The Decision-Making Process: 8 Steps

• Managers are judged on the decisions they make.
• Decision making is choosing from two or more alternatives.
• Managers at all levels in all areas make decisions.
• Top level managers make decisions on organizational goals like entering new markets or locating manufacturing facilities.
• Middle and lower level management decide on production schedules, employee discipline or product quality.
• Decision making is a process rather than a simple selection.

The Decision-Making Process: (8 steps)

• Step 1: Identify the Problem

• Step 2: Identify decision criteria

• Step 3: Allocate weights to the criteria

• Step 4: Develop alternatives

• Step 5: Analyze alternatives

• Step 6: Select an alternative

• Step 7: Implement the selected alternative

• Step 8: Evaluate the decision’s effectiveness.

• A sales manager's reps need new laptops because their old ones are outdated.

• It is not economical to add memory to the old computers

• The company policy is purchasing, not leasing.

Problem Identification

• A problem is a gap between existing and desired conditions.
• For example the gap between reps' current computers (existing) and needing more efficient ones (desired).

Characteristics of Problems

• Awareness is needed for something to become a problem.
• There must be pressure to solve identified problems.
• The manager must have the authority, information and resources to solve the problem.
• Problem identification is subjective.

Identifying Decision Criteria

• Decision criteria are important factors to resolving a problem.
• Costs that will be incurred (investments required)
• Risks likely to be encountered (chance of failure)
• Desired outcomes (growth of the firm)
• Example decision criteria are memory and storage, battery life, warranty, carrying weight, display quality.

Allocating Weights to the Criteria

• Decision criteria are not of equal importance.
• Assigning weights to each item prioritizes them by importance.
• Weighing gives the most important criterion a weight out of 10 and assigning weights to the rest using that standard.

Developing Alternatives

• Viable alternatives are identified to resolve the problem.
• Only list alternatives at this step without evaluation.
• Examples of Alternatives are:
• Toshiba Protégé
• Dell Inspiron
• HP Pavilion
• Apple iBook
• Sony Vaio
• Gateway
• Toshiba Qosimio
• Lenovo Thinkpad

Analyzing Alternatives

• Appraisal of each alternative's strengths and weaknesses is necessary.
• Appraisal is based on resolving issues identified in steps 2 and 3 (decision criteria and allocation of weights).
• No alternative analysis is needed if one scored highest on every criteria.

Selecting an Alternative

• Choosing the best alternative
• Select the alternative with the highest total weight.

Implementing the Alternative

• Achieving action requires putting the chosen alternative into action.
• Decision conveying is also required to gain commitment from those who will carry it out.
• People who implement a decision are more likely to support it if they participate the process.
• During implementation managers may need to reassess changes in environment with a long-term decision; are the criteria and alternatives still the best?

Evaluating Decision Effectiveness

• The soundness of the decision is judged by the outcomes

• Evaluating the outcome determines if the problem was resolved.

• If unresolved, the manager assesses what went wrong.

• Potential problems are:

• Was the problem incorrectly defined?

• Were errors made when evaluating alternatives?

• The answers may lead to redoing an earlier step.

Decision making is the core of management.

• Managers are called decision makers.
• Most decisions are routine, and not always time-consuming, complex, or evident.

Rationality in Making Decisions

• Managers make logical and consistent choices to maximize value given constraints.
• Underlying assumptions are decision makers are perfectly rational, fully objective, and logical.
• It is assumed decision makers carefully define the problem, and identify all viable alternatives.
• Having a clear and specific goal is important.
• Rational decisions consistently lead to alternatives that maximize outcomes, in the organization's rather than in their personal interests.

Making Decisions: Bounded Rationality

• Bounded Rationality says managers make rational decisions, but they are limited (bounded) by their ability to process information.
• Assumptions:
• Decision makers will not seek out or have knowledge of all alternatives.
• Decision makers will Satisfice: choose the first alternative encountered that satisfactorily solves the problem rather than maximizing the outcome.

Intuitive Decision Making

• Make decisions on basis of experience, feelings, and accumulated judgment.
• Complements bounded decision making.
• Managers with experience in similar problem acts quickly with limited information.
• Individuals experiencing intensive feelings make better decision making performance.
• Managers should not ignore emotions when making decisions.

Types of Decisions

• Structured problems are straightforward, The decision maker's goal is clear and familiar.
• Some examples are when a customer returns a purchase to a store, or a college handles a student wanting to drop a class.
• Such situations are called structured problems: straightforward, familiar, and easily defined.
• Programmed Decisions: A repetitive decision that can be handled using a routine approach without involved decision-making.
• Unstructured problems: Problems that are new or unusual with ambiguous and incomplete information.
• Building a new manufacturing facility is an example of an unstructured problem.
• Non programmed decisions are unique, nonrecurring, and involve custom-made solutions.