robbins9 ppt06

ninth editionninth edition

STEPHEN P. ROBBINSSTEPHEN P. ROBBINS

© 2007 Prentice Hall, Inc. © 2007 Prentice Hall, Inc. All rights reserved.All rights reserved.

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama

MARY COULTERMARY COULTER

Decision-Making: Decision-Making: The Essence of The Essence of the Manager’s Jobthe Manager’s Job

ChapterChapter

66

© 2007 Prentice Hall, Inc. All rights reserved. 6–2

L E A R N I N G O U T L I N E L E A R N I N G O U T L I N E Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.

The Decision-Making ProcessThe Decision-Making Process

• Define decision and decision-making process.Define decision and decision-making process.

• Describe the eight steps in the decision-making process.Describe the eight steps in the decision-making process.

The Manager as Decision MakerThe Manager as Decision Maker

• Discuss the assumptions of rational decision making.Discuss the assumptions of rational decision making.

• Describe the concepts of bounded rationality, satisficing, Describe the concepts of bounded rationality, satisficing, and escalation of commitment.and escalation of commitment.

• Explain intuitive decision making.Explain intuitive decision making.

• Contrast programmed and nonprogrammed decisions.Contrast programmed and nonprogrammed decisions.


L E A R N I N G O U T L I N E (cont’d) L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.

The Manager as Decision Maker (cont’d)The Manager as Decision Maker (cont’d)

• Contrast the three decision-making conditions.Contrast the three decision-making conditions.

• Explain maximax, maximin, and minimax decision choice Explain maximax, maximin, and minimax decision choice approaches.approaches.

• Describe the four decision making styles.Describe the four decision making styles.

• Discuss the twelve decision-making biases managers Discuss the twelve decision-making biases managers may exhibit.may exhibit.

• Describe how manager can deal with the negative effects Describe how manager can deal with the negative effects of decision errors and biases.of decision errors and biases.

• Explain the managerial decision-making model.Explain the managerial decision-making model.


L E A R N I N G O U T L I N E (cont’d) L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.

Decision Making for Today’s WorldDecision Making for Today’s World

• Explain how managers can make effective decisions in Explain how managers can make effective decisions in today’s world.today’s world.

• List six characteristics of an effective decision-making List six characteristics of an effective decision-making process.process.

• Describe the five habits of highly reliable organizations.Describe the five habits of highly reliable organizations.


Decision MakingDecision Making

• DecisionDecision Making a choice from two or more alternatives.Making a choice from two or more alternatives.

• The Decision-Making ProcessThe Decision-Making Process Identifying a problem and decision criteria and Identifying a problem and decision criteria and

allocating weights to the criteria.allocating weights to the criteria.

Developing, analyzing, and selecting an alternative Developing, analyzing, and selecting an alternative that can resolve the problem.that can resolve the problem.

Implementing the selected alternative.Implementing the selected alternative.

Evaluating the decision’s effectiveness.Evaluating the decision’s effectiveness.


Exhibit 6–1Exhibit 6–1The Decision-Making ProcessThe Decision-Making Process


Step 1: Identifying the ProblemStep 1: Identifying the Problem

• ProblemProblem

A discrepancy between an existing and desired state A discrepancy between an existing and desired state of affairs.of affairs.

• Characteristics of ProblemsCharacteristics of Problems

A problem becomes a problem when a manager A problem becomes a problem when a manager becomes aware of it.becomes aware of it.

There is pressure to solve the problem.There is pressure to solve the problem.

The manager must have the authority, information, or The manager must have the authority, information, or resources needed to solve the problem.resources needed to solve the problem.


Step 2: Identifying Decision CriteriaStep 2: Identifying Decision Criteria

• Decision criteria are factors that are important Decision criteria are factors that are important (relevant) to resolving the problem.(relevant) to resolving the problem. Costs that will be incurred (investments required)Costs that will be incurred (investments required)

Risks likely to be encountered (chance of failure)Risks likely to be encountered (chance of failure)

Outcomes that are desired (growth of the firm)Outcomes that are desired (growth of the firm)

Step 3: Allocating Weights to the CriteriaStep 3: Allocating Weights to the Criteria

• Decision criteria are not of equal importance:Decision criteria are not of equal importance: Assigning a weight to each item places the items in Assigning a weight to each item places the items in

the correct priority order of their importance in the the correct priority order of their importance in the decision making process.decision making process.


Exhibit 6–2Exhibit 6–2 Criteria and Weights for Computer Replacement DecisionCriteria and Weights for Computer Replacement Decision

Criterion Weight

Memory and Storage 10

Battery life 8

Carrying Weight 6

Warranty 4

Display Quality 3


Step 4: Developing AlternativesStep 4: Developing Alternatives

• Identifying viable alternativesIdentifying viable alternatives Alternatives are listed (without evaluation) that can Alternatives are listed (without evaluation) that can

resolve the problem.resolve the problem.

