MANAGEMENT
Making Decisions
Describe the eight steps in the decision-making process.
Explain the four ways managers make decisions.
Classify decisions and decision-making conditions.
Describe how biases/ERRORS affect decision making.
Identify effective decision-making techniques
THE DECISION-MAKING PROCESS
A decision is a choice made from two or more alternatives.
The decision-making process is a set of eight steps that include identifying a problem, selecting an alternative,
and evaluating the decision’s effectiveness
Step 1: Identify a Problem - discrepancy between an existing and a desired condition.
Step 2: Identify Decision Criteria - relevant in a decision.
Step 3: Allocate Weights to the Criteria.
Step 4: Develop Alternatives - now identify viable alternatives that could resolve the problem.
Step 5: Analyze Alternatives - be critically analyzed by evaluating it against the criteria established.
Step 6: Select an Alternative -best alternative from among those identified and assessed is critical.
Step 7: Implement the Alternative - effectively communicating the decision to the individuals who will be
affected by it and winning their commitment to the decision.
Step 8: Evaluate Decision Effectiveness - assesses the result of the decision to determine whether or not the
problem has been resolved.
APPROACHES TO DECISION MAKING
• Rationality - managerial decision-making is assumed to be rational—that is, making choices that are
consistent and value-maximizing within specified constraints. If a manager could be perfectly rational, he
or she would be completely logical and objective.
1. Rational decision - making assumes that the manager is making decisions in the best interests of
the organization, not in his or her own interests.
2. The assumptions of rationality can be met if the manager is faced with a simple problem in which
goals are clear and alternatives limited, time pressures are minimal and the cost of finding and
evaluating alternatives is low, the organizational culture supports innovation and risk taking, and
outcomes are concrete and measurable.
• Bounded Rationality - in spite of these limits to perfect rationality, managers are expected to be rational
as they make decisions. Because the perfectly rational model of decision-making isn’t realistic, managers
tend to operate under assumptions of bounded rationality, which is decision-making behavior that is
rational, but limited (bounded) by an individual’s ability to process information.
• Intuition - managers also regularly use their intuition. Intuitive decision-making is a subconscious
process of making decisions on the basis of experience and accumulated judgment
TYPES OF DECISIONS AND DECISION-MAKING CONDITIONS
Types of Decisions. Managers encounter different types of problems and use different types of decisions to
resolve them.
• Structured problems are straightforward, familiar, and easily defined. In dealing with structured
problems, a manager may use a programmed decision, which is a repetitive decision that can be handled
by a routine approach.
Managers rely on three types of programmed decisions:
o A procedure is a series of interrelated sequential steps that can be used to respond to a structured
problem.
o A rule is an explicit statement that tells managers what they can or cannot do.
o A policy is a guideline for making decisions.
o Unstructured problems are problems that are new or unusual and for which information is ambiguous
or incomplete. These problems are best handled by a nonprogrammed decision that is a unique
decision that requires a custom-made solution.
Making Decisions
Describe the eight steps in the decision-making process.
Explain the four ways managers make decisions.
Classify decisions and decision-making conditions.
Describe how biases/ERRORS affect decision making.
Identify effective decision-making techniques
THE DECISION-MAKING PROCESS
A decision is a choice made from two or more alternatives.
The decision-making process is a set of eight steps that include identifying a problem, selecting an alternative,
and evaluating the decision’s effectiveness
Step 1: Identify a Problem - discrepancy between an existing and a desired condition.
Step 2: Identify Decision Criteria - relevant in a decision.
Step 3: Allocate Weights to the Criteria.
Step 4: Develop Alternatives - now identify viable alternatives that could resolve the problem.
Step 5: Analyze Alternatives - be critically analyzed by evaluating it against the criteria established.
Step 6: Select an Alternative -best alternative from among those identified and assessed is critical.
Step 7: Implement the Alternative - effectively communicating the decision to the individuals who will be
affected by it and winning their commitment to the decision.
Step 8: Evaluate Decision Effectiveness - assesses the result of the decision to determine whether or not the
problem has been resolved.
APPROACHES TO DECISION MAKING
• Rationality - managerial decision-making is assumed to be rational—that is, making choices that are
consistent and value-maximizing within specified constraints. If a manager could be perfectly rational, he
or she would be completely logical and objective.
1. Rational decision - making assumes that the manager is making decisions in the best interests of
the organization, not in his or her own interests.
2. The assumptions of rationality can be met if the manager is faced with a simple problem in which
goals are clear and alternatives limited, time pressures are minimal and the cost of finding and
evaluating alternatives is low, the organizational culture supports innovation and risk taking, and
outcomes are concrete and measurable.
• Bounded Rationality - in spite of these limits to perfect rationality, managers are expected to be rational
as they make decisions. Because the perfectly rational model of decision-making isn’t realistic, managers
tend to operate under assumptions of bounded rationality, which is decision-making behavior that is
rational, but limited (bounded) by an individual’s ability to process information.
• Intuition - managers also regularly use their intuition. Intuitive decision-making is a subconscious
process of making decisions on the basis of experience and accumulated judgment
TYPES OF DECISIONS AND DECISION-MAKING CONDITIONS
Types of Decisions. Managers encounter different types of problems and use different types of decisions to
resolve them.
• Structured problems are straightforward, familiar, and easily defined. In dealing with structured
problems, a manager may use a programmed decision, which is a repetitive decision that can be handled
by a routine approach.
Managers rely on three types of programmed decisions:
o A procedure is a series of interrelated sequential steps that can be used to respond to a structured
problem.
o A rule is an explicit statement that tells managers what they can or cannot do.
o A policy is a guideline for making decisions.
o Unstructured problems are problems that are new or unusual and for which information is ambiguous
or incomplete. These problems are best handled by a nonprogrammed decision that is a unique
decision that requires a custom-made solution.
