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Decision Making

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-1
#1: What are the steps in the
decision- making process?
#2: What factors affect how
decisions are made?
#3: How can managers make more
effective decisions?

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-2
Decision
Making a choice from two or more
alternatives
The Decision-Making Process
Identifying a problem and decision criteria
and allocating weights to the criteria
Developing, analyzing, and selecting an
alternative that can resolve the problem
Implementing the selected alternative
Evaluating the decisions
Chapter effectiveness
5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-3
Identify
I need to decide the best
a
franchise to purchase.
Problem

Financial qualifications
Identify Franchisor history
Decision Start-up costs
Criteria Open geographical locations
Franchisor support

Start-up costs .......................................................10


Allocate Franchisor support ................................................7
Weights Financial qualifications .........................................8
to Criteria Open geographical locations ...............................6
Franchisor history ..................................................7

Curves for Women Merle Norman


Develop Second Cup Petland
Alternatives Jani-King Chem-Dry Carpet Cleaning
Liberty Tax Service McDonald s

Curves for Women Merle Norman


Analyze Second Cup Petland
Alternatives Jani-King Chem-Dry Carpet Cleaning
Liberty Tax Service McDonald s

Select Curves for Women Merle Norman


an Second Cup Petland
Alternative Jani-King Chem-Dry Carpet Cleaning
Liberty Tax Service McDonald s

Implement
the Chem-Dry Carpet Cleaning!
Alternative

Chapter 5, Stephen P. Robbins, Mary


Evaluate
Coulter, and Nancy Langton,
Decision Effectiveness Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-4
Problem
A discrepancy between an existing and desired state
of affairs
Characteristics of Problems
A problem becomes a problem when a manager
becomes aware of it
There is pressure to solve the problem
The manager must have the authority, information,
or resources needed to solve the problem

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-5
Decision criteria are factors that are important
(relevant) to resolving the problem:
Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)

Step 3: Allocation of Weights to Criteria


Decision criteria are not of equal importance:
Assigning a weight to each item places the items in the
correct priority order of their importance in the decision-
making process
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-6
Identifying viable alternatives
Alternatives are listed (without
evaluation) that can resolve the
problem
Step 5: Analysis of Alternatives
Appraising each alternatives strengths and weaknesses
An alternatives appraisal is based on its ability to resolve
the issues identified in steps 2 and 3.

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-7
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-8
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education
Canada 5-9
Choosing the best alternative
The alternative with the highest total
weight is chosen

Step 7: Implementation of the Alternative


Putting the chosen alternative into action
Conveying the decision to and gaining commitment from
those who will carry out the decision

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 10
The soundness of the decision is judged by
its outcomes:
How effectively was the problem resolved by
outcomes resulting from the chosen
alternatives?
If the problem was not resolved, what went
wrong?

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 11
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 12
Rationality
Managers make consistent, value-maximizing
choices with specified constraints
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 organizations interests rather than in their
personal interests

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 13
Lead to
The problem is clear and unambiguous.
A single, well-defined goal is to be achieved.
All alternatives and consequences are known. Rational
Preferences are clear. Decision
Preferences are constant and stable. Making
No time or cost constraints exist.
Final choice will have maximize payoff.

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 14
Bounded Rationality
Managers make decisions rationally, but are limited
(bounded) by their ability to process information
Assumes decision makers:
Will not seek out or have knowledge of all alternatives
Will satisfice
Can be influenced by escalation of commitment

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 15
Role of Intuition
Intuitive decision making
Making decisions on the basis of experience, feelings,
and accumulated judgment
One-third of managers and other employees said they
emphasized gut feeling over cognitive problem
solving

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 16
Managers make
decisions based on
their past experiences
Managers make Managers make
decisions based on decisions based on
ethical values or culture feelings or emotions
Experience-based
decisions

Values- or ethics- Affect-initiated


based decisions decisions

Intuition

Subconscious Cognitive-based
mental processing decisions

Managers use data from Managers make


subconscious mind to decisions based on skills,
help them make decisions knowledge, and training

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. 9199.
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 17
Structured Problems
Have clear goals
Are familiar
Are easily and completely defined
Programmed Decision
A repetitive decision that can be handled by a
routine approach

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 18
A Procedure
A series of interrelated steps to respond
to a structured problem
A Rule
An explicit statement that limits what a
manager or employee can or cannot do
A Policy
A general guideline for making a decision
about a structured problem

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 19
Unstructured Problems
Problems are new or unusual; information is
ambiguous or incomplete
Non-programmed Decisions
Decisions are unique and nonrecurring; they require
custom-made solutions

