Managing Decision Making and Problem Solving

Learning Objectives
After studying this chapter, you
should be able to:
Define decision making and
discuss types of decisions and
decision-making conditions.
Discuss rational perspectives on
decision making, including the
steps in decision making.
Describe the behavioral nature of
decision making.
92

Chapter Outline
The Nature of Decision
Making
Decision Making Defined
Types of Decisions
Decision-Making Conditions

Rational Perspectives on
Decision Making
The Classical Model of
Decision Making
Steps in Rational Decision
Making

Behavioral Aspects of
Decision Making
The Administrative Model
Political Forces in Decision
Making
Intuition and Escalation of
Commitment
Risk Propensity and Decision
Making
Ethics and Decision Making

93

Decision-making

Decision making
and decisionmaking process.
Are they the same
or different.
Discuss
94

Decision-making

Choosing
Steps
95

Decision Making

The act of

choosing one
alternative from
among a set of
alternatives.

96

 To reach a decision the best

alternative is usually
selected.

Best ?

a)Discuss what is meant Best?

b) Does it mean effective or
efficient?
c)Does it always mean to increase?
d)Are decisions only used to solve
problems?
97

 Best = Effective
An effective decision is one
that maximize or minimize
Managers make decisions
about both problems and
opportunities

98

Decision Making Process

Arrange the Decision-Making Steps
a) Identifying alternatives

b) choosing the best alternative, and

c) The process of recognizing and defining the
nature of a decision situation,
d) putting it into practice

e) Evaluate the alternatives

99

Types of Decisions
Programmed Decisions
A decision that is a fairly structured
decision or recurs
with some frequency or both.
Example: Starting your car in the
morning.

Non-programmed decisions
A decision that is relatively
unstructured
and occurs much less often a
programmed
decision.
Example: Choosing a vacation
destination.
910

Decision-Making Conditions
(contd)
The decision
maker faces
conditions of...

Certainty

Risk

Uncertainty

Level of ambiguity and chances of making a bad decision

Lower

Moderate

Higher

Figure 9.1
911

Decision-Making Conditions
Decision Making Under Certainty
A condition in which the decision maker knows with
reasonable certainty what the alternatives are and what
conditions are associated with each alternative.

Decision Making Under Risk

A condition in which the availability of each alternative and
its potential payoffs and costs are all associated with risks.

Decision Making Under Uncertainty

A condition in which the decision maker does not know all
the alternatives, the risks associated with each, or the
consequences of each alternative.
912

Rational Perspectives on
Decision Making

Rational Perspectives on
Decision Making
The Classical Model of Decision Making
obtain complete
When faced with a

and perfect information

decision situation,

eliminate uncertainty

managers should. . .

evaluate everything
rationally and logically

. . . and end up with

a decision that best
serves the interests
of the organization.

Figure 9.2
914

3. EVALUATE ALTERNATIVES

Feasibl
e

Affordable
consequen
ces

Satisfactory

915

Evaluating Alternatives in the

Decision-Making Process
Is the alternative
feasible?

Yes

Is the alternative
satisfactory?

Yes

Are the alternatives

consequences
affordable?

No

No

No

Eliminate from
consideration

Eliminate from
consideration

Eliminate from
consideration

Yes

Retain for further

consideration

916

Steps in the Rational

Decision-Making Process
Step

Detail

Example

1. Recognizing and
defining the decision
situation

Some stimulus indicates that a

decision must be made. The
stimulus may be positive or
negative.

A plant manager sees that

employee turnover has increased by 5 percent.

2. Identifying alternatives

Both obvious and creative

alternatives are desired. In
general, the more important
the decision, the more alternatives should be considered.

The plant manager can increase wages, increase benefits, or change hiring standards.

3. Evaluating alternatives

Each alternative is evaluated

to determine its feasibility, its
satisfactoriness, and its
consequences.

Increasing benefits may not be

feasible. Increasing wages and
changing hiring standards may
satisfy all conditions.

917

Steps in the Rational

Decision-Making Process (contd)
Step

Detail

Example

4. Selecting the best

alternative

Consider all situational factors,

and choose the alternative that
best fits the managers
situation.

Changing hiring standards will take

an extended period of time to cut
turnover, so increase wages.

5. Implementing the
chosen alternative

The chosen alternative is

implemented into the
organizational system.

The plant manager may need

permission from corporate
headquarters. The human resource
department establishes a new wage
structure.

6. Following up and
evaluating the
results

At some time in the future, the

manager should ascertain the
extent to which the alternative
chosen in step 4 and
implemented in step 5 has
worked.

The plant manager notes that, six

months later, turnover has dropped
to its previous level.

918

Behavioral Aspects of Decision

The Administrative Making
Model of Decision
Making

When faced with a

decision situation

...and end up with a

decision that may or
may not serve the
interests of the
organization.

Use incomplete and

imperfect Information.
Are constrained by
bounded rationality.
Tend to satisfice

managers
actually

919

Behavioral Aspects of
Decision Making (contd)
Bounded Rationality
The concept that decision makers are limited by their values
and unconscious reflexes, skills, and habits.

Satisficing
The tendency to search for alternatives only until one is
found that meets some minimum standard of sufficiency to
resolve the problem.

Coalition
A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a
goal.

920

Behavioral Aspects of
Decision Making (contd)

Intuition

An innate belief about something without conscious

consideration.

Escalation of Commitment
A decision maker is staying with a decision even when it
appears to be wrong.

Risk Propensity
The extent to which a decision maker
is willing to gamble when making
a decision.

921

Behavioral Aspects of
Decision Making (contd)
Ethics and Decision Making
Individual ethics (personal beliefs about right and wrong
behavior) combine with the organizations ethics to create
managerial ethics.
Components of managerial ethics:
Relationships of the firm to employees
Employees to the firm
The firm to other economic agents

922

Behavioral Aspects of Decision

The Administrative Making
Model of Decision Making
use incomplete and
When faced with a
decision situation
managers actually

imperfect information
are constrained by
bounded rationality
tend to satisfice

. . . and end up with a

decision that may or may
not serve the interests
of the organization.

Figure 9.4
923