Managerial Decision Making

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Managerial Decision Making

• Chapter6

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Decisions and Decision Making

• Decision choice made from available
  alternatives
• Decision Making process of identifying problems
  and opportunities and resolving them

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Types of Problems and Decisions

• Structured Problems
• Programmed Decision
• Policy
• Procedure
• Rule
• Unstructured Problems
• Nonprogrammed Decisions

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Exhibit 68 Programmed versus Nonprogrammed
Decisions
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System 1 and System 2 Thinking

• System 1
• System 2
• Slower decisions tend to be better decisions
• So, what is the challenge for managers?

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Decision Making

• Decision
• Making a choice from two or more alternatives.
• The Decision-Making Process
• Identifying a problem and decision criteria and
  allocating weights to the criteria.
• Developing, analyzing, and selecting an
  alternative that can resolve the problem.
• Implementing the selected alternative.
• Evaluating the decisions effectiveness.

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Step 1 Identifying the Problem

• Problem
• Characteristics of Problems
• A problem becomes a problem when a manager
  becomes aware of it.
• There is pressure to solve the problem.
• The manager must have the authority, information,
  or resources needed to solve the problem.

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Step 2 Identifying Decision Criteria

• Decision criteria are factors that are important
  (relevant) to resolving the problem.

• Decision criteria are not of equal importance
• Assigning a weight to each item places the items
  in the correct priority order of their importance
  in the decision making process.

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Step 3 Allocating Weights to the Criteria
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Step 4 Developing Alternatives

• Identifying viable alternatives

• Appraising each alternatives strengths and
  weaknesses

Step 5 Rate each alternative on each criterion
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Step 6 Compute the Optimal Decision

• Choosing the best alternative

• Putting the chosen alternative into action.

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Making Decisions

• Rationality
• Assumptions are that decision makers
• Are perfectly rational, fully objective, and
  logical.
• Have carefully defined the problem and identified
  all viable alternatives.
• Have a clear and specific goal
• Will select the alternative that maximizes
  outcomes in the organizations interests rather
  than in their personal interests.

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Exhibit 66 Assumptions of Rationality
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Making Decisions (contd)

• Bounded Rationality
• Assumptions are that decision makers
• Will not seek out or have knowledge of all
  alternatives
• Will satisfice
• Influence on decision making
• Escalation of commitment

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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

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Decision-Making Styles (contd)

• Types of Decision Makers
• Directive
• Analytic
• Conceptual
• Behavioral

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Exhibit 612 Decision-Making Matrix
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Bazerman - Biases

• Recency
• In Memory Presumed Associations Insensitivity to
  base rates
• Insensitivity to Sample Size
• Misconception of Chance
• The Confirmation Trap
• 8. Hindsight Bias

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Exhibit 613 Common Decision-Making Errors and
Biases
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Exhibit 614 Overview of Managerial Decision
Making