Step 5: Analyzing AlternativesStep 5: Analyzing Alternatives

• Appraising each alternative’s strengths and Appraising each alternative’s strengths and weaknessesweaknesses An alternative’s appraisal is based on its ability to An alternative’s appraisal is based on its ability to

resolve the issues identified in steps 2 and 3.resolve the issues identified in steps 2 and 3.


Exhibit 6–3Exhibit 6–3 Assessed Values of Laptop Computers Assessed Values of Laptop Computers Using Decision CriteriaUsing Decision Criteria


Step 6: Selecting an AlternativeStep 6: Selecting an Alternative

• Choosing the best alternativeChoosing the best alternative The alternative with the highest total weight is The alternative with the highest total weight is

chosen.chosen.

Step 7: Implementing the AlternativeStep 7: Implementing the Alternative

• Putting the chosen alternative into action.Putting the chosen alternative into action. Conveying the decision to and gaining commitment Conveying the decision to and gaining commitment

from those who will carry out the decision.from those who will carry out the decision.


Exhibit 6–4Exhibit 6–4 Evaluation of Laptop Alternatives Evaluation of Laptop Alternatives Against Weighted CriteriaAgainst Weighted Criteria


Step 8: Evaluating the Decision’s Step 8: Evaluating the Decision’s EffectivenessEffectiveness

• The soundness of the decision is judged by its The soundness of the decision is judged by its outcomes.outcomes.

How effectively was the problem resolved by How effectively was the problem resolved by outcomes resulting from the chosen alternatives?outcomes resulting from the chosen alternatives?

If the problem was not resolved, what went wrong?If the problem was not resolved, what went wrong?


Exhibit 6–5Exhibit 6–5 Decisions in the Management FunctionsDecisions in the Management Functions


Making DecisionsMaking Decisions

• RationalityRationality Managers make consistent, value-maximizing choices Managers make consistent, value-maximizing choices

with specified constraints.with specified constraints.

Assumptions are that decision makers:Assumptions are that decision makers: Are perfectly rational, fully objective, and logical.Are perfectly rational, fully objective, and logical.

Have carefully defined the problem and identified all viable Have carefully defined the problem and identified all viable alternatives.alternatives.

Have a clear and specific goalHave a clear and specific goal

Will select the alternative that maximizes outcomes in the Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests.organization’s interests rather than in their personal interests.


Exhibit 6–6Exhibit 6–6 Assumptions of RationalityAssumptions of Rationality


Making Decisions (cont’d)Making Decisions (cont’d)

• Bounded RationalityBounded Rationality Managers make decisions rationally, but are limited Managers make decisions rationally, but are limited

(bounded) by their ability to process information.(bounded) by their ability to process information.

Assumptions are that decision makers:Assumptions are that decision makers: Will not seek out or have knowledge of all alternativesWill not seek out or have knowledge of all alternatives

Will Will satisficesatisfice—choose the first alternative encountered that —choose the first alternative encountered that satisfactorily solves the problem—satisfactorily solves the problem—rather than maximize the rather than maximize the outcome of their decision by considering all alternatives and outcome of their decision by considering all alternatives and choosing the best.choosing the best.

Influence on decision makingInfluence on decision making Escalation of commitment: an increased commitment to a Escalation of commitment: an increased commitment to a

previous decision despite evidence that it may have been previous decision despite evidence that it may have been wrong. wrong.


The Role of IntuitionThe Role of Intuition

• Intuitive decision makingIntuitive decision making

Making decisions on the basis of experience, feelings, Making decisions on the basis of experience, feelings, and accumulated judgment. and accumulated judgment.


Exhibit 6–7Exhibit 6–7 What is Intuition?What is Intuition?

Source: Based on L. A. Burke and M. K. Miller, “Taking the Mystery Out of Intuitive Decision Making,” Academy of Management Executive, October 1999, pp. 91–99.


Types of Problems and DecisionsTypes of Problems and Decisions

• Structured ProblemsStructured Problems

Involve goals that clear.Involve goals that clear.

Are familiar (have occurred before).Are familiar (have occurred before).

Are easily and completely definedAre easily and completely defined—infor—information about mation about the problem is available and complete.the problem is available and complete.

• Programmed DecisionProgrammed Decision

A repetitive decision that can be handled by a routine A repetitive decision that can be handled by a routine approach.approach.


Types of Programmed DecisionsTypes of Programmed Decisions

• PolicyPolicy A general guideline for making a decision about a A general guideline for making a decision about a

structured problem.structured problem.

