CHAPTER 2

MAKING DECISIONS
COURSE: PRINCIPLES OF MANAGEMENT
INSTRUCTOR: TAHMINA JAHAN IMRAN
DECISION MAKING PROCESS

• Decision
Making a choice from two or more alternatives.
• Step 1: Identify a Problem
 Problem: A discrepancy between an existing and desired state of affairs.
 Managers also have to be cautious not to confuse problems with symptoms of
the problem.
 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, or bad
advertising?
 DECISION MAKING PROCESS (CONT.)

• Step 2: Identify Decision Criteria

 Decision criteria: Are important or relevant to resolving the
problem
 Every decision maker has criteria guiding his or her decisions
even if they’re not explicitly stated.

• Step 3: Allocate Weights to the Criteria

• If the relevant criteria aren’t equally important, the decision
maker must weight the items in order to give them the correct
priority in the decision.
• 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.
DECISION MAKING PROCESS (CONT.)
• Step 4: Developing Alternatives
 list viable alternatives that could resolve the problem
 The alternatives are only listed, not evaluated just yet.
• Step 5: Analyzing Alternatives
 Once alternatives have been identified, a decision maker must evaluate each one.
 How? By using the criteria established in Step 2
DECISION MAKING PROCESS (CONT.)
• Step 6: Select an Alternative
 The sixth step in the decision-making process is choosing the best alternative or the one that
generated the highest total in Step 5.
 DECISION MAKING PROCESS (CONT.)
• Step 7: Implementing the Alternative
 Put the decision into action by conveying it to those affected and getting their commitment to it.
 We know 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.
• Step 8: Evaluating Decision Effectiveness
 The last step in the decision-making process involves evaluating the outcome or result of the
decision to see whether the problem was resolved.
 If the evaluation shows that the problem still exists, then the manager needs to assess what went
wrong. Was the problem incorrectly defined? Were errors made when evaluating alternatives? Was
the right alternative selected but poorly implemented?
 The answers might lead you to redo an earlier step or might even require starting the whole
process over
DECISIONS MANAGERS MAY MAKE
PERSPECTIVES ON HOW MANAGERS MAKE
DECISIONS
Rationality
• Rational Decision Making: Making logical and consistent choices to maximize value.
• ASSUMPTIONS OF RATIONALITY
 A rational decision maker would be fully objective and logical.
 The problem faced would be clear and unambiguous, and the decision maker would have a
clear and specific goal and know all possible alternatives and consequences.
 Finally, making decisions rationally would consistently lead to selecting the alternative that
maximizes the likelihood of achieving that goal.
 Decisions are made in the best interests of the organization.

These assumptions of rationality aren’t very realistic

PERSPECTIVES ON HOW MANAGERS MAKE
DECISIONS (CONT.)

Bounded Rationality
• Bounded Rationality: Managers make decisions rationally, but are limited
(bounded) by their ability to process information.
• Because they can’t possibly analyze all information on all alternatives, managers
satisfice, rather than maximize.
• That is, they accept solutions that are “good enough.” They’re being rational
within the limits (bounds) of their ability to process information
PERSPECTIVES ON HOW MANAGERS MAKE
DECISIONS (CONT.)
Intuition
• Intuitive decision making: It’s making decisions on the basis of experience, feelings, and
accumulated judgment.
• Intuitive decision making can complement both rational and bounded rational decision making.
• First of all, a manager who has had experience with a similar type of problem or situation often
can act quickly with what appears to be limited information because of that past experience.
• Individuals who experienced intense feelings and emotions when making decisions actually
achieved higher decision-making performance, especially when they understood their feelings
as they were making decisions.

The old belief that managers should ignore emotions when making decisions may not be the best
advice
PERSPECTIVES ON HOW MANAGERS MAKE
DECISIONS (CONT.)
Evidence-Based Management
• Evidence-based management (EBMgt), is the “systematic use of the best
available evidence to improve management practice
• The four essential elements of EBMgt are
1. The decision maker’s expertise and judgment;
2. External evidence that’s been evaluated by the decision maker;
3. Opinions, preferences, and values of those who have a stake in the decision; and
4. Relevant organizational (internal) factors such as context, circumstances, and
organizational members.
PERSPECTIVES ON HOW MANAGERS MAKE
DECISIONS (CONT.)
Crowdsourcing
• Crowdsourcing is relying on a network of people outside the
organization’s traditional set of decision makers to solicit ideas via
internet.
• It can help managers gather insights from customers, suppliers, or other
groups to help make decisions such as what products to develop, where
they should invest, or even who to promote.

See Page 75: Let’s Get Real

TYPES OF DECISIONS

• Structured Problems
 Goals that are clear.
 Are familiar (have occurred before).
 Are easily and completely defined—information about the problem is
available and complete.
• Programmed Decision
 A repetitive decision that can be handled by a routine approach.
TYPES OF DECISIONS (CONT.)

Types of Programmed Decisions

• Procedure: A series of interrelated steps that a manager can use to respond
(applying a policy) to a structured problem.
• Rule: An explicit statement that limits what a manager or employee can or
cannot do.
• Policy: A general guideline for making a decision about a structured problem.
TYPES OF DECISIONS (CONT.)

• Unstructured Problems
 Problems that are new or unusual and for which information is
ambiguous or incomplete.
 Problems that will require custom-made solutions.
• Nonprogrammed Decisions
 Decisions that are unique and nonrecurring.
 Decisions that generate unique responses.
PROGRAMMED VS. NONPROGRAMMED
DECISIONS
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
DECISION-MAKING STYLES (CONT.)
Types of Decision Makers
• 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.
DECISION-MAKING BIASES AND ERRORS
• Heuristics: Shortcuts that managers use to simplify or speed up decision making.
• Overconfidence Bias: Holding unrealistically positive views of one’s self and one’s
performance.
• Immediate Gratification Bias: Choosing alternatives that offer immediate rewards and
that to avoid immediate costs.
• Anchoring Effect: Fixating on initial information and ignoring subsequent information.
• Selective Perception Bias: Selecting organizing and interpreting events based on the
decision maker’s biased perceptions.
• Confirmation Bias: Seeking out information that reaffirms past choices and discounting
contradictory information.
DECISION-MAKING BIASES AND ERRORS
(CONT.)
• Framing Bias: Selecting and highlighting certain aspects of a situation while ignoring
other aspects.
• Availability Bias: Losing decision-making objectivity by focusing on the most recent
events.
• Representation Bias: Drawing analogies and seeing identical situations when none exist.
• Randomness Bias: Creating unfounded meaning out of random events.
• Sunk Costs Errors: Forgetting that current actions cannot influence past events and
relate only to future consequences.
• Self-Serving Bias: Taking quick credit for successes and blaming outside factors for
failures.
• Hindsight Bias: Mistakenly believing that an event could have been predicted once the
actual outcome is known (after-the-fact).
SKILLS EXERCISE

• Developing your creativity skill (page 85), chapter 2

Thank You!