Midterm Review
Chapter 3
The Decision-Making Process
• Following the steps in the decision-making model can aid in making better decisions.
Decision Making: is the process of selecting a course of action that will solve a problem. Decisions
must be made when you are faced with a problem. When something isn’t working, fix it.
Following the steps in the model will not guarantee that you will make a good decision every
time. However, using models will increase your chances of success in problem solving and
decision making.
Important
I. Identifying a decision problem
Problem: a discrepancy between an existing and a desired state of affairs
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.
How do managers become aware of such a discrepancy ?
They have to compare the current state of affairs with some standard, which can be past
performance, previously set goals, or the performance of another unit within the organization or in
another organization. If, for example, a car is no longer worth repairing, then the best decision may
be to purchase another car.
II. Identifying decision criteria
Relevant factors:
- price
- model
- size
- manufacturer
- options
- repair record
Weighting criteria:
• 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.
➢ Most important criterion assigned a weight of 10
, III. Developing alternatives
Identifying viable alternatives
- listing alternatives that can resolve the problem
IV. Analyzing alternatives
Appraising each alternative’s strengths and weaknesses
- an alternative’s appraisal is based on its ability to resolve the issues identified.
V. Selecting the best alternative
Choosing the best alternative
- the alternative with the highest total weight is chosen
VI. Implementing the decision
Decision implementation
- putting a decision into action
- conveying the decision to and gaining commitment from those who will carry out the decision
VII. Evaluating the decision
The soundness of the decision is judged by its outcomes
- how effectively was the problem resolved by outcomes resulting from the chosen alternatives?
- if the problem was not resolved, what went wrong?
Decision Making: Perspectives on how managers make decisions
Managers can use three approaches to make decisions:
- Rational decision making:
- information on alternatives can be gathered and quantified
- the decision is important
- you are trying yo maximise your outcome
- Bounded rational decision making
- the minimum criteria is clear
- you do not have or you are not willing to invest much time to make the decision
- you are not trying to maximize your outcome
- Intuition
- goals are unclear
- there is time pressure and analysis paralysis would be costly
- you have experience with the problem
Rational Model
Rational decision making:
- choices that are consistent and value-maximizing within specified constraints
- 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 organization’s interests rather than in
their personal interests.
Chapter 3
The Decision-Making Process
• Following the steps in the decision-making model can aid in making better decisions.
Decision Making: is the process of selecting a course of action that will solve a problem. Decisions
must be made when you are faced with a problem. When something isn’t working, fix it.
Following the steps in the model will not guarantee that you will make a good decision every
time. However, using models will increase your chances of success in problem solving and
decision making.
Important
I. Identifying a decision problem
Problem: a discrepancy between an existing and a desired state of affairs
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.
How do managers become aware of such a discrepancy ?
They have to compare the current state of affairs with some standard, which can be past
performance, previously set goals, or the performance of another unit within the organization or in
another organization. If, for example, a car is no longer worth repairing, then the best decision may
be to purchase another car.
II. Identifying decision criteria
Relevant factors:
- price
- model
- size
- manufacturer
- options
- repair record
Weighting criteria:
• 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.
➢ Most important criterion assigned a weight of 10
, III. Developing alternatives
Identifying viable alternatives
- listing alternatives that can resolve the problem
IV. Analyzing alternatives
Appraising each alternative’s strengths and weaknesses
- an alternative’s appraisal is based on its ability to resolve the issues identified.
V. Selecting the best alternative
Choosing the best alternative
- the alternative with the highest total weight is chosen
VI. Implementing the decision
Decision implementation
- putting a decision into action
- conveying the decision to and gaining commitment from those who will carry out the decision
VII. Evaluating the decision
The soundness of the decision is judged by its outcomes
- how effectively was the problem resolved by outcomes resulting from the chosen alternatives?
- if the problem was not resolved, what went wrong?
Decision Making: Perspectives on how managers make decisions
Managers can use three approaches to make decisions:
- Rational decision making:
- information on alternatives can be gathered and quantified
- the decision is important
- you are trying yo maximise your outcome
- Bounded rational decision making
- the minimum criteria is clear
- you do not have or you are not willing to invest much time to make the decision
- you are not trying to maximize your outcome
- Intuition
- goals are unclear
- there is time pressure and analysis paralysis would be costly
- you have experience with the problem
Rational Model
Rational decision making:
- choices that are consistent and value-maximizing within specified constraints
- 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 organization’s interests rather than in
their personal interests.