• ProcedureProcedure A series of interrelated steps that a manager can use A series of interrelated steps that a manager can use

to respond (applying a policy) to a structured problem.to respond (applying a policy) to a structured problem.

• RuleRule An explicit statement that limits what a manager or An explicit statement that limits what a manager or

employee can or cannot do.employee can or cannot do.


Policy, Procedure, and Rule ExamplesPolicy, Procedure, and Rule Examples

• PolicyPolicy

Accept all customer-returned merchandise.Accept all customer-returned merchandise.

• ProcedureProcedure

Follow all steps for completing merchandise return Follow all steps for completing merchandise return documentation.documentation.

• RulesRules

Managers must approve all refunds over $50.00.Managers must approve all refunds over $50.00.

No credit purchases are refunded for cash.No credit purchases are refunded for cash.


Problems and Decisions (cont’d)Problems and Decisions (cont’d)

• Unstructured ProblemsUnstructured Problems

Problems that are new or unusual and for which Problems that are new or unusual and for which information is ambiguous or incomplete.information is ambiguous or incomplete.

Problems that will require custom-made solutions.Problems that will require custom-made solutions.

• Nonprogrammed DecisionsNonprogrammed Decisions

Decisions that are unique and nonrecurring.Decisions that are unique and nonrecurring.

Decisions that generate unique responses.Decisions that generate unique responses.


Exhibit 6–8Exhibit 6–8 Programmed versus Nonprogrammed DecisionsProgrammed versus Nonprogrammed Decisions


Decision-Making ConditionsDecision-Making Conditions

• CertaintyCertainty A situation in which a manager can make an accurate A situation in which a manager can make an accurate

decision because the outcome of every alternative decision because the outcome of every alternative choice is known.choice is known.

• RiskRisk A situation in which the manager is able to estimate A situation in which the manager is able to estimate

the likelihood (probability) of outcomes that result the likelihood (probability) of outcomes that result from the choice of particular alternatives.from the choice of particular alternatives.


Exhibit 6–9Exhibit 6–9 Expected Value for Revenues from Expected Value for Revenues from the Addition of One Ski Liftthe Addition of One Ski Lift

ExpectedExpected × Probability = Value of Each

Event Revenues Alternative

Heavy snowfall $850,000 0.3 = $255,000

Normal snowfall 725,000 0.5 = 362,500

Light snowfall 350,000 0.2 = 70,000 $687,500


Decision-Making ConditionsDecision-Making Conditions

• UncertaintyUncertainty

Limited information prevents estimation of outcome Limited information prevents estimation of outcome probabilities for alternatives associated with the probabilities for alternatives associated with the problem and may force managers to rely on intuition, problem and may force managers to rely on intuition, hunches, and “gut feelings”.hunches, and “gut feelings”. Maximax:Maximax: the optimistic manager’s choice to maximize the the optimistic manager’s choice to maximize the

maximum payoffmaximum payoff

Maximin:Maximin: the pessimistic manager’s choice to maximize the the pessimistic manager’s choice to maximize the minimum payoffminimum payoff

Minimax:Minimax: the manager’s choice to minimize maximum regret. the manager’s choice to minimize maximum regret.


Exhibit 6–10Exhibit 6–10 Payoff MatrixPayoff Matrix


Exhibit 6–11Exhibit 6–11 Regret MatrixRegret Matrix


Decision-Making StylesDecision-Making Styles

• Dimensions of Decision-Making StylesDimensions of Decision-Making Styles

Ways of thinkingWays of thinking Rational, orderly, and consistentRational, orderly, and consistent

Intuitive, creative, and uniqueIntuitive, creative, and unique

Tolerance for ambiguityTolerance for ambiguity Low tolerance: require consistency and orderLow tolerance: require consistency and order

High tolerance: multiple thoughts simultaneouslyHigh tolerance: multiple thoughts simultaneously


Decision-Making Styles (cont’d)Decision-Making Styles (cont’d)

• Types of Decision MakersTypes of Decision Makers DirectiveDirective

Use minimal information and consider few alternatives.Use minimal information and consider few alternatives.

AnalyticAnalytic Make careful decisions in unique situations.Make careful decisions in unique situations.

ConceptualConceptual Maintain a broad outlook and consider many alternatives in Maintain a broad outlook and consider many alternatives in

making decisions.making decisions.

BehavioralBehavioral Avoid conflict by working well with others and being receptive Avoid conflict by working well with others and being receptive

to suggestions.to suggestions.


