Chapter 7-decision-making

Copyright © 2012 Pearson Education,
Inc. Publishing as Prentice HallManagement, Eleventh Edition by Stephen P. Robbins & Mary Coulter ©2012 Pearson Education, Inc. All rights reserved 7-1
Chapter-7Chapter-7
Decision Making

Learning Outcomes
• Describe eight steps in decision-making process
• Explain the four ways managers make decisions
• Classify decisions and decision-making conditions
• Classify decisions and decision-making conditions
• Identify effective decision-making techniques

Decision Making
• Decision - making a choice from two or more
alternatives.
• Problem - an obstacle that makes it difficult to
achieve a desired goal or purpose.

The Decision Making Process
1. Identifying a problem and decision criteria
and allocating weights to the criteria
2. Developing, analyzing, and selecting an
alternative that can resolve the problem
3. Implementing the selected alternative
4. Evaluating the decision’s effectiveness

Exhibit 6-1: Decision-Making Process

Step 1: Identifying a 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.

Step 2: Identifying Decision Criteria
• Decision criteria are factors that are important
(relevant) to resolving the problem, such as:
– Costs that will be incurred (investments required)
– Risks likely to be encountered (chance of failure)
– Outcomes that are desired (growth of the firm)

Exhibit 6-2: Important Decision Criteria

Step 3: Allocating Weights to the 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.

Step 4: Developing Alternatives
• Identifying viable alternatives
– Alternatives are listed (without evaluation) that
can resolve the problem.

Exhibit 6-3: Possible Alternatives

Step 5: Analyzing Alternatives
• Appraising each alternative’s strengths and
weaknesses
–An alternative’s appraisal is based on its
ability to resolve the issues related to the
criteria and criteria weight.

Exhibit 6-4: Evaluation of Alternatives

Step 6: Selecting an Alternative
• Choosing the best alternative
– The alternative with the highest total weight is
chosen.

Step 7: Implementing the Alternative
• Putting the chosen alternative into action
- Conveying the decision to and gaining
commitment from those who will carry out the
alternative

Step 8: Evaluating Decision Effectiveness
• 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?

Exhibit 6-5: Decisions Managers May Make

Decision-Making Biases and Errors
• Heuristics - using “rules of thumb” to simplify
decision making.
• Overconfidence Bias - holding unrealistically
positive views of oneself and one’s
performance.
• Immediate Gratification Bias - choosing
alternatives that offer immediate rewards and
avoid immediate costs.

Decision-Making Biases and Errors (cont.)
• Anchoring Effect - fixating on initial
information and ignoring subsequent
information.
• Selective Perception Bias - selecting,
organizing and interpreting events based on
the decision maker’s biased perceptions.
• Confirmation Bias - seeking out information
that reaffirms past choices while discounting
contradictory information.

• Framing Bias - selecting and highlighting certain
aspects of a situation while ignoring other aspects.
• Availability Bias - losing decision-making objectivity
by focusing on the most recent events.
• Representation Bias - drawing analogies and seeing
identical situations when none exist.
• Randomness Bias - creating unfounded meaning out
of random events.

• Sunk Costs Errors - forgetting that current
actions cannot influence past events and
relate only to future consequences.
• Self-Serving Bias - taking quick credit for
successes and blaming outside factors for
failures.
• Hindsight Bias - mistakenly believing that an
event could have been predicted once the
actual outcome is known (after-the-fact).

Exhibit 6-11: Common Decision-Making Biases

Chapter 7-decision-making

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