Decision-Making Process Overview

Decision-Making Process

• Identifying a problem: Recognizing a gap or an issue needing attention.
• Identifying decision criteria: Determining key factors influencing a decision.
• Allocating weights to criteria: Ranking the importance of each decision factor (usually on a scale).
• Developing alternatives: Generating different solutions or options to address the problem.
• Analyzing alternatives: Evaluating each option against the established criteria and weights.
• Selecting an alternative: Choosing the option that best meets the criteria, usually with the highest total score.
• Implementing the alternative: Putting the selected solution into action within the organization.
• Evaluating decision effectiveness: Assessing if the chosen solution solved the problem and met the desired goals.

Rational Decision Making

• Assumes decision makers are fully objective and logical.
• Relies on clear problem definition, specific goals, and knowledge of all possible alternatives and consequences.
• Often unrealistic in real-world scenarios.

Bounded Rationality

• Managers make decisions rationally but are limited by their ability to process information.
• Satisficing: Accepting solutions that are "good enough" rather than maximizing outcomes.
• Often used due to limitations in processing all information and alternatives.

Intuitive Decision-Making

• Relies on experience, feelings, and accumulated judgment.
• Can complement bounded rational decision making.
• Individuals experiencing intense emotions during decision-making often achieve higher performance, especially if they understand their feelings.

Types of Problems and Decisions

• Structured problems: Straightforward, familiar, and well-defined problems with clear goals, available information, and often occur repetitively.

• Programmed decisions: Repetitive decisions handled routinely.

  • Procedures: Series of steps to address structured problems.
  • Rules: Explicit statements outlining what can or cannot be done.
  • Policies: Guidelines for making decisions, providing general parameters.

• Unstructured problems: New or unusual problems with ambiguous information.

Thinking Styles

• Linear thinking style: Relies on external data and facts processed through rational, logical thinking.
• Nonlinear thinking style: Relies on internal sources of information and processing them through internal insights, feelings, and hunches.

Common Decision-Making Biases

• Overconfidence Bias: Holding unrealistically positive views of oneself and one’s performance.
• Framing Bias: Selecting and emphasizing certain aspects of a situation while ignoring others.
• Representation Bias: Drawing analogies and seeing identical situations where none exist.
• Self-serving Bias: Quickly taking credit for successes and blaming outside factors for failures.
• Sunk Costs Errors: Forgetting current actions cannot influence past events and focusing only on future consequences.
• Immediate Gratification Bias: Choosing options that offer immediate rewards and avoid immediate costs.
• Hindsight Bias: Believing that an event could have been predicted after the outcome is known.
• Anchoring Effect: Fixating on initial information and ignoring subsequent information.
• Selective Perception Bias: Organizing and interpreting events based on biased perceptions.
• Confirmation Bias: Seeking information that confirms past choices while discounting contradictory information.
• Availability Bias: Losing objectivity by focusing on the most recent events.
• Randomness Bias: Creating unfounded meaning out of random events.