PART 2

Planning

CHAPTER 4

Managing Decision
Making
 Learning Objectives
After studying this chapter, you should be able to:
1. Define decision making and discuss types of
decisions and decision-making conditions.
2. Discuss rational perspectives on decision
making, including the steps involved.
3. Describe the behavioral aspects of decision
making.
4. Discuss group and team decision making,
including its advantages and disadvantages
and how it can be more effectively managed.

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 4-1a Decision Making Defined (slide 1 of 2)

• Decision making
– The act of choosing one alternative from among a
set of alternatives
• Decision-making process
– Recognizing and defining the nature of a decision
situation, identifying alternatives, choosing the best
alternative, and putting it into practice
• The word “best” implies effectiveness.
– Effective decision making requires that the decision maker
understands the situation driving the decision.

© 2019 Cengage. All rights reserved.

 4-1a Decision Making Defined (slide 2 of 2)

• Managers make decisions about both problems

and opportunities.
• It may take a long time before managers can
know if the right decision was made.

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 4-1b Types of Decisions

• Most decisions fall into one of two categories:

1. Programmed decisions
• A decision that is relatively structured or recurs with some
frequency (or both)
• Example: starting your car in the morning
2. Nonprogrammed decisions
• A decision that is relatively unstructured and occurs much
less often than a programmed decision
• Example: choosing a vacation destination

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FIGURE 4.1 Decision-Making Conditions

© 2019 Cengage. All rights reserved.

 4-1c Decision-Making Conditions (slide 1 of 3)

• Decision Making under Certainty

– State of certainty
• A condition in which the decision maker knows with
reasonable certainty what the alternatives are and what
conditions are associated with each alternative
– Few organizational decisions are made under
conditions of true certainty.

© 2019 Cengage. All rights reserved.

 4-1c Decision-Making Conditions (slide 2 of 3)

• Decision Making under Risk

– State of risk
• A condition in which the availability of each alternative and
its potential payoffs and costs are all associated with
probability estimates
– Decision making under conditions of risk is
accompanied by moderate ambiguity and the
chances of a bad decision.

© 2019 Cengage. All rights reserved.

 4-1c Decision-Making Conditions (slide 3 of 3)

• Decision Making under Uncertainty

– State of uncertainty
• A condition in which the decision maker does not know all
the alternatives, the risks associated with each, or the likely
consequences of each alternative
– To make effective decisions in these circumstances,
managers must acquire as much relevant
information as possible and approach the situation
from a logical and rational perspective.

© 2019 Cengage. All rights reserved.

4-2a The Classical Model of Decision Making

• Classical decision model

– A perspective approach to decision making that tells
managers how they should make decisions; it
assumes that managers are logical and rational and
that their decisions will be in the organization’s best
interests

© 2019 Cengage. All rights reserved.

FIGURE 4.2 The Classical Model of Decision Making

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4-2b Steps in Rational Decision Making

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 4-2b Steps in Rational Decision Making

• Steps in rational decision making

1. Recognize and define the decision situation
2. Identify appropriate alternatives
3. Evaluate each alternative in terms of its feasibility,
satisfactoriness, and consequences
4. Select the best alternative
5. Implement the chosen alternative
6. Follow up and evaluate the results of the chosen
alternative

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FIGURE 4.3 Evaluating Alternatives in the Decision-Making Process

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4-2c Evidence-Based Management (slide 1 of 2)

• Evidence-based management (EBM)

– A commitment to finding and using the best theory
and data available at the time to make decisions
– Rational perspectives on decision making have
recently been reformulated under the concept of
EBM.

© 2019 Cengage. All rights reserved.

4-2c Evidence-Based Management (slide 2 of 2)
• Five Principles of Evidence-Based Management
1. Face the hard facts and build a culture in which people are
encouraged to tell the truth, even if it’s unpleasant.
2. Be committed to “fact-based” decision making—which means
being committed to getting the best evidence and using it to
guide actions.
3. Treat your organization as an unfinished prototype—
encourage experimentation and learning by doing.
4. Look for the risks and drawbacks in what people recommend.
5. Avoid basing decisions on untested but strongly held beliefs,
what you have done in the past, or uncritical “benchmarking” of
what winners do.