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 20
Certainty
Accurate decisions possible because the outcome of
every alternative is known
Risk
Decision maker estimates the likelihood of
outcomes that result from the choice of particular
alternatives

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 21
Uncertainty
Limited information prevents estimation of outcome
probabilities; may force managers to rely on
intuition, hunches, and gut feelings
Maximax: the optimistic managers choice to maximize
the maximum payoff
Maximin: the pessimistic managers choice to
maximize the minimum payoff
Minimax: the managers choice to minimize his
maximum regret

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 22
Dimensions of Decision-Making Styles
Ways of thinking
Rational, orderly, and consistent
versus
Intuitive, creative, and unique
Tolerance for ambiguity
Low tolerance: require consistency and order
versus
High tolerance: multiple thoughts simultaneously

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 23
High

Analytic Conceptual

For Ambiguity
Tolerance

Directive Behavioural

Low
Way of Thinking

Rational Intuitive
Chapter 5, Stephen P. Robbins, Mary
Source: S.P. Robbins and D.A. DeCenzo, Supervision Today.
Coulter, and Nancy Langton,
2nd ed. (Upper Saddle River, NJ: Prentice Hall, 1998), p. 166.
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 24
Types of Decision Makers
Directive
Use minimal information and consider few alternatives
Analytic
Make careful decisions in unique situations
Conceptual
Maintain a broad outlook and consider many alternatives
in making long-term decisions
Behavioural
Avoid conflict by working well with others and being
receptive to suggestions

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 25
Overconfidence

Hindsight Immediate Gratification

Self-serving Anchoring Effect

Sunk Costs Selective Perception


Decision-Making
Errors and Biases

Randomness Confirmation

Representation Framing

Availability

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 26
Heuristics
Using rules of thumb to simplify decision making
Overconfidence Bias
Holding unrealistically positive views of ones self
and ones performance
Immediate Gratification Bias
Choosing alternatives that offer immediate rewards
and avoid immediate costs

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 27
Anchoring Effect
Fixating on initial information and ignoring later
information
Selective Perception
Selecting, organizing, and interpreting events based
on the decision makers biased perceptions
Confirmation Bias
Seeking out information that reaffirms past choices
and discounting contradictory information

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 28
Framing Bias
Selecting and highlighting certain aspects of a
situation while ignoring other aspects
Availability Bias
Losing decision-making objectivity by focusing on
the most recent events
Representation Bias
Drawing analogies and seeing identical situations
when none exist
Randomness Bias
Creating unfounded meaning out of random events

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 29
Sunk Costs Errors
Forgetting that current actions cannot influence
past events and relate only to future consequences
Self-serving Bias
Taking quick credit for successes and blaming
outside factors for failures
Hindsight Bias
Mistakenly believing that an event could have been
predicted once the actual outcome is known (after-
the-fact)

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 30
Decision-Making Approach
Rationality
Bounded rationality Decision-Making
Intuition Errors and Biases

Types of Problems and Decisions


Well structuredprogrammed
Unstructurednonprogrammed Decision
Choosing best alternative
Decision-Making - maximizing
Process - satisficing
Implementing
Decision-Making Conditions Evaluating
Certainty
Risk
Uncertainty

Decision Makers Style


Directive
Analytic
Conceptual
Behavioural
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 31
Guidelines for making effective decisions:
Know when its time to call it quits
Practice the five whys
Be an effective decision maker
Habits of highly reliable organizations (HROs):
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 anticipate their limits

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 32
Focuses on what is important
Is logical and consistent
Acknowledges both subjective and objective
thinking and blends analytical with intuitive
thinking
Requires only as much information and analysis
as is necessary
Encourages and guides the gathering of
relevant information and informed opinion
Is straightforward, reliable, easy to use, and
flexible
Chapter 5, Stephen P. Robbins, Mary
Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 33
What are the steps in the decision-making
process?
Steps include: identifying a problem and the
decision criteria, allocating weights to those
criteria, developing, analyzing, and selecting an
alternative that can resolve the problem, implement
the alternative and evaluate the decisions
effectiveness.

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 34
What factors affect how decisions are made?
Not all decisions follow the rational decision
making model.
How can managers make more effective
decisions?
Managers need to think broadly and deeply about
issues, and then know when it is time to call it
quits.

Chapter 5, Stephen P. Robbins, Mary


Coulter, and Nancy Langton,
Management, Ninth Canadian Edition
Copyright 2009 Pearson Education 5-
Canada 35