Chapter06 130706025030 Phpapp01

Management: Arab World Edition
Robbins, Coulter, Sidani, Jamali

Chapter 6: Managers as Decision Makers
Lecturer: [Insert your name here]
Learning Outcomes
Follow this Learning Outline as you read and study this chapter.
6.1 The Decision-Making Process
Define decision.
Describe the eight steps in the decision-making process.
6.2 Managers Making Decisions
6-3
Discuss the assumptions of rational decision making.
Describe the concepts of bounded rationality, satisficing, and

escalation of commitment.
Explain intuitive decision making.
Copyright 2011 Pearson Education
Learning Outcomes
6.3 Types Of Decisions and Decision-Making Conditions
Explain the two types of problems and decisions.
Contrast the three decision-making conditions.
Explain maximax, maximin, and minimax decision choice approaches.
6.4 Decision-Making Styles
6-4
Describe two decision-making styles.
Discuss the twelve decision-making biases.
Explain the managerial decision-making model.
Describe decision-making practices in the Arab context.
Learning Outcomes
6.5 Effective Decision Making In Todays World
6-5
Explain how managers can make effective decisions in todays

world.
List the six characteristics of an effective decision-making

process.
List the five habits of highly reliable organizations.
The Decision-Making Process
1. Define decision.
2. Describe the eight steps in the decision-making process.
6-6
Decision Making
Decision
Making a choice from two or more alternatives.
The Decision-Making Process
6-7
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 decisions effectiveness.
The Situation
6-8
Sarah is a sales manager whose reps need new laptops because

their old ones are outdated and inadequate for doing their job. To
make it simple, assume that it is not economical to add memory to
the old computers and it is the companys policy to purchase, not
lease.
Exhibit 61
The DecisionMaking Process
6-9
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.
6-10
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)
6-11
Step 3: Allocating Weights to

the Criteria
Decision criteria are not of equal importance:
6-12
Assigning a weight to each item places the items in the

correct priority order of their importance in the decisionmaking process.
Exhibit 62
Criteria and Weights for Computer

Replacement Decision
Criterion
Memory and Storage
6-13
Weight
10
Battery life
Carrying Weight
Warranty
Display Quality
Step 4: Developing Alternatives

Identifying viable alternatives
6-14
Alternatives are listed (without evaluation) that can

resolve the problem.
Step 5: Analyzing Alternatives

Appraising each alternatives strengths and
weaknesses
6-15
An alternatives appraisal is based on its ability to

resolve the issues identified in steps 2 and 3.
Exhibit 63
6-16
Assessed Values of Laptop

Computers Using Decision Criteria
Step 6: Selecting an Alternative

Choosing the best alternative
6-17
The alternative with the highest total weight is chosen.
Step 7: Implementing the

Alternative
Putting the chosen alternative into action
6-18
Conveying the decision to and gaining commitment

from those who will carry out the decision
Exhibit 64
6-19
Evaluation of Laptop Alternatives

Against Weighted Criteria
Step 8: Evaluating the

Decisions 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?
6-20
Managers Making Decisions
1. Discuss the assumptions of rational decision making.

2. Describe the concepts of bounded rationality, satisficing, and
escalation of commitment.
3. Explain intuitive decision making.
6-21
Managers Making Decisions
Decision making is part of all four managerial functions (next slide).

In fact, that is why we say that decision making is the essence of
management.
And that is why managers when they plan, organize, lead, and
control are called decision makers.
6-22
Exhibit 65 Decisions in the Management Functions
6-23
Making Decisions
Rationality
Managers make consistent, value-maximizing choices with specified

constraints.
Assumptions are that decision makers:
6-24
Are perfectly rational, fully objective, and logical.
Have carefully defined the problem and identified all viable

alternatives.
Have a clear and specific goal.
Will select the alternative that maximizes outcomes in the

organizations interests rather than in their personal interests.
Making Decisions (contd)

