The document outlines the learning outcomes and key concepts around decision making. It discusses the eight step decision making process, including identifying the problem, criteria, alternatives, selecting an alternative, and evaluating outcomes. It also covers types of decisions under different conditions of certainty, risk and uncertainty. Managers' decision making styles and common biases are described. The document provides examples and exhibits to illustrate decision making concepts.

1. DECICION MAKING
BY:-
SHAS
PRODUCTION
Syed Haris 1

2. TEAM SHAS
PRODUCTION
Syed Haris 2

3. Learning Outcomes
Follow this Learning Outline as you read and study this chapter.
6.1 The Decision-Making Process
• Define decision.
• Describe the eight steps in the decision-making process.
6.2 Managers Making Decisions
• Discuss the assumptions of rational decision making.
• Describe the concepts of bounded rationality, satisficing,
and escalation of commitment.
• Explain intuitive decision making.
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4. Learning Outcomes
6.3 Types Of Decisions and Decision-Making Conditions
• Explain the two types of problems and decisions.
• Contrast the three decision-making conditions.
• Explain maximax, maximin, and minimax decision choice
approaches.
6.4 Decision-Making Styles
• Describe two decision-making styles.
• Discuss the twelve decision-making biases.
• Explain the managerial decision-making model.
• Describe decision-making practices in the Arab context.
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5. Learning Outcomes
6.5 Effective Decision Making In Today’s World
• Explain how managers can make effective decisions in
today’s world.
• List the six characteristics of an effective decision-making
process.
• List the five habits of highly reliable organizations.
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6. The Decision-
Making Process
1. Define decision.
2. Describe the eight steps in the decision-making process.
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7. Decision Making
Decision
o Making a choice from two or more alternatives.
The Decision-Making Process
o Identifying a problem and decision criteria and allocating weights to the criteria.
o Developing, analyzing, and selecting an alternative that can resolve the
problem.
o Implementing the selected alternative.
o Evaluating the decision’s effectiveness.
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8. The Situation
• Sarah is a sales manager whose reps need new laptops
because their old ones are outdated and inadequate
for doing their job. To make it simple, assume that it is not
economical to add memory to the old computers and it
is the company’s policy to purchase, not lease.
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9. The Decision-Making
Process
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10. Step 1: Identifying the
Problem
Problem
o A discrepancy between an existing and desired state of affairs.
Characteristics of Problems
o A problem becomes a problem when a manager becomes
aware of it.
o There is pressure to solve the problem.
o The manager must have the authority, information, or resources
needed to solve the problem.
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11. Step 2: Identifying Decision Criteria
Decision criteria are factors that are important
(relevant) to resolving the problem such as:
o Costs that will be incurred (investments required)
o Risks likely to be encountered (chance of failure)
o Outcomes that are desired (growth of the firm)
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12. Step 3: Allocating
Weights to the Criteria
Decision criteria are not of equal importance:
o Assigning a weight to each item places the items in the correct
priority order of their importance in the decision-making process.
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13. Exhibit 6–2 Criteria and Weights for Computer
Replacement Decision
Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3
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14. Alternatives
Identifying viable alternatives
o Alternatives are listed (without evaluation) that can resolve the
problem.
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15. Alternatives
Appraising each alternative’s strengths and
weaknesses
o An alternative’s appraisal is based on its ability to resolve the
issues identified in steps 2 and 3.
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16. Exhibit 6–3 Assessed Values of Laptop
Computers Using Decision Criteria
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17. Step 6: Selecting an
Alternative
Choosing the best alternative
o The alternative with the highest total weight is chosen.
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18. the Alternative
Putting the chosen alternative into action
o Conveying the decision to and gaining commitment from those
who will carry out the decision
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19. Exhibit 6–4 Evaluation of Laptop Alternatives
Against Weighted Criteria
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20. The soundness of the decision is judged by its
outcomes
o How effectively was the problem resolved by outcomes resulting
from the chosen alternatives?
o If the problem was not resolved, what went wrong?
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21. Managers Making
Decisions
1. Discuss the assumptions of rational decision making.
2. Describe the concepts of bounded rationality, satisficing, and
escalation of commitment.
3. Explain intuitive decision making.
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22. Managers Making Decisions
• Decision making is part of all four managerial functions
(next slide). In fact, that is why we say that decision
making is the essence of management.
• And that is why managers ‒ when they plan, organize,
lead, and control ‒ are called decision makers.
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23. Exhibit 6–5 Decisions in the Management Functions
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24. Making Decisions
Rationality
o Managers make consistent, value-maximizing choices with specified constraints.
o 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.
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25. Making Decisions (cont’d)
Bounded Rationality
o Managers make decisions rationally, but are limited (bounded) by their ability to
process information.
o 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.
o Influence on decision making
• Escalation of commitment: an increased commitment to a previous decision
despite evidence that it may have been wrong.
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26. The Role of Intuition
Intuitive decision making
o Making decisions on the basis of experience, feelings, and accumulated
judgment.
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27. Exhibit 6–6 What Is Intuition?
Source: Based on L. A. Burke and M. K. Miller, “Taking the Mystery Out of Intuitive Decision Making,” Academy of Management Executive, October
1999, pp. 91–99.
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28. and Decision-
Making Conditions
1. Explain the two types of problems and decisions.
2. Contrast the three decision-making conditions.
3. Explain maximax, maximin, and minimax decision choice
approaches.
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29. Types of Problems and
Decisions
Structured Problems
o Involve goals that are clear
o Are familiar (have occurred before)
o Are easily and completely defined ‒ information about the problem is available
and complete
Programmed Decision
o A repetitive decision that can be handled by a routine approach.
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30. Types of Programmed
