ninth edition

STEPHEN P. ROBBINS MARY COULTER

Chapter Decision-Making:
6 The Essence of
the Manager’s Job

© 2007 Prentice Hall, Inc. PowerPoint Presentation by Charlie Cook

All rights reserved. The University of West Alabama
 LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter.

The Decision-Making Process

• Define decision and decision-making process.
• Describe the eight steps in the decision-making process.

The Manager as Decision Maker

• Discuss the assumptions of rational decision making.
• Describe the concepts of bounded rationality, satisficing,
and escalation of commitment.
• Explain intuitive decision making.
• Contrast programmed and nonprogrammed decisions.

© 2007 Prentice Hall, Inc. All rights reserved. 6–2

 L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.

The Manager as Decision Maker (cont’d)

• Contrast the three decision-making conditions.
• Explain maximax, maximin, and minimax decision choice
approaches.
• Describe the four decision making styles.
• Discuss the twelve decision-making biases managers
may exhibit.
• Describe how manager can deal with the negative effects
of decision errors and biases.
• Explain the managerial decision-making model.

© 2007 Prentice Hall, Inc. All rights reserved. 6–3

 L E A R N I N G O U T L I N E (cont’d)
Follow this Learning Outline as you read and study this chapter.

Decision Making for Today’s World

• Explain how managers can make effective decisions in
today’s world.
• List six characteristics of an effective decision-making
process.
• Describe the five habits of highly reliable organizations.

© 2007 Prentice Hall, Inc. All rights reserved. 6–4

Decision Making
• Decision
 Making a choice from two or more alternatives.
• The Decision-Making Process (8 steps)
 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 decision’s effectiveness.

6–5
Exhibit 6–1
The Decision-Making Process

6–6
Step 1: Identifying the Problem
• 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. A true problem
puts pressure on the manager to take action; a problem
without pressure to act is a problem that can be postponed.
 The manager must have the authority, information, or
resources needed to solve the problem.

6–7
 Step 2: Identifying Decision Criteria
• 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: Allocating Weights to the 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…to give each item accurate priority in
the decision. 6–8
Exhibit 6–2 Criteria and Weights for Computer Replacement Decision

Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3

6–9
Step 4: Developing Alternatives
• Identifying viable alternatives
 Alternatives are listed (without evaluation) that can
resolve the problem.

Step 5: Analyzing Alternatives

• Appraising each alternative’s strengths and
weaknesses.
 An alternative’s appraisal is based on its ability to
resolve the issues identified in steps 2 and 3.

6–10
Exhibit 6–3 Assessed Values of Laptop Computers
Using Decision Criteria

6–11
• Some assessments can be done objectively. For
instance, carry weights is easy to determine by
looking at descriptions online or in computer
magazine. However, the assessment of display
quality is more of personal judgment.
• If one alterative had a score 10 on every
criterion, you wouldn’t need to consider the
weights because that alterative would be the top
alterative.

6–12
Step 6: Selecting an Alternative
• Choosing the best alternative
 The alternative with the highest total weight is
chosen.
 This step to select the best alternative from among
those identified and assessed is critical.
 If criteria weights have been used, the decision
maker simply selects the alternative that received
the highest score in Step 5.

6–13
 • Step 7: Implementing the Alternative
• Putting the chosen alternative into action.
 The selected alternative must be implemented by
effectively communicating the decision to the individuals
who will be affected by it and winning their commitment to
the decision.
 Conveying the decision to and gaining commitment from
those who will carry out the decision.

6–14
Exhibit 6–4 Evaluation of Laptop Alternatives
Against Weighted Criteria

6–15
Step 8: Evaluating the Decision’s
Effectiveness
• The soundness of the decision is judged by its
outcomes.
• This last step in the decision-making process
assesses the result of the decision to determine
whether or not the problem has been resolved.
 How effectively was the problem resolved by
outcomes resulting from the chosen alternatives?
 If the problem was not resolved, what went wrong?

6–16
Exhibit 6–5 Decisions in the Management Functions

6–17
 Making Decisions
• Rationality
 Managerial decision is assumed to be rational –it means
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 organization’s interests rather than in their personal
interests.
6–18
• The assumptions of rationality can be met if
the manager is faced with a simple problem
in which
1)goals are clear and alternatives limited,
2) time pressures are minimal and the cost of
finding and evaluating alternatives is low,
3)the organizational culture supports
innovation and risk taking, and
4)outcomes are concrete and measurable.

