Chapter 6

DECISION MAKING:
THE ESSENCE OF
THE MANAGER’S
JOB
6.1
 LEARNING OBJECTIVES
• You should be able to:
• Outline the steps in the decision-making process
• Explain why decision-making ability is so important for a
manager
• Describe the rational decision maker
• Contrast the perfectly rational and bounded rationality
approaches to decision making
• Explain the role that intuition plays in the decision-
making process

© 2003 Pearson Education Canada Inc. 6.2

 LEARNING OBJECTIVES (continued)

• You should be able to: (continued)

• Identify the two types of decision problems and the two
types of decisions that are used to solve them
• Differentiate the decision conditions of certainty, risk,
and uncertainty
• Describe the different decision-making styles

© 2003 Pearson Education Canada Inc. 6.3

 DECISION MAKING

•Decisions
• Choices from two or more alternatives
• All organizational members make decisions

•Decision-Making Process
• Step 1 - Identifying a Problem
•problem - Difference between an existing and
a desired state

© 2003 Pearson Education Canada Inc. 6.4

 DECISION MAKING (continued)
•Decision-Making Process (continued)
• Step 2 - Identifying Decision Criteria
• decision criteria - what’s relevant in making a decision

• Step 3 - Allocating Weights to the Criteria

• must weight the criteria to give them appropriate priority in the
decision

• Step 4 - Developing Alternatives

• list the viable alternatives that could resolve the problem without
evaluating them

© 2003 Pearson Education Canada Inc. 6.5

 DECISION MAKING (continued)
• Decision-Making Process (continued)
• Step 5 - Analyzing Alternatives
• each alternative is evaluated against the criteria
• Step 6 - Selecting an Alternative
• choosing the best alternative from among those considered
• Step 7 - Implementing the Decision
• implementation - conveying the decision to those affected by it
• Step 8 - Evaluating Decision Effectiveness
• determine whether the problem is resolved

© 2003 Pearson Education Canada Inc. 6.6

 THE DECISION-MAKING PROCESS Exhibit 6.1

Identifying a My sales
Problem representatives
need new
computers.
6.3
•Price
Identifying
•Manufacturer and model
the Decision
•Warranties
Criteria •Support
•Reliability
•Repair Record
Allocating •Reliability 10
Weights •Service 8
To Criteria •Warranty Period 5
•On-site Service 5
•Price 4
•Case Style 3
© 2003 Pearson Education Canada Inc. 6.7
 Developing
Alternatives Compaq Fujitsu AST NEC Exhibit 6.1
(continued)
Sharp IBM HP TI

Compaq •Reliability Fujitsu

Analyzing •Service
Alternatives NEC •Warranty Period IBM
AST •On-site Service Sharp
•Price
HP TI
•Case Style
Selecting an
Alternative
The Fujitsu
is the best.

Implementing
Decision
Evaluation of
Decision Effectiveness

© 2003 Pearson Education Canada Inc. 6.8

 DECISIONS IN THE MANAGEMENT
FUNCTIONS (Exhibit 6.5)

© 2003 Pearson Education Canada Inc. 6.11

 Rational Decision Making
• Rational Decision Making
– Decisions are consistent, value-maximizing choices
– Managers assumed to make rational decisions
– Assumptions of Rationality - decision maker would:
– be objective and logical
– carefully define a problem
– have a clear and specific goal
– select the alternative that maximizes the likelihood of
achieving the goal
– make decision in the firm’s best economic interests

© 2003 Pearson Education Canada Inc. 6.12

 “Good Enough” Lacks
versus Complete
Optimizing Information

Bounded
Rationality
Cannot Cannot
Assess All Weigh
Alternatives All Criteria

© 2003 Pearson Education Canada Inc. 6.13

 THE MANAGER AS
DECISION MAKER (continued)
• Bounded Rationality
– Simplified decision-making process that is limited
by an individual’s ability to process information
– Accept solutions that are “good enough”
– Escalation of commitment - increased commitment
to a previous decision despite evidence that it may
have been wrong

© 2003 Pearson Education Canada Inc. 6.14

 THE MANAGER AS
DECISION MAKER (continued)
• Role of Intuition
– Intuitive decision making - subconscious
process of making decisions on the basis
of experience and accumulated judgment
• does not rely on a systematic or thorough
analysis of the problem
• generally complements a rational analysis

