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BUSINESS
MANAGEMENT
The Decision-making Process

Making Decisions

LEARNING OBJECTIVE
1
Describe the eight steps in the decision-making process.
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The Decision-making Process

Managers at all levels and in all areas of All organizational members make decisions that
organizations make decisions. That is, they affect their jobs and the organization they work
make choices among alternatives. for.
For instance, top-level managers make decisions Decision making is best understood as a process
about their organization’s goals, where to locate rather than just a choice. Even for something as
manufacturing facilities, what new markets to straightforward as deciding where to go for lunch,
move into, or whether to cancel hit TV shows. you do more than just choose burgers or pizza or
hot dogs.
Middle- and lower-level managers make
decisions about production schedules, product Granted, you may not spend a lot of time
quality problems, pay raises, and employee contemplating your lunch decision, but you still
discipline. go through the process when making that
decision. Exhibit 2-1 shows the eight steps in the
Our objective is on how managers make
decision-making process
decisions. But making decisions isn’t something
that just managers do.
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The Decision-making Process

Step 1: Identify a Problem Step 2: Identify Decision Criteria
Every decision starts with a problem, a Once a manager has identified a problem, he or
discrepancy between an existing and a desired she must identify the decision criteria important
condition. or relevant to resolving the problem. Whether
explicitly stated or not, every decision maker has
Managers have to be cautious not to confuse
criteria guiding his or her decisions.
problems with symptoms of the problem. For
instance, is a 5 percent drop in sales a problem?
Or are declining sales merely a symptom of the
real problem, such as poor-quality products, high
prices, bad advertising, or shifting consumer
preferences?

The Decision-making Process

Step 3: Allocate Weights to the Criteria Of course, you could use any number as the
highest weight. The key is assessing the relative
Rarely are the relevant criteria equally important.
importance of the criteria.
So the decision maker needs to weight the items
in order to give them the correct priority in the The weighted criteria for our example are shown
decision. in Exhibit 2-2.
How? A simple way is to give the most important
criterion a weight of 10 and then assign weights
to the rest using that standard.
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The Decision-making Process

Step 4: Develop Alternatives
The fourth step in the decision-making process requires the decision maker to list viable alternatives
that could resolve the problem.
In this step, a decision maker needs to be creative, and the alternatives are only listed—not evaluated
just yet (See Exhibit 2-3.).

The Decision-making Process

Step 5: Analyze Alternatives
Once alternatives have been identified, a decision maker must evaluate each one. How? By using the
criteria established in step 2.
When you multiply each alternative by the assigned weight, you get the weighted alternatives as shown
in Exhibit 2-4. The total score for each alternative, then, is the sum of its weighted criteria.
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The Decision-making Process

Step 6: Select an Alternative Step 8: Evaluate Decision Effectiveness
The sixth step in the decision-making process is The last step in the decision-making process
choosing the best alternative or the one that involves evaluating the outcome or result of the
generated the highest total in step 5. In our decision to see whether the problem was
example (Exhibit 2-4), you would choose the resolved. If the evaluation shows that the
Microsoft Surface Book because it scored higher problem still exists, then the manager needs to
than all other alternatives (249 total). assess what went wrong. Was the problem
incorrectly defined? Were errors made when
evaluating alternatives? Was the right alternative
Step 7: Implement the Alternative selected but poorly implemented?
In step 7, the decision is put into action by
conveying it to those affected and getting their
commitment to it. Research evidence indicates
that if the people who must implement a decision
participate in the process, they’re more likely to
support it than if you just tell them what to do.

Making Decisions

LEARNING OBJECTIVE
2
Explain the five approaches managers can use when making decisions.
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Approaches to Decision Making

Although everyone in an organization makes decisions, decision making is particularly important to
managers. As Exhibit 2-5 shows, it’s part of all four managerial functions. That’s why managers—when
they plan, organize, lead, and control—are called decision makers.