6–19
Exhibit 6–6 Assumptions of Rationality

6–20
• In spite of these limits to perfect rationality,
managers are expected to “appear” rational as
they make decisions.
• Because the perfectly rational model of decision
making isn’t realistic, managers tend to operate
under assumptions of bounded rationality,
which is decision-making behavior that is
rational, but limited (bounded) by an individual’s
ability to process information.

6–21
 • Bounded Rationality
 Under bounded rationality, managers make satisficing
decisions, in which they accept solutions that are “good
enough.”
 Will not seek out or have knowledge of all alternatives
 Will satisfice—choose the first alternative encountered that
satisfactorily solves the problem—rather than maximize the
outcome of their decision by considering all alternatives and
choosing the best.
.

© 2007 Prentice Hall, Inc. All rights reserved. 6–22

Influence on decision making
Managers’ decision making may be strongly
influenced by the organization’s culture,
internal politics, power considerations, and
by a phenomenon called escalation of
commitment—an increased commitment to
a previous decision despite evidence that it
may have been wrong.

6–23
 The Role of Intuition
Intuitive decision making.
Managers also regularly use their intuition.
Intuitive decision making is a subconscious
process of making decisions on the basis of
experience and accumulated judgment.
Making decisions on the basis of gut feeling
doesn’t necessarily happen independently of
rational analysis; the two complement each
other.
6–24
 Exhibit 6–7 What is Intuition?

© 2007 Prentice Hall, Inc. All rights reserved. 6–25

 Types of Problems and Decisions
• Managers encounter different types of problems
and use different types of decisions to resolve
them.
• Structured problems are straightforward,
familiar, and easily defined. In dealing with
structured problems, a manager may use a
programmed decision, which is a repetitive
decision that can be handled by a routine
approach.

© 2007 Prentice Hall, Inc. All rights reserved. 6–26

• Managers rely on three types of programmed
decisions:
a)A procedure is a series of interrelated
sequential steps that can be used to respond to
a structured problem.
b)A rule is an explicit statement that tells
managers what they can or cannot do.
c)A policy is a guideline for making decisions.

6–27
• Unstructured problems are problems
that are new or unusual and for which
information is ambiguous or incomplete.
These problems are best handled by a
nonprogrammed decision that is a
unique decision that requires a custom-
made solution.

6–28
• At higher levels in the organizational hierarchy,
managers deal more often with difficult,
unstructured problems and make nonprogrammed
decisions in attempting to resolve these problems
and challenges.
• Lower-level managers handle routine decisions
themselves, using programmed decisions. They
let upper-level managers handle unusual or
difficult decisions.

6–29
Exhibit 6–8 Programmed versus Nonprogrammed Decisions

6–30
Decision-Making Conditions
Certainty is a situation in which a manager can
make accurate decisions because all outcomes
are known. Few managerial decisions are made
under the condition of certainty.
More common is the situation of risk, in which the
decision maker is able to estimate the likelihood of
certain outcomes.
He following example shows how a manager
might make decisions using “expected value,”
considering the conditions of risk.

6–31
Exhibit 6–9 Expected Value for Revenues from
the Addition of One Ski Lift

Expected
Expected × Probability = Value of Each
Event Revenues Alternative
Heavy snowfall $850,000 0.3 = $255,000
Normal snowfall 725,000 0.5 = 362,500
Light snowfall 350,000 0.2 = 70,000
$687,500

6–32
• Uncertainty
 Limited information prevents estimation of outcome
probabilities for alternatives associated with the
problem and may force managers to rely on intuition,
feelings, and “gut feelings”.
 The choice of alternative is influenced by the limited
amount of information available to the decision
maker.
 It’s also influenced by the psychological orientation of
the decision maker.

6–33
• 1) An optimistic manager will follow a
maximax choice, maximizing the maximum
possible payoff.
• 2) A pessimistic manager will pursue a to
mximizing the minimum possible payoff. (See
• 3) The manager who desires to minimize the
maximum regret will select for a minimax
choice.
• 

6–34
Exhibit 6–10 Payoff Matrix

6–35
Exhibit 6–11 Regret Matrix

6–36
Decision-Making Styles
• Dimensions of Decision-Making Styles
 Ways of thinking
 Rational, orderly, and consistent
 Intuitive, creative, and unique

 Tolerance for ambiguity

 Low tolerance: require consistency and order
 High tolerance: multiple thoughts simultaneously

6–37
Exhibit 6–12 Decision-Making Matrix

6–38
 Decision-Making Styles (cont’d)

 The directive style.

