criteria and AnalyzingAlternativesTo weigh criteria:  1. Give the most important criterion a     weight of 10.  2...
Weighing Criteria and AnalyzingAlternatives (cont.)             Copyright ©2013 Pearson Education   4-9
Weighing Criteria and AnalyzingAlternatives (cont.)             Copyright ©2013 Pearson Education   4-10
Determining the Best Choice            Copyright ©2013 Pearson Education   4-11
Implementing Decisions• Putting a decision into  action; includes conveying  the decision to the persons  who will be affe...
The Last Step in the Decision Process The last step in the decision-making process, managers appraise the result of the de...
Common Errors in the DecisionMaking Process            Copyright ©2013 Pearson Education   4-14
Common Errors• Overconfidence: when they think they know more than  they do/hold unrealistic positive views of themselves....
Common Errors• Confirmation: decision makers seek out information that  reaffirms their past choices and discount informat...
Common Errors• Randomness: decision makers try to create meaning  out of random events.• Sunk costs: decision makers forge...
Copyright ©2013 Pearson Education   4-18
Copyright ©2013 Pearson Education   4-19
(1) The Rational Model• Rational decision  making – Choices that  are consistent and  maximize value within  specified con...
• Rational Model assumes   – that managers’ decision making will be rational     logical and consistent choices to maximiz...
(2) Bounded Rationality• Bounded rationality – Decisions that are rational  within the limits of a manager’s ability to pr...
(3) Intuition in Decision Making             Copyright ©2013 Pearson Education   4-23
• Intuitive Decision Making  – making decisions on the basis of experience,    feelings and accumulated judgment  – descri...
Copyright ©2013 Pearson Education   4-25
Types of Problems • Structured problem – A straightforward,   familiar, and easily defined problem • Unstructured problem ...
Types of Decisions: ProgrammedProgrammed decisions –Repetitive decisions thatcan be handled using aroutine approach       ...
Types of Decisions: NonprogrammedNonprogrammed decisions – Unique andnonrecurring decisions; require a custom-madesolution...
Problems, Decision Types, andOrganizational Levels             Copyright ©2013 Pearson Education   4-29
Decision-Making Conditions• Risk – A situation where a decision maker  estimates the likelihood of certain outcomes• Certa...
Copyright ©2013 Pearson Education   4-31
How Do Groups Make Decisions?Important decisions are often made by groupswho will be most affected by those decisions:• Co...
Group Decision Making: Benefits• Provides more  information• Generates more  alternatives• Increases acceptance  of a solu...
Group Decision Making: Drawbacks•   Time-consuming•   Infrequent and often inefficient interaction•   Minority domination•...
When Are Groups Most Effective?        Individual                               Group• Faster decision making            •...
Improving Group Decision MakingThree ways of making group decisions morecreative:• Brainstorming• Nominal group technique•...
How Can You Improve Group DecisionMaking?• Brainstorming   – An idea-generating process that encourages alternatives     w...
Copyright ©2013 Pearson Education   4-38
Contemporary Issues• National culture – Influences the way in which  decisions are made and the degree of risk a  decision...
Creativity in Decision MakingCreativity allows the decision maker to:• Appraise and understand a problem more  fully• “See...
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Topic 3 mp_decision_making

