ch08 : fundamental of dision making

7/27/2019 ch08 : fundamental of dision making

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Copyright 2005 by South-Western, a division of Thomson Learning

All rights reserved 1

Chapter 8

Fundamentals of

Decision Making


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Copyright 2005 by South-Western, a division of Thomson LearningAll rights reserved 2

Learning Objectives

State the conditions under which individuals

make decisions.

Describe the characteristics of routine,adaptive, and innovative decisions.

Explain the three basic models of decision

making.


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Decision making includes defining problems,gathering information,

generating alternatives,

and choosing a course of action.


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Conditions Under Which Decisions are Made(adapted from Figure 8.1)

RiskObjective

probabilities

Subjective

probabilities

Certainty Uncertainty


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Framework for Decision Making(adapted from Figure 8.2)

Solution Types

(Alternative Solutions)

Adaptive

Decisions

InnovativeDecisions

Routine

Decisions

Certainty

Uncertainty

Risk

Unusual andambiguous

Known and

well defined

Untried and

ambiguous

Problem

Types


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Models of Decision Making

The rational model prescribes a set of phases

that individuals or teams should follow to

increase the likelihood that their decisions willbe logical and optimal.


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Rational Decision-Making Model(adapted from Figure 8.3)

1

Define and

diagnose

problem

Environmental forces

Environmental forces

7

Follow-up

and control

results

6

Implement

the solution

selected

5

Choose among

alternative

solutions

4

Compare and

evaluate

alternative solutions

3

Search for

alternative

solutions

2

Set

goals


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A Simple Hierarchy of Goals(adapted from Figure 8.4)

CorporationIncrease profits per share of common stock [based on

millions shares by 8% in 2006.

Organizational

goals

Manufacturing

Division

Reduce manufacturing costs by average $0.50 per unit on volume

of 1 million units in 2006. Total savings targeted at $500,000.Divisional

goals

Reduce internal and contract maintenance by $75,000 in 2006without more that 3% equipment downtime

Plant EngineeringDepartment

Departmentalgoals

Reduce overtime for preventive maintenance inspections by

200 labor hours during 2006 without decreasing frequency

of inspections. Total overtime savings estimated at $6,000.

Maintenance

SectionSectional

goals

Purchase and install microcomputer software system for

monitoring bearing wear in 10 machines, reducing overtime

by 600 hours for production employees. 2006 overtime

of $15,000. Purchase price estimated at $6,000.

Mechanical

EngineerIndividual

goals


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Models of Decision Making (cont.)

Thebounded rationality model contends that

the capacity of the human mind for

formulating and solving complex problems issmall, compared with what is needed for

objectively rational behavior.


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Bounded Rationality Model(adapted from Figure 8.5)

Satisficing

Decision Biases

Inadequate Problem Description

Limited Search for Alternatives

Limited Information


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Political Model of Decision Making(adapted from Figure 8.6)

Political decision

making

Multiple Stakeholders with power such as:

Divergence in problem definition

Divergence in goals

Divergence in solutions

Customers Investors Employees

UnionsCompetitors

Suppliers Regulatory Agencies Legislative Bodies

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