Bounded Rationality
Managers make decisions rationally, but are limited (bounded) by

their ability to process information.
Assumptions are that decision makers:
Will not seek out or have knowledge of all alternatives.
Will satisfice choose the first alternative encountered that

satisfactorily solves the problem rather than maximize the outcome
of their decision by considering all alternatives and choosing the best.
Influence on decision making
6-25
Escalation of commitment: an increased commitment to a previous

decision despite evidence that it may have been wrong.
The Role of Intuition

Intuitive decision making
6-26
Making decisions on the basis of experience, feelings, and

accumulated judgment.
Exhibit 66
What Is Intuition?
Source: Based on L. A. Burke and M. K. Miller, Taking the Mystery Out of Intuitive Decision Making, Academy of Management Executive, October
1999, pp. 9199.
6-27
Types Of Decisions and

Decision-Making Conditions
1. Explain the two types of problems and decisions.
2. Contrast the three decision-making conditions.
3. Explain maximax, maximin, and minimax decision choice
approaches.
6-28
Types of Problems and Decisions

Structured Problems
Involve goals that are clear
Are familiar (have occurred before)
Are easily and completely defined information about the problem

is available and complete
Programmed Decision
6-29
A repetitive decision that can be handled by a routine approach.
Types of Programmed Decisions

Procedure
A series of interrelated steps that a manager can use to respond

(applying a policy) to a structured problem.
Rule
An explicit statement that limits what a manager or employee can or

cannot do.
Policy
6-30
A general guideline for making a decision about a structured

problem.
Policy, Procedure, and Rule Examples

Policy
Accept all customer-returned merchandise.
Procedure
Follow all steps for completing merchandise return documentation.
Rules
Managers must approve all refunds over $50.00.
No credit purchases are refunded for cash.
6-31
Problems and Decisions

Unstructured Problems
Problems that are new or unusual and for which information is

ambiguous or incomplete.
Problems that will require custom-made solutions.
Nonprogrammed Decisions
Decisions that are unique and nonrecurring.
Decisions that generate unique responses.
6-32
Exhibit 67
6-33
Programmed Versus Nonprogrammed

Decisions
Decision-Making Conditions
Certainty
A situation in which a manager can make an accurate decision

because the outcome of every alternative choice is known.
Risk
6-34
A situation in which the manager is able to estimate the likelihood

(probability) of outcomes that result from the choice of particular
alternatives.
Exhibit 68 Expected Value for Revenues from the

Addition of One Ski Lift
6-35
Decision Making Conditions

Uncertainty
6-36
Limited information prevents estimation of outcome probabilities for

alternatives associated with the problem and may force managers to
rely on intuition, hunches, and gut feelings.
Maximax: the optimistic managers choice to maximize the

maximum payoff
Maximin: the pessimistic managers choice to maximize the

minimum payoff
Minimax: the managers choice to minimize maximum regret
Exhibit 69
6-37
Payoff Matrix
Exhibit 610
6-38
Regret Matrix
Decision-Making Styles
1. Describe two decision-making styles.

2. Discuss the twelve decision-making biases.
3. Explain the managerial decision-making model.
4. Describe decision-making practices in the Arab context.
6-39
Decision-Making Styles
Linear thinking style
A persons preference for using external data and facts and

processing this information through rational, logical thinking.
Nonlinear thinking style
6-40
A persons preference for internal sources of information and

processing this information with internal insights, feelings and
hunches.
Exhibit 611
6-41
Common Decision-Making Errors

and Biases
Decision-Making Biases and Errors

Heuristics
Using rules of thumb to simplify decision making.
Overconfidence Bias
Holding unrealistically positive views of oneself and ones

performance.
Immediate Gratification Bias
6-42
Choosing alternatives that offer immediate rewards and avoid

immediate costs.
Decision-Making Biases and Errors (contd)

Anchoring Effect
Fixating on initial information and ignoring subsequent information.
Selective Perception Bias
Selecting, organizing and interpreting events based on the decision

makers biased perceptions.
Confirmation Bias
6-43
Seeking out information that reaffirms past choices and 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
6-44
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
6-45
Mistakenly believing that an event could have been predicted once

the actual outcome is known (after-the-fact).
Exhibit 612
6-46
Overview of Managerial Decision

Making
Practices Of Decision Making In The Arab

World
The traditional Arab decision-making process has been impacted by
several factors.
A
system of networking and collective decision making where the

leader/manager consults with other group members to arrive at a
decision that has the backing of the community.
The
concept of Shura is important. It is not restricted to the political

arena; it has its manifestations in different social institutions, including
the family and business organizations.
6-47
The consultative style seems to be widespread in Arab

organizations.
Effective Decision Making In

Todays World
1. Explain how managers can make effective decisions in todays
world.
2. List the six characteristics of an effective decision-making
process.
3. List the five habits of highly reliable organizations.
6-48
Decision Making for Todays World

Guidelines for making effective decisions:
1. Understand cultural differences.
In some cases, there is no best way to make decisions. The best

way may depend on the values, attitudes, and beliefs that prevail
in a specific culture.
2. Know when its time to stop.
6-49
Good decision makers are not afraid to change their minds.

