Summary of Chapter # 6 by Hassan Mohi

Decision Making: the Essence of the Manager’s Job

Decision:

Decision is a choice from two or more alternatives.

The Decision-making Process:

Managers at each and every level make decision. Top level managers make decisions about their organization’s goal, where to locate manufacturing facilities, what new markets to move into etc. Middle and lower level managers make decisions about production schedules, quality problems etc. All organizational members make decisions that affect their job and the organization.

Decision making process is an eight step process. These steps are:

1Identification of a Problem.

2- Identification of Decision Criteria.

3- Allocation of Weights to Criteria.

4- Development of Alternatives.

5- Analysis of Alternatives.

6- Selection of Alternatives.

7- Implementation of Alternatives.

8- Evaluation of Decision Effectiveness.

How Manages make Decisions:

Decision may be rationality, bounded rationality and intuition.

A) Rational decision:

Decision making behavior where choices are consistent and value-maximizing within specified constraints.

Assumptions of rationality: 1- The problem is clear and unambiguous. 2- A single, well-defined goal is o be achieved. 3- All alternatives and consequences are known. 4- Preferences are clear. 5- Preferences are constant and stable. 6- No time or cost constraints exist. 7- Final choice will maximize payoff.

B) Bounded Rationality:

Decision making behavior that’s rational, but limited by an individual’s ability to process information.

Managers know that good decision makers are supposed to do certain things as they identify problems. Managers tend to make decisions under assumptions of boundary rationality; that is, they make decisions rationally but are limited.

Escalation of commitment:

An increased commitment to a previous decision despite evidence that it may have been wrong.

-….

-C) Intuitive Decision Making:

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

Making a decision on intuition doesn’t necessarily happen independently of rational analysis. A manager who has had experience with a similar type of problem can act quickly with what happen to be limited information.

Types of Problems and Decisions

Structured problems and Programmed Decisions:-

Structured Problems:

Straightforward, familiar, and easily defined problems are called structured problems.

These are the problems which can be easily handled or care and the managers know how to control this.

Programmed Decisions:

Repetitive decisions that can be handled by a routine approach.

As the problem is structured, the manager doesn’t have to go to the trouble, so once the structured problem is defined, the solution is self-evident or at least reduced to a few alternatives that are familiar and have proved successful in the past.

Procedure:

A series of interrelated sequential steps that can be used to respond to a well-structured problem.

Rule:

An explicit statement that tells managers what they can or can’t do.

Rules are frequently used because they are simple to follow. For example, rules about lateness and absentees permit supervisors to make disciplinary decisions rapidly.

Policy:

Policy is guideline for making decisions.

Unstructured Problems and Nonprogrammed decision

Unstructured Problems:

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

When problems are unstructured, managers must rely on nonprogrammed decision making in order to develop unique solutions.

Nonprogrammed Decisions:

A unique decision that requires a custom-made solution.

Decision-Making Condition

1- Certainty:

A situation in which a manager can make accurate decisions because all outcomes are known.

2- Risk:

A situation in which the decision maker is able to estimate the likelihood of certain outcomes.

3- Uncertainty:

A situation in which decision maker has neither certainty nor reasonable probability estimates available.

Decision-Making Styles

There are several styles in decision making:

A) Directive Style

B) Analytic Style

C) Conceptual Style

D) Behavioral Style

Decision –Making Biases and Errors

Heuristics:

Rules of thumb that managers use to simply decision making.

Rules of thumb can be useful to decision makers because they help make sense of complex, uncertain, and ambiguous information.