Managers as

Decision Makers
Topic#3

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making
• Decision – Process
Making a choice from two or more alternatives.

How managers make decisions?

• Top-level managers – goals, location of manufacturing
facility, new markets to move into etc.
• Middle & lower-level managers – schedules, quality
problems, pay raises etc.

Principles of Management – Fall 2022 Sana Iqbal

 The Decision-Making Process
Principles of Management – Fall 2022 Sana Iqbal
 Decision Making Process

Situation
Sarah is a sales manager whose representatives need new
laptops because their old ones are outdated and inadequate
for doing their job.

It’s not economical to add memory to the old computers and

it’s the company’s policy to purchase, not lease.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Process
Step 1: Identifying the Problem
• Problem – discrepancy between an existing and desired
state of affairs.
Team is dysfunctional, customers are leaving etc.

Characteristics of Problems
• Not always obvious.
• People confuse problems with symptoms of the problem.
• Problem identification is subjective.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Process
Step 2: Identifying the Decision Criteria
• Decision criteria - factors that are important (relevant) to
resolving the problem.
• Not always explicitly stated.

Sarah has decided to consider

following:
Memory and storage capabilities,
display quality, battery life, warranty,
and carrying weight.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Process
Step 3: Allocating Weights to the Criteria
• Allocate weights to the decision criteria to give them the
correct priority in the decision.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Process
Step 4: Developing
Alternatives
• List possible options that
could resolve the problem.
• Be creative and open
minded.

Principles of Management – Fall 2022 Sana Iqbal

 Assessed Values of Laptop Computers Using
Decision Criteria

Assessed
value given to
each
alternative
Principles of Management – Fall 2022 Sana Iqbal
 Decision Making Process
Step 5: Analyzing Alternatives
• Appraising each alternative’s strengths and weaknesses.
• Evaluate based on decision criteria.

Step 6: Selecting an Alternative

• The alternative with the highest total weight is chosen.

Principles of Management – Fall 2022 Sana Iqbal

 Evaluation of Laptop Alternatives Against
Weighted Criteria

Weighted value of alternatives =

(assessed value of alternative for
each criteria) x (assigned weight to
Principles of Management – Fall 2022 Sana Iqbal criteria)
 Decision Making Process
Step 7: Implementing the Alternatives
• Putting the chosen alternative into action, conveying the
decision to those affected and gaining commitment to it.

• Participative decision making is more affective.

• Reassess the environment.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Process
Step 8: Evaluating Decision Effectiveness
• Evaluating the outcome or result of the decision to see
whether the problem was resolved?
• If the problem was not resolved, what went wrong?

Principles of Management – Fall 2022 Sana Iqbal

 Decisions Managers May Make

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Process

Decisions are not always time-consuming, complex or

evident.

• Managers also make routine decisions everyday.

Principles of Management – Fall 2022 Sana Iqbal

 Class Activity
What is involved with being a good decision maker?

Discuss your experiences making decisions (e.g.,

buying a car etc., choosing classes and professors,
making summer or spring break plans etc.)

• Share a time when you felt you made a good decision.

Apply all the eight steps of decision-making process
on it i.e., how did you make that decision and what
contributed to it being a good decision?

Principles of Management – Fall 2022 Sana Iqbal

 How Managers Make Decisions?
➢Making Decisions: Rationality
Making consistent, logical choices to maximize value.

Assumptions of Rationality
• Managers – rational, fully objective, and logical.
• Clear and specific goal.
• Problem – clear and unambiguous.
• Know all possible alternatives and consequences.
• Decisions are made in the interest of organizations.

Principles of Management – Fall 2022 Sana Iqbal

Principles of Management – Fall 2022 Sana Iqbal
 How Managers Make Decisions?
➢Making Decisions: Bounded Rationality
Managers make decisions rationally but are limited
(bounded) by their ability to process information.
Decision maker cannot possibly seek out or have knowledge
of all alternatives.

• Acquisition of Compaq by HP (Hewlett-Packard) – CEO

of HP Carly Fiorina lost her job.

Principles of Management – Fall 2022 Sana Iqbal

 How Managers Make Decisions?
• Satisfice—choose the first alternative that satisfactorily
solves the problem - good enough.
Finance major want a job of personal financial planner with
minimum salary of 60,000 PKR and within the premises of
Lahore.
But…

• Influenced by ‘escalation of commitment’ – an increased

commitment to a previous decision despite evidence that it
may have been wrong.
Launch of Challenger – space shuttle.
Principles of Management – Fall 2022 Sana Iqbal
 How Managers Make Decisions?
➢Making Decisions: The Role of Intuition
• Making decisions based on experience, feelings, and
accumulated judgment.

• Complements both rational as well as bounded rational

decision making.