They do not become attached to one course of thinking.
Decision Making for Todays World (contd)

3.Use an effective decision-making process. This process has six
characteristics:
6-50
It focuses on what is important.
It is logical and consistent.
It acknowledges both subjective and objective thinking and

blends analytical with intuitive thinking.
It requires only as much information and analysis as is

necessary to resolve a particular dilemma.
It encourages and guides the gathering of relevant

information and informed opinion.
It is straightforward, reliable, easy to use, and flexible.
Decision Making for Todays World (contd)

4.Build an organization that can spot the unexpected and quickly
adapt to the changed environment. Karl Weick calls such
organizations highly reliable organizations (HROs) and says they
share five habits:
6-51
Are not tricked by their success.
Defer to the experts on the front line.
Let unexpected circumstances provide the solution.
Embrace complexity.
Anticipate, but also recognize their limits.
Terms to Know
6-52
decision
procedure
decision-making process
rule
problem
policy
decision criteria
unstructured problems
rational decision making
nonprogrammed decisions
bounded rationality
certainty
satisficing
risk
escalation of commitment
uncertainty
intuitive decision making
directive style
structured problems
analytic style
programmed decision
conceptual style
Terms to Know (contd)

behavioral style
heuristics
business performance
management (BPM) software
6-53
6-54

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Management: Arab World Edition

Robbins, Coulter, Sidani, Jamali

Describe the eight steps in the decision-making process.

6.2 Managers Making Decisions

Discuss the assumptions of rational decision making.

Describe the concepts of bounded rationality, satisficing, and

Explain intuitive decision making.

Copyright 2011 Pearson Education

Explain the two types of problems and decisions.

Contrast the three decision-making conditions.

Explain maximax, maximin, and minimax decision choice approaches.

6.4 Decision-Making Styles

Describe two decision-making styles.

Discuss the twelve decision-making biases.

Explain the managerial decision-making model.

Describe decision-making practices in the Arab context.

Copyright 2011 Pearson Education

Explain how managers can make effective decisions in todays

List the six characteristics of an effective decision-making

List the five habits of highly reliable organizations.

Copyright 2011 Pearson Education

The Decision-Making Process

Copyright 2011 Pearson Education

Making a choice from two or more alternatives.

The Decision-Making Process

Identifying a problem and decision criteria and allocating weights to

Developing, analyzing, and selecting an alternative that can resolve

Implementing the selected alternative.

Evaluating the decisions effectiveness.

Copyright 2011 Pearson Education

Sarah is a sales manager whose reps need new laptops because

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Step 1: Identifying the Problem

A discrepancy between an existing and desired state

A problem becomes a problem when a manager

There is pressure to solve the problem.

The manager must have the authority, information, or

Copyright 2011 Pearson Education

Step 2: Identifying Decision

Costs that will be incurred (investments required)

Risks likely to be encountered (chance of failure)

Outcomes that are desired (growth of the firm)

Copyright 2011 Pearson Education

Step 3: Allocating Weights to

Assigning a weight to each item places the items in the

Copyright 2011 Pearson Education

Criteria and Weights for Computer

Copyright 2011 Pearson Education

Step 4: Developing Alternatives

Alternatives are listed (without evaluation) that can

Copyright 2011 Pearson Education

Step 5: Analyzing Alternatives

An alternatives appraisal is based on its ability to

Copyright 2011 Pearson Education

Copyright 2011 Pearson Education

Assessed Values of Laptop

Step 6: Selecting an Alternative

The alternative with the highest total weight is chosen.

Copyright 2011 Pearson Education

Step 7: Implementing the

Conveying the decision to and gaining commitment

Copyright 2011 Pearson Education