• Represents a decision-making style characterized
by low tolerance for ambiguity and a rational way
of thinking.
• These individuals are logical and efficient and
typically make fast decisions that focus on the
short term.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–39

 The analytic style.
• Characterized by high tolerance for ambiguity
combined with a rational way of thinking.
• These individuals prefer complete information
before making a decision, typically carefully
considering many alternatives.
 The conceptual style.
• Tends to be very broad in outlook and typically will
look at many alternatives.
• Tends to focus on the long run and look for
creative solutions.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–40

  The behavioral style
• Reflects an individual who thinks intuitively but
has a low tolerance for uncertainty.
• These decision makers work well with others,
are open to suggestions, and are concerned
about the individuals who work for them.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–41

 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 decisions.
 Behavioral
 Avoid conflict by working well with others and being
receptive to suggestions.

6–42
• In reality, most managers have both a dominant
style and alternate styles, with some managers
relying almost exclusively on their dominant
style and others being more flexible, depending
on the particular situation.

6–43
Decision-Making Biases and Errors
• Managers use different styles and “rules of thumb”
(heuristics) to simply their decision making.
1)Overconfidence bias occurs when decision
makers tend to think that they know more than
they do or hold unrealistically positive views of
themselves and their performance.
2)Immediate gratification bias describes decision
makers who tend to want immediate rewards and
avoid immediate costs.

6–44
3) The anchoring effect describes when decision
makers fixate on initial information as a
starting point and then, once set, fail to
adequately adjust for subsequent information.
4) Selective perception bias occurs when
decision makers selectively organize and
interpret events based on their biased
perceptions.
5) Confirmation bias occurs when decision
makers seek out information that reaffirms
their past choices and discount information
that contradicts their past judgments.

6–45
6) Framing bias occurs when decision makers
select and highlight certain aspects of a situation
while excluding others.
7) Availability bias is seen when decision makers
tend to remember events that are the most recent
and vivid in their memory.
8) Decision makers who show representation bias
assess the likelihood of an event based on how
closely it resembles other events or sets of
events.
9) Randomness bias describes the effect when
decision makers try to create meaning out of
random events.
6–46
10) The sunk costs error is when a decision maker
forgets that current choices cannot correct the past.
Instead of ignoring sunk costs, the decision maker
cannot forget them. In assessing choices, the
individual fixates on past expenditures rather than
on future consequences.
11) Self-serving bias is exhibited by decision makers
who are quick to take credit for their successes and
blame failure on outside factors.
12) Hindsight bias is the tendency for decision
makers to falsely believe, once the outcome is
known, that they would have accurately predicted
the outcome.
6–47
Decisions Making for Today’s World
• Today’s business world revolves around making
decisions, which are often risky ones made with
incomplete or inadequate information and under
intense time pressure. How can managers make
effective decisions under these conditions?
• Understand cultural differences.
• Know when it is time to call it quits.
• Use y to anticipate.

6–48
• an effective decision-making process.
• Build highly reliable organizations (HROs) that
practice five habits:
1.Do not be tricked by your own success.
2.Defer to the experts on the front lines.
3.Let unexpected circumstances provide the
solution.
4.Embrace complexity.
5.Anticipate, but also recognize the limits to your
ability to anticipate.

6–49
 Exhibit 6–13 Common Decision-Making Errors and Biases

© 2007 Prentice Hall, Inc. All rights reserved. 6–50

 Exhibit 6–14 Overview of Managerial Decision Making

© 2007 Prentice Hall, Inc. All rights reserved. 6–51

 Decision Making for Today’s World
• Guidelines for making effective decisions:
 Understand cultural differences.
 Know when it’s time to call it quits.
 Use an effective decision-making process.
• 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.

© 2007 Prentice Hall, Inc. All rights reserved. 6–52

 Characteristics of an Effective Decision-
Making Process
• It focuses on what is important.
• It is logical and consistent.
• It acknowledges both subjective and objective thinking
and blends analytical with intuitive thinking.
• It requires only as much information and analysis as is
necessary to resolve a particular dilemma.
• It encourages and guides the gathering of relevant
information and informed opinion.
• It is straightforward, reliable, easy to use, and flexible.

© 2007 Prentice Hall, Inc. All rights reserved. 6–53