Principles of Management – Fall 2022 Sana Iqbal

Principles of Management – Fall 2022 Sana Iqbal
 Richard Branson – optimistic, intuitive, social.

• Followed his guiding principle “Trust Your Instincts" when

deciding to enter the airline business.

• Unveiled new online gaming venture, Virgin Gaming, based on

his hunch that gamers want something new, interactive and fun.

Principles of Management – Fall 2022 Sana Iqbal

 How Managers Make Decisions?
➢Making Decisions: The Role of Evidence Based
Management
• Systematic use of the relevant and best available evidence
to improve management practices.

Doctor’s decision about diagnosis and treatment.

Manager formulating an employee recognition program.

Principles of Management – Fall 2022 Sana Iqbal

 How Managers Make Decisions?
Four elements:
• Decision maker’s expertise and judgement.
• External evidence
• Opinions and preferences of those who have a stake in the
decision.
• Internal factors e.g., circumstances, context etc.

Strength or influence of each element varies with each

decision.

Principles of Management – Fall 2022 Sana Iqbal

 Types of Problems and Decisions
➢Structured Problems and Programmed Decisions
• Clear goal, familiar problem and complete information is
available.
• Standard routine for handling it.

Programmed Decision – a repetitive decision that can be handled

by a routine approach.
• No need for involved decision making.
• Self-evident solution.

Lower-level management.

Principles of Management – Fall 2022 Sana Iqbal

 Types of Problems and Decisions
Three types of programed decisions:
• Procedure – a series of interrelated steps that a manager
can use to respond to a structured problem.

• Rule – explicit statement that limits what a manager or

employee can or cannot do.

• Policy – guideline or general parameter for making a

decision – require interpretation.

Principles of Management – Fall 2022 Sana Iqbal

 Types of Problems and Decisions

Procedure, Rule or Policy????

Customers always comes first and should always be
satisfied.
Managers must approve all refunds over $50.
No credit purchases are refunded for cash.
Follow all steps for completing merchandise return
documentation.
Employee wages shall be competitive within community
standards.

Principles of Management – Fall 2022 Sana Iqbal

 Types of Problems and Decisions
➢Un-Structured Problems and Non-Programmed
Decisions
• Problems that are new or unusual and for which
information is ambiguous or incomplete.

Non-programmed decision - unique, nonrecurring and

custom-made solutions.

Upper-level management.

Principles of Management – Fall 2022 Sana Iqbal

Principles of Management – Fall 2022 Sana Iqbal
 Decision Making Styles
Linear-Nonlinear Thinking Style Profile
How a person approaches decision making is affected by his
thinking style.
Reflects two things;
• Source of information (external vs internal)
Facts & figures vs feelings & intuition.

• How you process the information (linear vs nonlinear way)

Logical & analytical vs creative & insightful.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Styles
Linear-Nonlinear Thinking Style Profile

William D. Perez – Nike’s ex-CEO – linear thinking style.

Phil Knight – Nike co-founder – nonlinear thinking style.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases & Errors
Heuristics
“Rules of thumb” or shortcuts to simplify decision making.
Intuitive guess, common sense etc.
May lead to errors and biases.

• Overconfidence Bias – holding unrealistically positive

views of oneself and one’s performance.

People think that they are more ethical than their colleagues.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases &
Errors
• Immediate Gratification Bias – choosing
alternatives that offer immediate rewards
and to avoid immediate costs.

• Anchoring Effect – fixating on initial

information and ignoring subsequent
information.
e.g., first impressions, ideas, prices etc.

Principles of Management – Fall 2022 Sana Iqbal

Principles of Management – Fall 2022 Sana Iqbal
 Decision Making Biases & Errors
• Selective Perception Bias – selecting and interpreting
events based on the decision maker’s biased perceptions.

• Availability Bias – losing decision-making objectivity by

focusing on events which are most recent and vivid in
memory.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases & Errors
• Confirmation Bias – seeking out information that
reaffirms past choices and discounting contradictory
information.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases & Errors
• Framing Bias – selecting and highlighting certain aspects
of a situation while ignoring other aspects.
Influenced by the way a problem is formulated.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases & Errors
• Representation Bias – assess an event on the basis of how
closely it resembles some other event.
Drawing analogies and seeing identical situations when none
exist.

• Randomness Bias – creating meaning

out of random events.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases & Errors
• Sunk Costs Errors – tendency to honor already spent
resources like time, money etc. in assessing choices.

Principles of Management – Fall 2022 Sana Iqbal

 Decision Making Biases & Errors
• Self-Serving Bias – taking credit for success and blame
failure on outside factors.

• Hindsight Bias – mistakenly believing that an event could

have been predicted once the actual outcome is known
(after-the-fact).
‘knew it all along’

Principles of Management – Fall 2022 Sana Iqbal

Principles of Management – Fall 2022 Sana Iqbal