Business Decision Making Concepts

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Questions and Answers

Which of the following attributes does NOT contribute to the quality of information?

Format variety (correct)

Reliability

Accuracy

Relevance

What is the primary difference between risk and uncertainty in decision-making?

Risk pertains to variable outcomes, while uncertainty addresses fixed outcomes.

Risk involves known probabilities, while uncertainty does not. (correct)

Risk can always be quantified, whereas uncertainty cannot.

Risk impacts only financial decisions, while uncertainty affects all types of decisions.

Which step is NOT part of the decision-making process?

Determine stakeholder satisfaction (correct)

Analyze alternatives

Evaluate decision effectiveness

Identify a problem

When dealing with unstructured problems, managers typically rely more on which type of decision?

Nonprogrammed decisions Signup and view all the answers

Which scenario best illustrates the concept of ambiguity in decision-making?

Finding conflicting evidence regarding a supplier's reliability. Signup and view all the answers

What is the goal of evaluating decision effectiveness?

To assess whether the problem was resolved and learn from outcomes. Signup and view all the answers

What type of information can be described as timely?

Information that is relevant and obtained in real-time. Signup and view all the answers

Which of the following best describes a structured problem?

A problem that is straightforward, familiar, and easy to define. Signup and view all the answers

Which of the following best describes nonprogrammed decisions?

They involve custom-made solutions to unique problems. Signup and view all the answers

What is the primary focus of evidence-based decision-making?

Using the best available facts and evidence to inform decisions. Signup and view all the answers

Under which condition might a decision maker experience the greatest likelihood of decision failure?

Ambiguity, where goals and definitions of solutions are unclear. Signup and view all the answers

Which of the following biases involves the tendency to only seek information that supports previous decisions?

Confirmation bias Signup and view all the answers

In the context of decision making, what does 'bounded rationality' refer to?

The idea that managers are limited by their information processing capabilities. Signup and view all the answers

Which approach to decision-making assumes that managers always make logical choices to maximize value?

Rational decision-making Signup and view all the answers

What is the primary purpose of Customer Relationship Management (CRM) systems?

To compile information on customers for improved interactions and satisfaction. Signup and view all the answers

Study Notes

Data vs. Information

Data is raw, unanalyzed facts.
Information is processed and analyzed data.

Attributes of Useful Information

Quality: Accuracy and reliability are crucial.
Timeliness: Often needs real-time availability.
Completeness: Provides all necessary information for decisions.
Relevance: Useful and applicable to specific needs.

Incomplete Information

Managers face incomplete information due to:
- Risk: Knowing possible outcomes and their probabilities.
- Uncertainty: Inability to determine probabilities of outcomes.
- Ambiguity: Multiple, conflicting interpretations of information.
- Time constraints and information costs: Limited time and resources to explore all options.

Decision Making

Decision-making involves steps:
- Identifying the problem.
- Defining decision criteria.
- Assigning weights to criteria (if necessary).
- Developing alternatives.
- Analyzing alternatives using criteria.
- Selecting an alternative.
- Implementing the decision.
- Evaluating decision effectiveness.
Types of Decisions:
- Structured problems: Straightforward, familiar, and well-defined. Imply programmed decisions.
- Unstructured problems: New or unusual, needing nonprogrammed decisions.
Programmed decisions: Repeated, using guidelines and pre-defined procedures.
- Procedure: Sequential steps for structured problems.
- Rule: Explicit statement for allowed actions.
- Policy: Guidelines for decision making.
Nonprogrammed decisions: Unique and non-recurring, custom-made solutions.

Conditions Affecting Decision Failure

Certainty: Full information availability.
Risk: Clear goals, estimable probabilities of success/failure.
Uncertainty: Known goals, incomplete information about alternatives.
Ambiguity: Unclear goals, difficult-to-define alternatives, and unavailable information.

Decision-Making Biases and Errors

Overconfidence bias: Overestimating knowledge or ability.
Immediate gratification bias: Prioritizing immediate rewards.
Anchoring effect: Overreliance on initial information.
Confirmation bias: Seeking information confirming existing beliefs.
Hindsight bias: False belief of accurately predicting outcomes.
Sunk costs error: Focusing on past expenditures, not future results.
Self-serving bias: Taking credit for successes, blaming failures on others.

Decision-Making Approaches

Rational decision-making: Logical and consistent choices to maximize value.
- Assumptions of rationality: Complete objectivity, clear problem definition, clear goals, knowledge of all alternatives and consequences.
Bounded rationality: Rational but limited by information processing capabilities.
- Focuses on satisficing (acceptable solution) rather than maximizing (optimal solution).
Intuitive decision-making: Decisions based on experience and feelings. Emphasizes experience and judgment.

Innovative Decision-Making Techniques

Brainstorming: Generating many ideas through a group.
Evidence-based decision-making: Using best available evidence for intelligent decisions.
Rigorous debate: Encouraging constructive disagreement to enhance decision quality.
Avoid groupthink: Preventing suppression of dissenting opinions.

Information Systems and Management

Information technology (IT): Methods for acquiring, organizing, manipulating, and transmitting information.
Impact of IT on business:
- Portable offices, better service coordination, leaner organizations, increased collaboration. Global exchange, improved management processes, flexible customization, new business opportunities.
Information system: Uses IT to process and transmit information for decisions.
Customer Relationship Management (CRM) systems: Manage customer interactions and compiles customer data.
Enterprise Resource Planning (ERP) systems: Integrate organizational processes for increased productivity.

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Description

This quiz explores essential concepts in business decision-making, including the distinction between data and information, the attributes of useful information, and the challenges posed by incomplete information. It covers the key steps involved in the decision-making process vital for effective management.