Making Decisions: Publishing As Prentice Hall

Making Decisions
4
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Copyright © 2014 © Education,
Pearson 2012 PearsonInc.Education,
publishingInc.
as Prentice Hall 8-1
Publishing as Prentice Hall
OBJECTIVES
1. A fundamental understanding of the term decision
2. An understanding of each element of the decision
situation
3. An ability to use the decision-making process
4. An appreciation for the various situations in which
decisions are made
5. An understanding of probability theory and decision
trees as decision-making tools
6. Insights into groups as decision makers
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Fundamentals of Decisions
• Decision - a choice made between two or
more available alternatives
• Types of Decisions
– Programmed decisions - routine and repetitive
– Non-programmed decisions - typically are one-shot
occurrences and usually are less structured
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Fundamentals of Decisions - Responsibility for
Making Organizational Decisions
• Scope of the decision - the proportion of
the total management system that the
decision will affect
– The broader the scope of a decision, the
higher the management level responsible
for the decision
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Fundamentals of Decisions
• Elements of the Decision Situation

– Decision Makers – Some managers are weak decision
makers
– Goals to be Served – organizational objectives
– Relevant Alternatives - those considered feasible for
implementation and for solving an existing problem
– Ordering of Alternatives - ranking alternatives
– Choice of Alternatives - actual choice between
available alternatives
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Decision Making Approaches
• Three (3) approaches:
1.Rational Decision Making Process - systematically

selecting among possible choices that is based on
reason and facts
2. Bounded Rationality Approach - when individuals make

decisions, their rationality is limited time and resources
available to make the decision
3. Intuition Based Approach - Trusting your gut
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Rational Decision Making
• Rational Decision-Making Process is a series of
logical steps that the managers goes through
• The model of the decision-making process is based
on three primary assumptions:
1. Humans are economic beings
2. All alternatives and their possible consequences are
known
3. Decision-makers have some priority system
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Rational Decision Making Model
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• Step 1 - Identifying an Existing Problem
– Problem-solving process
– How problems are presented to managers
• Step 2 - Listing Alternative Solutions
– Generate as many viable solutions as possible
– Paradox of choice – ‘more choice is better’
– Limitations on number of alternatives:
 Authority factors
 Biological factors – genetics, sleep
 Physical factors – e.g. temperature, light.
 Technological factors
 Economic factors - labor costs, interest rates, government
policy, taxes and management.
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• Step 3 - Selecting the Most Beneficial Alternatives:
 Listing, as accurately as possible, the potential effects of each
alternative
 Assigning a probability factor to each of the potential effects
 Keeping organizational goals in mind and comparing each
alternative's expected effects and their respective probabilities
• Step 4 - Implementing the Chosen Alternative
• Step 5 - Gathering Problem-Related Feedback
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Bounded Rationality
• Bounded Rationality - Managers do not always have
access to the resources required to make rational
decisions. Often managers are bounded in terms of time,
computational power, and knowledge when making
decisions
• Satisfice - When the manager makes a decision that is

not optimal but is “good enough”
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Decision Making and Intuition
• Intuition - an individual’s inborn ability
• Decision-Making Heuristics & Biases – Use of

simple rules of thumb, to make decisions.
Decisions are often flawed/bias
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Decision Making Conditions –
Certainty, Risk and Uncertainty
• Certainty Condition - when decision-makers know exactly
what the results of an implemented alternative will be.
Managers have complete knowledge about a decision.
• Uncertainty Conditions - When decision-makers have

absolutely no idea what the results of an implemented
alternative will be. This might be the case if there were
no historical data on which to base a decision.
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Decision Making Conditions –
Certainty, Risk and Uncertainty
• Risk Condition - When the decision-maker has only
enough information to estimate how probable the
outcome of implementing the alternatives will be:
1. Degrees of risk can be associated with decisions

made in the risk situation.
2. The lower the quality of information related to the

outcome of an alternative, the closer the situation is to
the complete uncertainty situation, and the higher the
risk associated with choosing that alternative.
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Decision-Making Tools
• Probability Theory - used in risk situations—
situations in which the decision-maker is not
completely sure of the outcome of an
implemented alternative:
• Decision Trees - a graphic decision-making
tool typically used to evaluate decisions
containing a series of steps possible
consequences, outcomes, resource costs.
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Group Decision Making
• Consensus – agreement by all individuals
involved in making the decision
• Even if not consensus is not achieved, many

are more comfortable with group decision
making
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• Advantages of Using Groups to Make
Decisions
– Advantage: More and better decision alternatives
– Advantage: Group support
– Advantage: Group takes ownership
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• Disadvantages of Using Groups to Make

Decisions
– Disadvantage: Takes longer
– Disadvantage: More costly
– Disadvantage: Could become contaminated
– Disadvantage: conflict /infighting

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Group Decision Making Processes
• Brainstorming - which negative feedback on any
suggested alternative by any group member is
forbidden
• Evaluation: Brainstorming encourages the

expression of many ideas, but tends to waste a lot
of time
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• Nominal Group Technique - method designed to ensure
each group member has an equal chance to participate as
1. Each member writes down his/her idea on the relevant
problem
2. Group members offer verbal responses to the problem
3. All ideas are discussed by the group. More solutions are
generated by the group as a whole.
4. After all discussion is finished a secret ballot is taken to
choose the best alternative
• Evaluation: The nominal group technique offers a structure
for submitting ideas without fear of rejection, but you have
no idea as to why a person voted the way he did.
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• Delphi Technique circulating questionnaires on specific problems,
sharing the results, and then continuing with a new questionnaire
until a consensus is reached
1. A problem is identified
2. Group members are asked for anonymous responses via
questionnaires
3. Responses are compiled and redistributed to group members
4.Individuals are asked to generate new ideas after evaluating
the previous alternatives
Steps 3 and 4 are repeated until a consensus is reached
• Evaluation: The Delphi method offers ideas from group members who
are geographical dispersed and so are unable to illicit responses each
other in the group
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Making Decisions

• Elements of the Decision Situation

1.Rational Decision Making Process - systematically

2. Bounded Rationality Approach - when individuals make

3. Intuition Based Approach - Trusting your gut

• Step 4 - Implementing the Chosen Alternative

• Step 5 - Gathering Problem-Related Feedback

• Satisfice - When the manager makes a decision that is

• Decision-Making Heuristics & Biases – Use of

• Uncertainty Conditions - When decision-makers have

1. Degrees of risk can be associated with decisions

2. The lower the quality of information related to the

• Even if not consensus is not achieved, many

– Advantage: Group support

– Advantage: Group takes ownership

• Disadvantages of Using Groups to Make

– Disadvantage: More costly

– Disadvantage: Could become contaminated

– Disadvantage: conflict /infighting

• Evaluation: Brainstorming encourages the

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