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Chapter 6
DECISION MAKING:
THE ESSENCE OFTHE MANAGERS
JOB
6.1 2003 Pearson Education Canada Inc.
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2003 Pearson Education Canada Inc.
LEARNING OBJECTIVESl You should be able to:
Outline the steps in the decision-making process
Explain why decision-making ability is so important fora manager
Describe the rational decision maker
Contrast the perfectly rational and bounded rationalityapproaches to decision making
Explain the role that intuition plays in the decision-
making process
6.2
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2003 Pearson Education Canada Inc.
LEARNING OBJECTIVES
(continued)l You should be able to: (continued)
Identify the two types of decision problems and
the two types of decisions that are used to solvethem
Differentiate the decision conditions of
certainty, risk, and uncertainty
Describe the different decision-making styles
6.3
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2003 Pearson Education Canada Inc.
DECISION MAKING
Decisions
Choices from two or more alternatives
All organizational members make decisions
Decision-Making Process
Step 1 - Identifying a Problem
problem - discrepancy between an existingand a desired state of affairs
6.4
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2003 Pearson Education Canada Inc.
DECISION MAKING (continued)
Decision-Making Process (continued)
Step 2 - Identifying Decision Criteria
decision criteria - whats 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
6.5
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2003 Pearson Education Canada Inc.
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 thoseconsidered
Step 7 - Implementing the Decision
implementation - conveying the decision to those
affected by it and getting their commitment to it
Step 8 - Evaluating Decision Effectiveness
determine whether the problem is resolved
6.6
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2003 Pearson Education Canada Inc.
THE DECISION-MAKING PROCESS
Identifying aProblem
Identifyingthe DecisionCriteria
AllocatingWeightsTo Criteria
PriceManufacturer and modelWarrantiesSupportReliabilityRepair Record
ReliabilityServiceWarranty PeriodOn-site ServicePriceCase Style
1085543
My salesrepresentatives
need newcomputers.
6.3
6.7
Exhibit 6.1
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2003 Pearson Education Canada Inc.
DevelopingAlternatives Fujitsu AST
Sharp IBM HP TI
NEC
AnalyzingAlternatives NEC
AST
HP
Fujitsu
IBM
Sharp
TI
Selecting anAlternative
ImplementingDecision
Evaluation of
Decision Effectiveness
ReliabilityServiceWarranty PeriodOn-site ServicePrice
Case Style
The Fujitsuis the best.
Compaq
Compaq
6.8
Exhibit 6.1
(continued)
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ASSESSED VALUES OF NOTEBOOK COMPUTERALTERNATIVES AGAINST DECISION CRITERIA
(Exhibit 6.3)
6.9 2003 Pearson Education Canada Inc.
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EVALUATION OF LAPTOP COMPUTER
ALTERNATIVES AGAINST CRITERIA AND
WEIGHTS (Exhibit 6.4)
6.10 2003 Pearson Education Canada Inc.
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DECISIONS IN THE MANAGEMENT
FUNCTIONS (Exhibit 6.5)
6.11 2003 Pearson Education Canada Inc.
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2003 Pearson Education Canada Inc.
THE MANAGER AS DECISION
MAKER
Rational Decision MakingDecisions are consistent, value-maximizing choices
within specified constraints
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 ofachieving the goal
make decision in the firms best economic interests
Managerial decision making seldom meets all the tests
6.12 2003 Pearson Education Canada Inc.
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2003 Pearson Education Canada Inc.
Good Enough
versusOptimizing
Lacks
CompleteInformation
CannotAssess AllAlternatives
CannotWeighAll Criteria
BoundedRationality
6.13
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THE MANAGER AS
DECISION MAKER (continued)
Bounded Rationality
Behave rationally within the parameters of a
simplified decision-making process that is limited
by an individuals ability to process information
Accept solutions that are good enough
Escalation of commitment - increased commitment
to a previous decision despite evidence that it mayhave been wrong
6.14 2003 Pearson Education Canada Inc.
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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
6.15 2003 Pearson Education Canada Inc.
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WHAT IS INTUITION?Managers make
decisions based
on experienceManagers make
decisions based
on feelings and
emotions
Managers make
Decisions basedon ethical values
or culture
Managers make
decisions based
on
subconscious
data
Manager make
decisions based
on skills,
knowledge,
or training
Intuition
Affect-
initiated
decisions
Experienced-
based decisions
Values or
ethics-based
decisions
Subconscious
mental
processing
Cognitive-
based
decisions
6.16 2003 Pearson Education Canada Inc.
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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
6.17 2003 Pearson Education Canada Inc.
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THE MANAGER AS A
DECISION MAKER (continued) Types of Problems and Decisions
(continued)
Poorly-Structured Problems - new, unusualproblems for which information is ambiguousor incomplete
Non-programmed Decisions - used to address
poorly- structured problemsfew decisions in the real world are either fully
programmed or non-programmed
6.18 2003 Pearson Education Canada Inc.
TYPES OF PROBLEMS TYPES OF
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TYPES OF PROBLEMS, TYPES OF
DECISIONS, AND LEVEL IN THE
ORGANIZATION (Exhibit 6.8)
Programmed
Decisions
Non-programmedDecisionsLevel in
Organization
Top
LowerWell structured
Poorly structured
Type of
Problem
6.19 2003 Pearson Education Canada Inc.
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THE MANAGER AS A
DECISION MAKER (continued) Decision-Making Conditions
Certainty - outcome of every alternative
is knownRisk - able to estimate the probability of
outcomes stemming from each alternative
Uncertainty - not certain about outcomesand unable to estimate probabilities
6.20 2003 Pearson Education Canada Inc.
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THE MANAGER AS A
DECISION MAKER (continued) Decision-Making Styles
Two dimensions define the approach to decision making
way of thinking - differs from rational to intuitive
tolerance for ambiguity - differs from a need for consistencyand order to the ability to process many thoughtssimultaneously
Define four decision-making styles
Directive - fast, efficient, and logical
Analytic - careful and able to adapt or cope with new situations
Conceptual- able to find creative solutions
Behavioural- seek acceptance of decisions
6.21 2003 Pearson Education Canada Inc.
DECISION MAKING STYLES
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DECISION-MAKING STYLES
(Exhibit 6.12)
Analytic
Directive Behavioural
Rational IntuitiveWay of Thinking
Conceptual
High
Low
Tolerancefor
Ambiguity
6.22 2003 Pearson Education Canada Inc.
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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 ambiguousdecision-making process
may have difficulty in reaching agreement
6.23 2003 Pearson Education Canada Inc.
OVERVIEW OF MANAGERIAL
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OVERVIEW OF MANAGERIAL
DECISION MAKING (Exhibit 6.13)
Decision-Making
Process
Types of Problems and Decisions
Well-structured
- programmed
Poorly structured- non-programmed
Decision-Making Conditions
Certainty Risk
Uncertainty
Decision Maker Style
Directive
Analytic
Conceptual
Behavioural
Decision-Making Approach
Rationality
Bounded Rationality
Intuition
Decision
Choose best
alternative
- maximizing
- good enough
Implementing
Evaluating
6.24 2003 Pearson Education Canada Inc.