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4
Chapter
Foundations
of Decision
Making
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Learning Outcomes
• Describe the decision-making process.
• Explain the three approaches managers can use
to make decisions.
• Describe the types of decisions and decisionmaking conditions managers face.
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Learning Outcomes (cont.)
• Discuss group decision-making.
• Discuss contemporary issues in managerial
decision making.
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4.1 Describe the
decision-making
process.
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How Do Managers Make Decisions?
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Identifying a Decision Problem
Problem:
a discrepancy between an existing and a desired
state of affairs.
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Identifying Decision Criteria
Relevant Factors:
• Price
• Model
• Size
• Manufacturer
• Options
• Repair record
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Weighting Criteria
1.
2.
Most important
criterion assigned a
weight of 10.
Other weights
assigned against
this standard.
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Developing Alternatives
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Analyzing Alternatives
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Selecting the Best Alternative
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Implementing the Decision
Decision implementation:
putting a decision into action.
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Evaluating the Decision
Appraising the outcome of the decision:
Was the problem resolved?
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Common Errors
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4.2 Explain the three
approaches
managers can use to
make decisions.
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Three Approaches Used to Make
Decisions: Types of Decisions
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Rational Model
Rational decision making:
choices that are consistent and value-maximizing
within specified constraints.
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Bounded Rationality
Satisfice
Escalation of
commitment
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Intuitive Decision Making
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4.3 Describe the types
of decisions and
decision-making
conditions that
managers face.
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Types of Problems
1.
2.
Structured problem
Unstructured problem
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Types of Decisions
Programmed:
Repetitive decisions that can be handled
using a routine approach.
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Types of Decisions (cont.)
Nonprogrammed:
Repetitive decisions that can be handled
using a routine approach
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Problems, Decision Types, and
Organizational Levels
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Decision-Making Conditions
• Certainty
• Risk
• Uncertainty
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4.4
Discuss group
decision-making.
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How Do Groups Make Decisions?
Decisions are often made by groups representing
the people who will be most affected by those
decisions.
•Committees
•Task forces
•Review panels
•Work teams
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Advantages of Group Decision
Making
•
•
•
•
•
More complete information
Diversity of experiences/perspectives
More alternatives generated
Increased acceptance of solution
Increased legitimacy
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Disadvantages of Group Decision
Making
•
•
•
•
Time-consuming
Minority domination
Ambiguous responsibility
Pressures to conform
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Groupthink
When a group exerts extensive pressure on an
individual to withhold his or her different views in
order to appear to be in agreement.
• What it does
• How it occurs
• How to minimize it
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When Are Groups Most Effective?
Individual
•Faster decision making
•More efficient use of
work hours
Group
•More accurate
decisions
•More creative
•More heterogeneous
representation
•Greater acceptance of
final solution
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Improving Group Decision Making
Make group decisions more creative by:
1. Brainstorming
2. The nominal group technique
3. Electronic meetings
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4.5 Discuss
contemporary
issues in
managerial decision
making.
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Contemporary Issues
National culture influences the way decisions are
made and the degree of risk involved.
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Contemporary Issues
Creativity lets the decision maker:
• Understand a problem more fully
• See problems others can’t
• Identify all viable alternatives
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Contemporary Issues
Design thinking:
approaching
management problems
as designers approach
design problems
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Contemporary Issues
Big data
The vast amounts of quantifiable information
that can be analyzed by highly sophisticated data
processing.
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