Chapter 2, Decision Making PDF

Management Fifteenth Edition, Global Edition Chapter 2 Making Decisions Copyright © 2021 Pearson Education Ltd. What is a Decision? Decision—a choice among two or more alternatives ...

Management Fifteenth Edition, Global Edition Chapter 2 Making Decisions Copyright © 2021 Pearson Education Ltd. What is a Decision? Decision—a choice among two or more alternatives Decision Making Decision – Making a choice from two or more alternatives. The Decision-Making Process – Identifying a problem and decision criteria and allocating weights to the criteria. – Developing, analyzing, and selecting an alternative that can resolve the problem. – Implementing the selected alternative. – Evaluating the decision’s effectiveness.  Decision making process 1. Identifying a problem - buying a laptop for online studying 2. decision criteria - what features you need in the laptop “ size, storage“ 3. allocating weights to the criteria allocating weights - which features is more important for you decision criteria to the criteria more important les This is what i want and what I prefer having in a laptop  Decision making process My criteria 4. Developing the alternatives - you go to the market and list down different laptop models 5. analyzing - analyzing the numbers, rate and compare the different models Specifications sheet Alternatives These numbers are according to the specifications not from the criteria I want to have it according to my criteria not according to the specifications  Decision making process 6. selecting an alternative that can resolve the problem - the highest total is the best option for me according to my criteria 7. Implementing the selected alternative - you buy Toshiba 8. Evaluating the decision’s effectiveness - you use Toshiba for 1 month then you give a feedback “ is it good or bad decision “ Step 1: Identifying the Problem Problem – A discrepancy between an existing and 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.  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) 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. Exhibit - Criteria and Weights for Computer Replacement Decision Criterion Weight Memory and Storage 10 Battery life 8 Carrying Weight 6 Warranty 4 Display Quality 3  Step 4: Developing Alternatives Identifying viable alternatives – Alternatives are listed (without evaluation) that can resolve the problem. Step 5: Analyzing Alternatives Appraising each alternative’s strengths and weaknesses An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3. Exhibit- Assessed Values of Laptop Computers Using Decision Criteria  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 decision. Exhibit- Evaluation of Laptop Alternatives Against Weighted Criteria Step 8: Evaluating the Decision’s 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?  Types of decision making Rational Decision-Making Intuitive decision-making Head Heart Logic Experience Evidence Feelings Do the analysis Liking Will not do a detailed analysis Example : the 8 steps When the goal is clear, you know all the alternatives, the problem is clear then you will make a rational decision If you don’t have clear goal, problem and alternatives then you will make a Intuitive decision Rationality Rational Decision-Making: choices that are logical and consistent and maximize value Assumptions of rationality: – Rational decision maker is logical and objective – Problem faced is clear and unambiguous – Decision maker would have clear, specific goal and be aware of all alternatives and consequences – The alternative that maximizes achieving this goal will be selected – Decisions are made in the best interest of the organization  Bounded Rationality ‫العقالنية املحدودة‬ Limitation in thinking Bounded rationality: decision making that’s rational, but limited by an individual’s ability to We need to broke this bounded and to process information expand our thinking Two problems I Satisfice: accepting solutions that are “good enough” Go to the market and buy the first laptop you see without making the best decision 2 Escalation of commitment: an increased commitment to a previous decision despite evidence it may have been wrong Repeat the same mistake over and over because you don’t want to think Intuition Intuitive decision-making: making decisions on the basis of experience, feelings, and accumulated judgment  Types of Decisions: Structured Problems and Programmed Decisions Structured problems: straightforward, familiar, and easily defined problems Your machine is broken Programmed decisions: repetitive decisions that can be handled by a routine approach “ the act what to do “ : you call the mechanic to fix it  Types of Programmed Decisions Procedure: a series of sequential steps used to respond to a well-structured problem Rule : an explicit statement that tells managers what can or cannot be done Policy: a guideline for making decisions Steps to follow to make a decision  Types of Decisions: Unstructured Problems and Nonprogrammed Decisions Unstructured problems: problems that are new or unusual and for which information is ambiguous or incomplete COVID 19 Nonprogrammed decisions: unique and nonrecurring and involve custom made solutions Not planned  Programmed vs Nonprogrammed Decisions Characteristic Programmed Decisions Nonprogrammed Decisions Type of problem Structured Unstructured Managerial level Lower levels Upper levels Frequency Repetitive, routine New, unusual Information Readily available Ambiguous or incomplete Goals Clear, specific Vague Time frame for solution Short Relatively long Solution relies on… Procedures, rules, policies Judgment and creativity