Exhibit 6–12Exhibit 6–12 Decision-Making MatrixDecision-Making Matrix


Exhibit 6–13Exhibit 6–13 Common Decision-Making Errors and BiasesCommon Decision-Making Errors and Biases


Decision-Making Biases and ErrorsDecision-Making Biases and Errors

• HeuristicsHeuristics

Using “rules of thumb” to simplify decision making.Using “rules of thumb” to simplify decision making.

• Overconfidence BiasOverconfidence Bias

Holding unrealistically positive views of one’s self and Holding unrealistically positive views of one’s self and one’s performance.one’s performance.

• Immediate Gratification BiasImmediate Gratification Bias

Choosing alternatives that offer immediate rewards Choosing alternatives that offer immediate rewards and that to avoid immediate costs.and that to avoid immediate costs.


Decision-Making Biases and Errors Decision-Making Biases and Errors (cont’d)(cont’d)

• Anchoring EffectAnchoring Effect Fixating on initial information and ignoring subsequent Fixating on initial information and ignoring subsequent

information.information.

• Selective Perception BiasSelective Perception Bias Selecting organizing and interpreting events based on Selecting organizing and interpreting events based on

the decision maker’s biased perceptions.the decision maker’s biased perceptions.

• Confirmation BiasConfirmation Bias Seeking out information that reaffirms past choices Seeking out information that reaffirms past choices

and discounting contradictory information.and discounting contradictory information.



• Framing BiasFraming Bias Selecting and highlighting certain aspects of a Selecting and highlighting certain aspects of a

situation while ignoring other aspects.situation while ignoring other aspects.

• Availability BiasAvailability Bias Losing decision-making objectivity by focusing on the Losing decision-making objectivity by focusing on the

most recent events.most recent events.

• Representation BiasRepresentation Bias Drawing analogies and seeing identical situations Drawing analogies and seeing identical situations

when none exist.when none exist.

• Randomness BiasRandomness Bias Creating unfounded meaning out of random events.Creating unfounded meaning out of random events.



• Sunk Costs ErrorsSunk Costs Errors Forgetting that current actions cannot influence past Forgetting that current actions cannot influence past

events and relate only to future consequences.events and relate only to future consequences.

• Self-Serving BiasSelf-Serving Bias Taking quick credit for successes and blaming Taking quick credit for successes and blaming

outside factors for failures.outside factors for failures.

• Hindsight BiasHindsight Bias Mistakenly believing that an event could have been Mistakenly believing that an event could have been

predicted once the actual outcome is known (after-predicted once the actual outcome is known (after-the-fact).the-fact).


Exhibit 6–14Exhibit 6–14 Overview of Managerial Decision MakingOverview of Managerial Decision Making


Decision Making for Today’s WorldDecision Making for Today’s World

• Guidelines for making effective decisions:Guidelines for making effective decisions: Understand cultural differences.Understand cultural differences. Know when it’s time to call it quits.Know when it’s time to call it quits. Use an effective decision-making process.Use an effective decision-making process.

• Habits of highly reliable organizations (HROs)Habits of highly reliable organizations (HROs) Are not tricked by their success.Are not tricked by their success. Defer to the experts on the front line.Defer to the experts on the front line. Let unexpected circumstances provide the solution.Let unexpected circumstances provide the solution. Embrace complexity.Embrace complexity. Anticipate, but also anticipate their limits.Anticipate, but also anticipate their limits.


Characteristics of an Effective Decision-Characteristics of an Effective Decision-Making ProcessMaking Process

• It focuses on what is important.It focuses on what is important.

• It is logical and consistent.It is logical and consistent.

• It acknowledges both subjective and objective thinking It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking.and blends analytical with intuitive thinking.

• It requires only as much information and analysis as is It requires only as much information and analysis as is necessary to resolve a particular dilemma.necessary to resolve a particular dilemma.

• It encourages and guides the gathering of relevant It encourages and guides the gathering of relevant information and informed opinion.information and informed opinion.

• It is straightforward, reliable, easy to use, and flexible.It is straightforward, reliable, easy to use, and flexible.


Terms to KnowTerms to Know• decisiondecision• decision-making processdecision-making process• problemproblem• decision criteriadecision criteria• rational decision makingrational decision making• bounded rationalitybounded rationality• satisficingsatisficing• escalation of commitmentescalation of commitment• intuitive decision makingintuitive decision making• structured problemsstructured problems• programmed decisionprogrammed decision• procedureprocedure• rulerule

• policypolicy• unstructured problemsunstructured problems• nonprogrammed decisionsnonprogrammed decisions• certaintycertainty• riskrisk• uncertaintyuncertainty• directive styledirective style• analytic styleanalytic style• conceptual styleconceptual style• behavioral stylebehavioral style• heuristicsheuristics• business performance business performance

management (BPM) softwaremanagement (BPM) software

robbins9 ppt06

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