© 2003 Pearson Education Canada Inc. 6.15

 WHAT ISManagers
INTUITION?
make
decisions based Managers make
Managers make on experience
Decisions based decisions based
on ethical values on feelings and
or culture Experienced- emotions
based decisions
Affect-
Values or
initiated
ethics-based
decisions
decisions
Intuition

Cognitive-
Subconscious
mental based
processing decisions
Managers make
Manager make
decisions based
decisions based
on
on skills,
subconscious
knowledge,
data
© 2003 Pearson Education Canada Inc. or training 6.16
 THE MANAGER AS A
DECISION MAKER (continued)
• Types of Problems and Decisions
– Well-Structured Problems - straightforward, familiar,
and easily defined
– Programmed Decisions - used to address structured
problems
• procedure - series of interrelated sequential steps used to
respond to a structured problem
• rule - explicit statement of what to do or not to do
• policy - guidelines or parameters for decision making

© 2003 Pearson Education Canada Inc. 6.17

 THE MANAGER AS A
DECISION MAKER (continued)
• Types of Problems and Decisions
(continued)
– Poorly-Structured Problems - new, unusual
problems for which information is ambiguous
or incomplete
– Non-programmed Decisions - used to address
poorly- structured problems

© 2003 Pearson Education Canada Inc. 6.18

 TYPES OF PROBLEMS, TYPES OF
DECISIONS, AND LEVEL IN THE
ORGANIZATION (Exhibit 6.8)
Poorly structured Top

Non-programmed
Type of Decisions Level in
Problem Organization

Programmed
Decisions

Well structured Lower

© 2003 Pearson Education Canada Inc. 6.19
 THE MANAGER AS A
DECISION MAKER (continued)
• Decision-Making Conditions
– Certainty - outcome of every alternative
is known
– Uncertainty - not certain about outcomes
and unable to estimate probabilities
– Risk - Risk is the possibility of
something bad happening. Risk involves
undesirable consequences.
© 2003 Pearson Education Canada Inc. 6.20
 THE MANAGER AS A
DECISION MAKER (continued)
• Decision-Making Styles
– Four decision-making styles
1. Directive - fast, efficient, and logical
2. Analytic - careful and able to adapt or cope with new
situations
3. Conceptual - able to find creative solutions

4. Behavioral - seek acceptance of decisions

© 2003 Pearson Education Canada Inc. 6.21

 DECISION-MAKING STYLES
(Exhibit 6.12)
High
Tolerance for Ambiguity

Analytic Conceptual

Directive Behavioural

Low

Rational Intuitiv
Way of Thinking
e
© 2003 Pearson Education Canada Inc. 6.22
 MANAGING WORKFORCE
DIVERSITY
• Diversity in Decision Making
– Advantages - diverse employees:
• provide fresh perspectives
• offer differing interpretations of problem definition
• increase the likelihood of creative and unique solutions
– Disadvantages - diverse employees:
• require more time to reach a decision
• may have problems of communication
• may create a more complex, confusing, and ambiguous
decision-making process
• may have difficulty in reaching agreement

© 2003 Pearson Education Canada Inc. 6.23

 OVERVIEW OF MANAGERIAL
DECISION MAKING (Exhibit 6.13) Decision-Making Approach
• Rationality
• Bounded Rationality
Types of Problems and Decisions • Intuition
• Well-structured
- programmed 2
3 Decision
• Poorly structured
- non-programmed 1 • Choose best
Decision-Making alternative
•Implementing
Process • Evaluating

Decision-Making Conditions 4 5
• Certainty
• Risk Decision Maker Style
• Uncertainty • Directive
• Analytic
• Conceptual
• Behavioural

© 2003 Pearson Education Canada Inc. 6.24

© 2003 Pearson Education Canada Inc.
© 2003 Pearson Education Canada Inc.
 OVERVIEW OF MANAGERIAL
DECISION MAKING (Exhibit 6.13) Decision-Making Approach
• Rationality
• Bounded Rationality
Types of Problems and Decisions • Intuition
• Well-structured
- programmed Decision
• Poorly structured • Choose best
- non-programmed alternative
Decision-Making - maximizing
- good enough
Process • Implementing
• Evaluating
Decision-Making Conditions
• Certainty
• Risk Decision Maker Style
• Uncertainty • Directive
• Analytic
• Conceptual
• Behavioural

© 2003 Pearson Education Canada Inc. 6.24