The document discusses decision making in organizations. It notes that decisions made by Enron executives resulted in large losses for investors and employees. It also discusses McDonald's decision to offer healthier options in response to customer concerns about nutrition. The document outlines several models of decision making, including rational, intuitive, creative, administrative, political, and ethical models. It also discusses challenges that can negatively impact decision making such as cognitive biases.

3. 1. Achievement of Objectives Give the exact flow of activities & resources
2.Optimum use of resources Resources are used properly
3.Higher efficiency Higher results at same/low costs
4.Innovation New ideas, new products, new methods
5.Motivation Motivates employees to be better
6.Growth & Expansion To the company
7. Facing New Challenges Facilitates decision on solving new problem
8. Encouragement of Initiative • Involves all employees in decision making
• New ideas & suggestion

4.  These decisions may affect the lives of others and change the course
of an organization.
“The decisions made by executives and
consulting firms for Enron ultimately resulted
in a $60 billion loss for investors, thousands of
employees without jobs, and the loss of all
employee retirement funds.”

5. Decision
Making
1. Nature of
Decision Making
2. Rational
Perspectives
3. Behavioral
Aspects of
Decision Making
4. Challenges in
Decision
Making

7. Non-programmed
“In 2005, McDonald’s became aware of a need to
respond to growing customer concerns regarding
foods high in fat and calories. But at that time
customer only concern with taste and price. In
response, McDonald’s decided to offer healthier
alternatives, such as substituting apple slices in
Happy Meals for French fries and discontinuing the
use of trans fats.”

8. • Determine overall organization
direction
• Is how objectives are put into action
archive
• It is a day-to-day decisions

9. 1. UNDER CERTAINTY
- Knowing the exact & complete info. of the consequence that will happen
- How they know is from data accessible for him
2. UNDER UNCERTAINTY
- Not aware of risk & outcome
- D. Maker can use MaxiMin (alternatives that maximize the minimum payoff)
or Max-Max criterion (maximizes the maximum payoff)
3. UNDER RISK
- All know alternatives are risky

10. Classical/Rational Model of
Decision Making
 Use rationality to explain
decision making

11. I. Administrative/Bounded Rationality Model of Decision
Making
 It means that the rationality of decision makers is restricted by the actual
information they have, the cognitive biases of their psyches & the limited time they
have to decide.
 Thus, decisions are rational only within the boundaries of the decision maker’s
mental ability, values, perceptions and skills.
 Satisficing means to look for alternate solutions only until a solution that reaches
the minimum criteria

12. II. Intuitive Model of Decision Making
 is a cognitive means of decision making that relies on the decision
maker’s instinct, experience, and knowledge.
 It relies so heavily on prior experience and understanding, it is more
challenging and risky for beginners to make effective decisions.
III. Creative Model of Decision Making
 Is the invention of imaginative new ideas
 Happens in this era of decentralization & strong global competition
where managers are urged to make creative decisions

13. • A problem arises and there is a necessity for a
decision to be made.
1. Problem
identification
• The manager consciously ponders the issue and
collects necessary information.2. Immersion
• The manager ignores the problem, but the brain
works on the problem subconsciously.3. Incubation
• The moment of insight when the manager finds the
solution to the issue, usually when least expected.4. Illumination
• The manager consciously validates the solution’s
practicability and then implements it as a decision.
5.Verification
& Application
Creative Decision Making PROCESS:

14. • Fluency regards the total sum of ideas a manager can
generate. The more fluent a manager, the more creative he
is.
• Flexibility is about how much the ideas differ from one
another. High flexibility is regarded as creative.
• Originality refers to the idea’s uniqueness.

15. 1.
Brainstorming
-suggestion of many
ideas together, to
generate as many
ideas as possible-
2.
Wild
storming
- Adaptation of
brainstorming on
seemingly impossible
idea & project how
this idea can be
made-
3.
Pre-Mortem
- A method of
imagining &
preventing possible
issues that could arise
from a decision
before it is
implemented-

16. IV. Political Model of Decision Making
 Political decision making involves several organizational problems
where power is decentralized
 In this model, decision making is a political process acknowledging
the variety of personal interests and goals in the organizational
environment.
 Managers in the political model perform decision making by dealing
with coalitions, an unofficial alliance of groups within the
organization that seek to achieve a shared goal.These coalitions
bargain and compromise with each other to produce decisions.

17. V. Risk Propensity & Decision Making
 Risk propensity measures the tendency of decision makers to make
risky decisions.
 This concept is an important factor in determining a decision maker’s
risk behavior and underlying motives in decision making.
Managers with low risk
propensity are more cautious and
conservative when making
decisions, and so are likely to avoid
mistakes that result in huge losses
Managers with high risk
propensity are more aggressive
and hasty in their decision making,
relying heavily on intuition to make
decisions that may involve big
investments.

18. VI. Ethics & Decision Making
 Ethical decision making issues emerge when decision alternatives
include conflicting moral or ethical considerations.
 In these cases, managers must be able to thoroughly and sensibly
consider the outcomes and ethical ramifications of an alternative
before implementing it as a decision.

19. 1. Recognize that there is an ethical problem
 This step is the most crucial for a manager as it forces him to admit and
accept that an ethical issue exists.
 It also distinguishes ethical dilemmas from other social issues.
2. Determine the actor
 Addressing the responsible party allows the manager to know how he
can act on the issues.
3. Gather the relevant facts
 Sufficient, correct, and timely information is essential in making ethical
decisions, as it informs the manager on the context of the ethical issue.
4.Test for right-versus-wrong issues
 A manager should test the ethics of his decision alternatives by
answering a set of questions.

20. 5.Test for right-versus-right values.
 Most ethical issues involve two or more conflicting values.Thus, a manager should determine
what these clashing right-vs.-right values are before he makes his decision
6. Apply the ethical standards and perspectives.
 A manager should apply any of the relevant ethical principles to the issue, such as
utilitarian ethics, ethics of care, or Kant’s ethics.
7. Look for a third way.
 Creative managers can go further by developing a third solution to the ethical issue that
creates a win-win situation.
8. Make the decision.
 At some point, a manager needs to make the decision.This may be more difficult than it
sounds as managers facing ethical dilemmas tend to be mentally drained.
9. Revisit and reflect on the decision.
 Once the decision is made, a manager needs to reflect on his choice and learn from the
ethical impact of his decision.

21. 1. Overconfidence
 Overestimate their capability to foresee future events
 Lead to risky behaviour & faulty decision making
 So, always reflect or whether you are being realistic in the judgement
2. Hindsight Bias
 Look back & view events as more predictable than they really are.
 People often think that they already know what would happen, when in reality
they did not.
3. Anchoring
 Tendency to rely too much on one piece of information.
 May result in lost opportunities or faulty decisions.
 So, we must consider several factors & consequence before making a decision.

22. 4. Framing Bias
 The way a situation is presented has a strong influence.
5. Escalation of commitment/The Sunk Costs Fallacy
 When proceed on a failing course of action because they already
invested in it.
 Fear to admit mistake or believe they can recover their losses.
6. Groupthink
 When members of a group put pressure on to conform and reach
consensus.
 Results in increasing the risk of flawed decisions