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Topic 3 mp_decision_making

  1. 1. 3ChapterFoundationsof DecisionMaking Copyright ©2013 Pearson Education 4-1
  2. 2. Learning Objectives• Describe the decision making process.• Explain the three approaches managers can use to make decisions.• Describe the types of decisions and decision- making conditions managers face.• Discuss group decision making.• Discuss contemporary issues in managerial decision making. Copyright ©2013 Pearson Education 4-2
  3. 3. Copyright ©2013 Pearson Education 4-3
  4. 4. How Do Managers Make Decisions? Copyright ©2013 Pearson Education 4-4
  5. 5. Decision making process8 steps1. Identify problems2. Identify decision criteria (critical success factors)3. Weight the criteria (set priority)4. Develop alternatives5. Analyze alternatives6. Select alternative7. Implement alternative8. Evaluate decision effectiveness
  6. 6. What Defines a Decision Problem?Problem – A discrepancy between an existing and a desired state of affairs. Copyright ©2013 Pearson Education 4-6
  7. 7. Factors in the Decision-MakingProcessRelevant decision criteria:• Price• Model (two-or four-door)• Size• Manufacturer• Optional equipment• Fuel economy, or• Repair records. Copyright ©2013 Pearson Education 1-7
  8. 8. Weighing Criteria and AnalyzingAlternativesTo weigh criteria: 1. Give the most important criterion a weight of 10. 2. Compare remaining criteria against that standard to indicate their relative degrees of importance. Copyright ©2013 Pearson Education 4-8
  9. 9. Weighing Criteria and AnalyzingAlternatives (cont.) Copyright ©2013 Pearson Education 4-9
  10. 10. Weighing Criteria and AnalyzingAlternatives (cont.) Copyright ©2013 Pearson Education 4-10
  11. 11. Determining the Best Choice Copyright ©2013 Pearson Education 4-11
  12. 12. Implementing Decisions• Putting a decision into action; includes conveying the decision to the persons who will be affected by it and getting their commitment to it. Copyright ©2013 Pearson Education 4-12
  13. 13. The Last Step in the Decision Process The last step in the decision-making process, managers appraise the result of the decision to see whether the problem was resolved. Copyright ©2013 Pearson Education 4-13
  14. 14. Common Errors in the DecisionMaking Process Copyright ©2013 Pearson Education 4-14
  15. 15. Common Errors• Overconfidence: when they think they know more than they do/hold unrealistic positive views of themselves.• Immediate Gratification: decision makers tend to want immediate reward and to avoid immediate costs.• Anchoring: decision makers fixate on initial information as a starting point, and then, once set, fail to adequately adjust for subsequent information.• Selective perception: decision makers selectively organize and interpret events based on their biased perceptions. Copyright ©2013 Pearson Education 4-15
  16. 16. Common Errors• Confirmation: decision makers seek out information that reaffirms their past choices and discount information that contradicts past judgment.• Framing: decision makers select and highlight certain aspects of a situation while excluding others.• Availability: Decision makers tend to remember events that are the most recent and vivid in their memory.• Representation: decision makers assess the likelihood of an event based on how closely it resembles other events. Copyright ©2013 Pearson Education 4-16
  17. 17. Common Errors• Randomness: decision makers try to create meaning out of random events.• Sunk costs: decision makers forget that current choices can’t correct the past.• Self-serving: decision makers who are quick to take credit for their successes and blame failure on outside factors.• Hindsight: decision makers tend to falsely believe that they would have accurately predicted the outcome of an event once that outcome is actually known. Copyright ©2013 Pearson Education 4-17
  18. 18. Copyright ©2013 Pearson Education 4-18
  19. 19. Copyright ©2013 Pearson Education 4-19
  20. 20. (1) The Rational Model• Rational decision making – Choices that are consistent and maximize value within specified constraints IT can enhance an org’s decision-making capabilities. Copyright ©2013 Pearson Education 4-20
  21. 21. • Rational Model assumes – that managers’ decision making will be rational logical and consistent choices to maximize value – The problem faced would be clear and unambiguous – the decision maker would have a clear and specific goal – know all possible alternatives Copyright ©2013 Pearson Education 4-21
  22. 22. (2) Bounded Rationality• Bounded rationality – Decisions that are rational within the limits of a manager’s ability to process information• Satisfice – Accepting solutions that are “good enough”• Escalation of commitment – An increased commitment to a previous decision despite evidence that it may have been a poor one Copyright ©2013 Pearson Education 4-22
  23. 23. (3) Intuition in Decision Making Copyright ©2013 Pearson Education 4-23
  24. 24. • Intuitive Decision Making – making decisions on the basis of experience, feelings and accumulated judgment – described as “unconscious reasoning.” Copyright ©2013 Pearson Education 4-24
  25. 25. Copyright ©2013 Pearson Education 4-25
  26. 26. Types of Problems • Structured problem – A straightforward, familiar, and easily defined problem • Unstructured problem – A problem that is new or unusual for which information is ambiguous or incomplete Copyright ©2013 Pearson Education 4-26
  27. 27. Types of Decisions: ProgrammedProgrammed decisions –Repetitive decisions thatcan be handled using aroutine approach Copyright ©2013 Pearson Education 4-27
  28. 28. Types of Decisions: NonprogrammedNonprogrammed decisions – Unique andnonrecurring decisions; require a custom-madesolution Copyright ©2013 Pearson Education 4-28
  29. 29. Problems, Decision Types, andOrganizational Levels Copyright ©2013 Pearson Education 4-29
  30. 30. Decision-Making Conditions• Risk – A situation where a decision maker estimates the likelihood of certain outcomes• Certainty – A situation where a manager can make accurate decisions because the outcome of every alternative is known• Uncertainty – A situation where a decision maker has neither certainty nor reasonable probability estimates available Copyright ©2013 Pearson Education 4-30
  31. 31. Copyright ©2013 Pearson Education 4-31
  32. 32. How Do Groups Make Decisions?Important decisions are often made by groupswho will be most affected by those decisions:• Committees• Task forces• Review panels• Work teams Copyright ©2013 Pearson Education 4-32
  33. 33. Group Decision Making: Benefits• Provides more information• Generates more alternatives• Increases acceptance of a solution• Increases legitimacy of the decision Copyright ©2013 Pearson Education 4-33
  34. 34. Group Decision Making: Drawbacks• Time-consuming• Infrequent and often inefficient interaction• Minority domination• Groupthink• Ambiguous responsibility Copyright ©2013 Pearson Education 4-34
  35. 35. When Are Groups Most Effective? Individual Group• Faster decision making • More accurate decisions• More efficient use of • More heterogeneous work hours representation • More time-consuming • More creative • More effective in accepting final solution Copyright ©2013 Pearson Education 4-35
  36. 36. Improving Group Decision MakingThree ways of making group decisions morecreative:• Brainstorming• Nominal group technique• Electronic meetings Copyright ©2013 Pearson Education 4-36
  37. 37. How Can You Improve Group DecisionMaking?• Brainstorming – An idea-generating process that encourages alternatives while withholding criticism – Ideas construction -> decision• Nominal Group Technique – group members are physically present but operate independently – Secretly write list of general prob. & solutions• Electronic Meeting - nominal group tech. - participants are linked by computer Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
  38. 38. Copyright ©2013 Pearson Education 4-38
  39. 39. Contemporary Issues• National culture – Influences the way in which decisions are made and the degree of risk a decision maker will take• Creativity – The ability to produce novel and useful ideas Copyright ©2013 Pearson Education 4-39
  40. 40. Creativity in Decision MakingCreativity allows the decision maker to:• Appraise and understand a problem more fully• “See” problems others can’t see• Identify all viable alternatives Copyright ©2013 Pearson Education 4-40

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