foundation of decision making


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  • foundation of decision making

    1. 1. Chapter 4 Foundations of Decision Making
    2. 2. Learning Outcomes <ul><ul><ul><li>Describe the steps in the decision-making process </li></ul></ul></ul><ul><ul><ul><li>Identify the assumptions of the rational decision-making model </li></ul></ul></ul><ul><ul><ul><li>Explain the limits to rationality </li></ul></ul></ul><ul><ul><ul><li>Define certainty, risk, and uncertainty as they relate to decision making </li></ul></ul></ul><ul><ul><ul><li>Describe the actions of the bounded-rational decision maker (continued) </li></ul></ul></ul>
    3. 3. Learning Outcomes (continued) <ul><ul><ul><li>Identify the two types of decision problems and the two types of decisions that are used to solve them </li></ul></ul></ul><ul><ul><ul><li>Define heuristics and explain how they affect the decision-making process </li></ul></ul></ul><ul><ul><ul><li>Identify four decision-making styles </li></ul></ul></ul><ul><ul><ul><li>Describe the advantages and disadvantages of group decisions </li></ul></ul></ul><ul><ul><ul><li>Explain three techniques for improving group decision making </li></ul></ul></ul>
    4. 4. Identify Problem The Decision-Making Process Select Alternative Implement Alternative Evaluate Results 1 Develop Alternatives Analyze Alternatives Develop Decision Criteria Allocate Weights to Criteria 2 3 4 5 6 7 8
    5. 5. Step 1: Identify a Problem The difference between what is and what it ought to be
    6. 6. Step 2: Decision Criteria <ul><li>Factors that are relevant in making the decision </li></ul><ul><li>Price </li></ul><ul><li>Interior comfort </li></ul><ul><li>Durability </li></ul><ul><li>Repair record </li></ul><ul><li>Performance </li></ul><ul><li>Handling </li></ul>
    7. 7. <ul><li>Determining the relative priority of each of the criteria </li></ul>Step 3: Allocating Weights
    8. 8. Problem: To purchase a new car 1 Handling 3 Performance 5 Repair record 5 Durability 8 Interior comfort 10 Price Weight Criterion
    9. 9. Step 4: Alternatives Generate a list of possible vehicle manufacturers
    10. 10. <ul><li>Assessing the value of each alternative by making a value judgment of the feature </li></ul>Step 5: Analyzing Alternatives
    11. 11. Concluding Steps in Making a Decision Step 6: Select the “best” Step 7: Implement decision Step 8: Evaluate decision
    12. 12. Assumptions Of Rationality Rational Decision Making Problem is clear and unambiguous Single, well- defined goal is to be achieved All alternatives and consequences are known Preferences are clear Preferences are constant and stable No time or cost constraints exist Final choice will maximize payoff © Prentice Hall, 2002 Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc. FOM 4.12
    13. 13. Creativity and Decision Making <ul><li>Creativity is the ability to produce novel and useful ideas </li></ul><ul><li>Important to decision making as it allows the decision-maker to “see” problems that others can’t </li></ul><ul><li>It helps identify more viable alternatives </li></ul>
    14. 14. Unleashing Creative Potential <ul><li>“Thinking out of the box” </li></ul><ul><li>Using the right side of your brain </li></ul><ul><li>Three-component model of creativity </li></ul><ul><ul><li>Expertise </li></ul></ul><ul><ul><li>Creative-thinking skills </li></ul></ul><ul><ul><li>Intrinsic task motivation </li></ul></ul>
    15. 15. Bounded Rationality <ul><li>Uncertainty </li></ul><ul><li>Risk </li></ul><ul><li>Satisfying </li></ul><ul><li>Focusing on highly visible choices </li></ul>
    16. 16. Errors in Decision-Making Process <ul><li>Heuristics </li></ul><ul><ul><li>Availability </li></ul></ul><ul><ul><li>Representative </li></ul></ul><ul><li>Escalation of commitment </li></ul>
    17. 17. Well-Structured vs. Ill-Structured Problems <ul><li>Straightforward </li></ul><ul><li>Familiar </li></ul><ul><li>Easily-defined </li></ul><ul><li>New or unusual </li></ul><ul><li>Ambiguous information </li></ul><ul><li>Incomplete information </li></ul>
    18. 18. Categories of Decisions <ul><li>Programmed </li></ul><ul><li>Non-programmed </li></ul>
    19. 19. Programmed Decision Procedure Rule Policy
    20. 20. Relationship of Problems, Decisions, and Level Programmed Decisions Non-programmed Decisions Type of Problem Level Ill-Structured Well-Structured Top Lower
    21. 21. Decision-making and Technology <ul><li>Information technology can help support decision-making </li></ul><ul><li>Types of software include </li></ul><ul><ul><li>Expert systems </li></ul></ul><ul><ul><li>Neural networks </li></ul></ul><ul><ul><li>Groupware </li></ul></ul>
    22. 22. Decision-Making Styles Analytical Behavioural Directive Conceptual Rational Intuitive Way of Thinking Low High Tolerance for Ambiguity Source: S. P. Robbins, Supervision Today (Upper Saddle River, NJ: Prentice Hall, 1995), page 111.
    23. 23. Advantages of Group Decision-Making <ul><li>More complete information </li></ul><ul><li>Diversity of experience </li></ul><ul><li>Generation of more alternatives </li></ul><ul><li>Solutions more likely to be accepted by those concerned </li></ul>
    24. 24. Disadvantages of Group Decision-Making <ul><li>Time-consuming </li></ul><ul><li>Domination by a few </li></ul><ul><li>Pressure to conform </li></ul>
    25. 25. When are Groups More Effective <ul><li>When accuracy is important </li></ul><ul><li>When creativity is important </li></ul><ul><li>When buy-in is important </li></ul><ul><li>When size of group is 5-7 people </li></ul>
    26. 26. Ways to Improve Group Decision-Making <ul><li>Brainstorming </li></ul><ul><li>Nominal group technique </li></ul><ul><li>Electronic meetings </li></ul>
    27. 27. Decision-Making and National Culture <ul><li>Differs from one country to another </li></ul><ul><li>Need to recognize what is acceptable </li></ul><ul><li>Managers can expect high payoff if they can accommodate the diversity </li></ul>