Decisions
Procedure
o A series of interrelated steps that a manager can use to respond (applying a
policy) to a structured problem.
Rule
o An explicit statement that limits what a manager or employee can or cannot do.
Policy
o A general guideline for making a decision about a structured problem.
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31. Policy, Procedure, and Rule
Examples
Policy
o Accept all customer-returned merchandise.
Procedure
o Follow all steps for completing merchandise return documentation.
Rules
o Managers must approve all refunds over $50.00.
o No credit purchases are refunded for cash.
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32. Problems and Decisions
Unstructured Problems
o Problems that are new or unusual and for which information is ambiguous or
incomplete.
o Problems that will require custom-made solutions.
Nonprogrammed Decisions
o Decisions that are unique and nonrecurring.
o Decisions that generate unique responses.
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33. Exhibit 6–7 Programmed Versus Nonprogrammed
Decisions
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34. Decision-Making
Conditions
Certainty
o A situation in which a manager can make an accurate decision because the
outcome of every alternative choice is known.
Risk
o A situation in which the manager is able to estimate the likelihood (probability) of
outcomes that result from the choice of particular alternatives.
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35. Exhibit 6–8 Expected Value for Revenues from the
Addition of One Ski Lift
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36. Decision Making Conditions
Uncertainty
o Limited information prevents estimation of outcome probabilities for alternatives
associated with the problem and may force managers to rely on intuition,
hunches, and “gut feelings”.
• Maximax: the optimistic manager’s choice to maximize the maximum payoff
• Maximin: the pessimistic manager’s choice to maximize the minimum payoff
• Minimax: the manager’s choice to minimize maximum regret
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37. Exhibit 6–9 Payoff Matrix
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38. Exhibit 6–10 Regret Matrix
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39. Decision-Making
Styles
1. Describe two decision-making styles.
2. Discuss the twelve decision-making biases.
3. Explain the managerial decision-making model.
4. Describe decision-making practices in the Arab context.
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40. Decision-Making Styles
Linear thinking style
o A person’s preference for using external data and facts and processing this
information through rational, logical thinking.
Nonlinear thinking style
o A person’s preference for internal sources of information and processing this
information with internal insights, feelings and hunches.
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41. Exhibit 6–11 Common Decision-Making Errors
and Biases
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42. Decision-Making Biases and
Errors
Heuristics
o Using “rules of thumb” to simplify decision making.
Overconfidence Bias
o Holding unrealistically positive views of oneself and one’s performance.
Immediate Gratification Bias
o Choosing alternatives that offer immediate rewards and avoid immediate costs.
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43. Decision-Making Biases and
Errors (cont’d)
Anchoring Effect
o Fixating on initial information and ignoring subsequent information.
Selective Perception Bias
o Selecting, organizing and interpreting events based on the decision maker’s
biased perceptions.
Confirmation Bias
o Seeking out information that reaffirms past choices and discounting
contradictory information.
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44. Decision-Making Biases and
Errors (cont’d)
Framing Bias
o Selecting and highlighting certain aspects of a situation while ignoring other
aspects.
Availability Bias
o Losing decision-making objectivity by focusing on the most recent events.
Representation Bias
o Drawing analogies and seeing identical situations when none exist.
Randomness Bias
o Creating unfounded meaning out of random events.
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45. Decision-Making Biases and
Errors (cont’d)
Sunk Costs Errors
o Forgetting that current actions cannot influence past events and relate only to
future consequences.
Self-Serving Bias
o Taking quick credit for successes and blaming outside factors for failures.
Hindsight Bias
o Mistakenly believing that an event could have been predicted once the actual
outcome is known (after-the-fact).
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46. Exhibit 6–12 Overview of Managerial Decision
Making
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47. Practices Of Decision
Making In The Arab World
The traditional Arab decision-making process has been
impacted by several factors.
• A system of networking and collective decision making
where the leader/manager consults with other group
members to arrive at a decision that has the backing of
the community.
• The concept of Shura is important. It is not restricted to
the political arena; it has its manifestations in different
social institutions, including the family and business
organizations.
• The consultative style seems to be widespread in Arab organizations.
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48. Making In Today’s
World
1. Explain how managers can make effective decisions in today’s
world.
2. List the six characteristics of an effective decision-making
process.
3. List the five habits of highly reliable organizations.
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49. Decision Making for Today’s
World
Guidelines for making effective decisions:
1. Understand cultural differences.
• In some cases, there is no best way to make decisions. The best way may depend
on the values, attitudes, and beliefs that prevail in a specific culture.
2. Know when it’s time to stop.
• Good decision makers are not afraid to change their minds. They do not become
attached to one course of thinking.
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50. Decision Making for Today’s
World (cont’d)
3. Use an effective decision-making process. This process has six characteristics:
• It focuses on what is important.
• It is logical and consistent.
• It acknowledges both subjective and objective thinking and blends analytical with
intuitive thinking.
• It requires only as much information and analysis as is necessary to resolve a
particular dilemma.
• It encourages and guides the gathering of relevant information and informed
opinion.
• It is straightforward, reliable, easy to use, and flexible.
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51. Decision Making for Today’s
World (cont’d)
4. Build an organization that can spot the unexpected and quickly adapt to the
changed environment. Karl Weick calls such organizations highly reliable
organizations (HROs) and says they share five habits:
 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 recognize their limits.
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52. decision Terms to Know
decision-making process
problem
decision criteria
rational decision making
bounded rationality
satisficing
escalation of commitment
intuitive decision making
structured problems
programmed decision
procedure
rule
policy
unstructured problems
nonprogrammed decisions
certainty
risk
uncertainty
directive style
analytic style
conceptual style
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53. behaviTorael srtymle s to Know (cont’d)
heuristics
business performance
management (BPM) software
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54. Syed Haris 54