4

Chapte
r

Foundation
s
of Decision
Making
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Learning Outcomes
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.

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Learning Outcomes (cont.)

Discuss group decision-making.
Discuss contemporary issues in
managerial decision making.

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4.1 Describe the

decision-making
process.

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How Do Managers Make

Decisions?
Decision
making can be viewed as an eight-step
process that involves identifying a problem, selecting
an alternative, and evaluating the decisions
effectiveness.

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Identifying a Decision
Problem

The decision-making process begins with the

identification of a problem
Problem:
a discrepancy between an existing and a desired
state of affairs.
How do managers become aware of such a
discrepancy? They have to compare the current
state of affairs with some standard, which can be
past performance, previously set goals, or the
performance of another unit within the
organization or in another organization.
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Identifying Decision
Criteria
Relevant Factors:
Price
Model
Size
Manufacturer
Options
Repair record

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Weighting Criteria
In many decisionmaking situations, the
criteria are not
equally important, so
its necessary to
allocate weights

1.Most important
criterion assigned a
weight of 10.
2.Other weights
assigned against this
standard.
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Developing Alternatives

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Analyzing Alternatives

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Selecting the Best

Alternative

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Implementing the
Decision
Decision implementation:
putting a decision into action.

The decision may still fail if its not

implemented properly.

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Evaluating the Decision

Appraising the outcome of the
decision:
Was the problem resolved?

The last step in the decision-making

process, managers appraise the result
of the decision to see whether the
problem was resolved. Evaluating the
results of a decision is part of the
managerial control process
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Common Errors

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4.2 Explain the three

approaches
managers can use to
make decisions.

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Three Approaches Used to

Make Decisions: Types of
Decisions

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Rational Model
Rational decision making:
choices that are consistent and valuemaximizing within specified constraints.

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Bounded Rationality
Satisfice
Escalation of
commitment

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Intuitive Decision Making

Intuitive decision making involves making
decisions on the basis of experience, feelings, and
accumulated judgment, which can complement
both rational and bounded rational decision making.
Managers make decisions based on:
Past experiences
Feelings and emotions
Skills, knowledge, and training
Data from the subconscious, and
Ethical values or culture.
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4.3 Describe the types

of decisions and
decision-making
conditions that
managers face.

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Types of Problems
1. Structured problem
2. Unstructured problem
In a structured problem, the goal of the decision
maker is clear, the problem is familiar, and
information about the problem easily defined and
complete. Examples include a customer who
wants to return an online purchase or a TV news
team that has to respond to a fast-breaking
event. These situations are called structured
problems because they align closely with the
assumptions that underlie perfect rationality.
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Types of Decisions
Programmed:
Repetitive decisions that can be
handled using a routine approach.

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Types of Decisions (cont.)

Nonprogrammed:
Repetitive decisions that can be
handled using a routine approach

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Problems, Decision Types,

and Organizational Levels

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Decision-Making
Conditions
Certainty
Risk
Uncertainty

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4.4
Discuss group
decision-making.

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How Do Groups Make

Decisions?
Decisions are often made by groups
representing the people who will be most
affected by those decisions.
Committees
Task forces
Review panels
Work teams
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Advantages of Group
Decision Making

More complete information

Diversity of experiences/perspectives
More alternatives generated
Increased acceptance of solution
Increased legitimacy

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Disadvantages of Group
Decision Making

Time-consuming
Minority domination
Ambiguous responsibility
Pressures to conform

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Groupthink
When a group exerts extensive pressure
on an individual to withhold his or her
different views in order to appear to be
in agreement.
What it does
How it occurs
How to minimize it
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When Are Groups Most

Effective?
Individual
Faster decision
making
More efficient use
of work hours

Group
More accurate
decisions
More creative
More
heterogeneous
representation
Greater acceptance
of final solution

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Improving Group Decision

Making
Make group decisions more
creative by:

1. Brainstorming
2. The nominal group technique
3. Electronic meetings

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4.5 Discuss

contemporary
issues in
managerial decision
making.

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Contemporary Issues
National culture influences the way
decisions are made and the degree of
risk involved.

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Contemporary Issues
Creativity lets the decision maker:
Understand a problem more fully
See problems others cant
Identify all viable alternatives

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Contemporary Issues
Design thinking:
approaching
management
problems as
designers approach
design problems

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Contemporary Issues
Big data
The vast amounts of quantifiable
information that can be analyzed by
highly sophisticated data processing.

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