© 2019 Cengage. All rights reserved.

 4-3a The Administrative Model (slide 1 of 3)

• Administrative model
– A decision-making model that argues that decision
makers (1) use incomplete and imperfect
information, (2) are constrained by bounded
rationality, and (3) tend to “satisfice” when making
decisions

© 2019 Cengage. All rights reserved.

FIGURE 4.4 The Administrative Model of Decision Making

© 2019 Cengage. All rights reserved.

 4-3a The Administrative Model (slide 2 of 3)

• Bounded rationality
– A concept suggesting that decision makers are
limited by their values and unconscious reflexes,
skills, and habits
• Satisficing
– The tendency to search for alternatives only until one
is found that meets some minimum standard of
sufficiency

© 2019 Cengage. All rights reserved.

 4-3b Political Forces in Decision Making

• Coalition
– An informal alliance of individuals or groups formed
to achieve a common goal
• The common goal is often a preferred decision alternative.
– The impact of coalitions can be either positive or
negative.
– Managers must recognize when to use coalitions,
how to assess whether coalitions are acting in the
organization’s best interests, and how to constrain
their dysfunctional effects.

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4-3c Intuition and Escalation of Commitment

• Intuition
– An innate belief about something without conscious
consideration
• Escalation of commitment
– When a decision maker stays with a decision even
when it appears to be wrong

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4-3d Risk Propensity and Decision Making

• Risk propensity
– The extent to which a decision maker is willing to
gamble when making a decision
• Managers who are willing to take risks are more
likely than their conservative counterparts to
achieve big successes with their decisions; they
are also more likely to incur greater losses.

© 2019 Cengage. All rights reserved.

 4-3e Ethics and Decision Making

• Each component of managerial ethics

(relationships of the firm to its employees, of
employees to the firm, and of the firm to other
economic agents) involves a wide variety of
decisions, all of which are likely to have an
ethical component.

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 4-4 Group and Team
Decision Making in Organizations
• In more and more organizations today,
important decisions are made by groups and
teams rather than by individuals.
• Eileen Gittins, Founder and CEO, Blurb.com,
shares how she believes teams can make better
decisions.
– To watch the interview, visit Fast Company (
https://www.fastcompany.com/3011610/eileen-gittins-
how-can-teams-make-better-decisions
).

© 2019 Cengage. All rights reserved.

 4-4a Forms of Group
and Team Decision Making
• Interacting group or team
– A decision-making group or team in which members
openly discuss, argue about, and agree on the best
alternative
• Delphi group
– A form of group decision making in which a group
arrives at a consensus of expert opinion
• Nominal group
– A structured technique used to generate creative and
innovative alternatives or ideas

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 Table 4.2 Advantages and Disadvantages of Group and Team Decision Making

Advantages Disadvantages

More information and knowledge are The process takes longer than individual
available. decision making, so it is costlier.

More alternatives are likely to be generated. Compromise decisions resulting from

indecisiveness may emerge.

More acceptance of the final decision is One person may dominate the group.
likely.

Enhanced communication of the decision Groupthink may occur.

may result.

Better decisions generally emerge.

© 2019 Cengage. All rights reserved.

 4-4d Managing Group and Team
Decision-Making Processes
Promoting the Effectiveness of Group and Team
Decision Making:

• Be aware of the pros and • Have each group or team

cons of having a group or member critically evaluate all
team make a decision. alternatives.
• Set deadlines for when • As a manager, do not make
decisions must be made. your position known too early.
• Avoid problems with • Assign the role of devil’s
dominance by managing advocate to at least one group
group membership. or team member.
• Hold a follow-up meeting to
recheck the decision.
 • your group will choose an actual example of a
bad business decision, and then, as a group,
you will work through the six-step decision-
making process to reimagine a different
approach that the organization could have
taken.

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