Approaches to Decision Making

The fact that almost everything a manager does It’s the type of decision you almost forget is a
involves making decisions doesn’t mean that decision. And managers also make dozens of
decisions are always time-consuming, complex, these routine decisions every day; for example,
or evident to an outside observer. which employee will work what shift next week,
what information should be included in a report,
Most decisions are routine. For instance, every
or how to resolve a customer’s complaint.
day of the year you make a decision about what
to eat for dinner. It’s no big deal. You’ve made Keep in mind that even though a decision seems
the decision thousands of times before. It’s a easy or has been faced by a manager a number
pretty simple decision and can usually be of times before, it’s still a decision. Let’s look at
handled quickly. five perspectives on how managers make
decisions.
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Approaches to Decision Making

1.Rationality
We assume that managers will use rational
decision making; that is, they’ll make logical and
However, a more realistic approach to describing
consistent choices to maximize value.
how managers make decisions is the concept of
bounded rationality, which says that managers
make decisions rationally but are limited
2.Bounded Rationality
(bounded) by their ability to process information.
Despite the unrealistic assumptions, managers
Because they can’t possibly analyze all
are expected to be rational when making
information on all alternatives, managers
decisions. They understand that “good” decision
satisfice rather than maximize.
makers are supposed to do certain things and
exhibit logical decision-making behaviors as they That is, they accept solutions that are
identify problems, consider alternatives, gather satisfactory and sufficient or “good enough.”
information, and act decisively but prudently. They’re being rational within the limits (bounds)
of their ability to process information.
When they do so, they show others that they’re
competent and that their decisions are the result
of intelligent deliberation.

Approaches to Decision Making

3.Intuition
Managers often use their
intuition to help their decision
making. What is intuitive
decision making? It’s making
decisions on the basis of
experience, feelings, and
accumulated judgment.
Researchers studying
managers’ use of intuitive
decision making have identified
five different aspects of intuition,
which are described in 
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Approaches to Decision Making

4.Evidence-Based Management 5.Crowdsourcing
Any decision-making process can be enhanced refers to relying on a network of people outside
through the use of relevant and reliable the organization’s traditional set of decision
evidence, whether it’s buying a cell phone plan or makers to solicit ideas via the internet.
deciding on a new office location.
Finding innovative solutions to problems is one of
That’s the reasoning behind evidence-based several uses of crowdsourcing in organizations.
management (EBMgt), the systematic use of Crowdsourcing can help managers gather
the best available evidence to improve insights from customers, suppliers, or other
management practice. And that evidence might groups to help make decisions such as what
be hard computer data, opinions of experts, or products to develop, where they should invest, or
the prior experience of colleagues. In essence, even who to promote. Powered by the collective
EBMgt is an attempt to operationalize rationality. experiences and ideas of many, crowdsourcing
can help managers make better-informed
decisions by getting diverse input from sources
outside the typical management hierarchy.

Making Decisions

LEARNING OBJECTIVE
3
Classify decisions.
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Types of Decisions
Some problems are straightforward. The decision For instance, a restaurant server spills a drink on
maker’s goal is clear, the problem is familiar, and a customer’s coat. The customer is upset and the
information about the problem is easily defined manager needs to do something. Because it’s
and complete. not an unusual occurrence, there’s probably
some standardized routine for handling it. For
Examples might include when a customer returns example, the manager offers to have the coat
a purchase to a store, when a supplier is late cleaned at the restaurant’s expense. This is what
with an important delivery, how a news team we call a programmed decision, a repetitive
responds to a fast-breaking event, or how a decision that can be handled by a routine
approach.
college handles a student wanting to drop a
class. Such situations are called structured Because the problem is structured, the manager
problems because they’re straightforward, doesn’t have to go to the trouble and expense of
familiar, and easily defined. going through an involved decision process. The
“develop-the-alternatives” stage of the decision-
making process either doesn’t exist or is given
little attention.
Why? Because once the structured problem is
defined, the solution is usually self-evident or at
least reduced to a few alternatives that are
familiar and have proved successful in the past.

Types of Decisions
A procedure is a series of sequential steps a The third type of programmed decisions is a
manager uses to respond to a structured policy, a guideline for making a decision. In
problem. The only difficulty is identifying the contrast to a rule, a policy establishes general
problem. Once it’s clear, so is the procedure. parameters for the decision maker rather than
specifically stating what should or should not be
done. Policies typically contain an ambiguous
A rule is an explicit statement that tells a term that leaves interpretation up to the decision
manager what can or cannot be done. Rules are maker.
frequently used because they’re simple to follow
Here are some sample policy statements:
and ensure consistency. For example, rules
about lateness and absenteeism permit • The customer always comes first and should
supervisors to make disciplinary decisions rapidly always be satisfied.
and fairly.
• We promote from within, whenever possible.
• Employee wages shall be competitive within
community standards.
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Types of Decisions
Not all the problems managers face can be solved using programmed decisions. Many organizational
situations involve unstructured problems, new or unusual problems for which information is
ambiguous or incomplete.
In unstructured problems, managers must rely on nonprogrammed decision making in order to
develop unique solutions. Nonprogrammed decisions are unique and nonrecurring and involve
custom-made solutions.

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