PART II: Planning
4
Chapter 4
Foundations of Decision Making
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All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Learning Outcomes
After reading this chapter, I will be able to:
1. Describe the steps in the decision-making process.
2. Identify the assumptions of the rational decisionmaking model.
3. Explain the limits to rationality.
4. Define certainty, risk, and uncertainty as they relate
to decision making.
5. Describe the actions of the bounded-rational
decision maker.
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4–2
Learning Outcomes (cont’d)
After reading this chapter, I will be able to:
6. Identify the two types of decision problems and the
two types of decisions that are used to solve them.
7. Define heuristics and explain how they affect the
decision-making process.
8. Identify four decision-making styles.
9. Describe the advantages and disadvantages of
group decisions.
10. Explain three techniques for improving group
decision making.
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4–3
Decision-making
• Decision-making process
 A set of eight steps that includes identifying a
problem, selecting a solution, and evaluating the
effectiveness of the solution
• Problem
 A discrepancy between an existing and a desired
state of affairs
• Decision criteria
 Factors that are relevant in a decision
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4–4
Examples of Planning-Function Decisions
 What are the organization’s long-term objectives?
 What strategies will best achieve those objectives?
 What should the organization’s short-term objectives be?
 What is the most efficient means of completing tasks?
 What might the competition be considering?
 What budgets are needed to complete department
tasks?
 How difficult should individual goals be?
Exhibit 4.1
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4–5
The Decision-Making Process
Exhibit 4.2
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4–6
Criteria and Weight in Car-Buying Decision
(Scale of 1 to 10)
CRITERION
WEIGHT
Price
10
Interior comfort
8
Durability
5
Repair record
5
Performance
3
Handling
1
Exhibit 4.3
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4–7
Assessment of Car Alternatives
Exhibit 4.4
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4–8
Weighting of Vehicles
(Assessment Criteria X Criteria Weight)
Exhibit 4.5
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4–9
Decision-making (cont’d)
• Decision implementation
 Putting a decision into action; includes conveying the
decision to the persons who will be affected by it and
getting their commitment to it.
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4–10
Making Decisions: The Rational Model
• Certainty
 The implication that the outcome of every possible
alternative is known.
• Uncertainty
 A condition under which there is not full knowledge of
the problem and reasonable probabilities for
alternative outcomes cannot be determined.
• Risk
 The probability that a particular outcome will result
from a given decision.
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4–11
Assumptions of Rationality
Exhibit 4.6
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4–12
What Is Creative Potential?
• Expertise
 Understanding, abilities, knowledge, proficiencies,
necessary in the field of creative endeavor.
• Creative-thinking skills
 The personality characteristics associated with
creativity, the ability to use analogies, as well as the
talent to see the familiar in a different light.
• Intrinsic task motivation
 The desire to work on something because it’s
interesting, involving, exciting, satisfying, or
personally challenging.
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4–13
Three Elements
of Creativity
Creativity
The ability to produce
novel and useful ideas
Source: T. M. Amabile. “Motivating Creativity in Organizations,” Califormia Management Review (Fall 1997), p. 43.
Copyright © 1997, by The Regents of the University of California. Reprinted by permission of the Regents.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Exhibit 4.7
4–14
Making Decisions: The Rational Model
• Rational
 Describes choices that are consistent and valuemaximizing within specified constraints.
• Bounded rationality (Herbert Simon)
 Behavior that is rational within the parameters of a
simplified model that captures the essential features
of a problem.
• Satisfice
 Making a “good enough” decision: choosing the firstidentified alternative that satisfactorily and sufficiently
solves the problem.
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4–15
Common Decision-making Errors
• Heuristics: Using judgmental shortcuts
 Availability heuristic
 The
tendency to base judgments on information that is
readily available.
 Representative heuristic
 The
tendency to base judgments of probability on things
(objects or events) that are familiar
 Escalation of commitment
 An
increased commitment to a previous decision
despite negative information about the decision’s
present outcomes.
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4–16
How Do Problems Differ?
• Well-structured problems
 Straightforward, familiar, easily defined problems
• Ill-structured problems
 New problems in which information is ambiguous or incomplete
• Programmed decision
 A repetitive decision that can be handled by a routine approach
• Nonprogrammed decisions
 Decisions that must be custom-made to solve unique and
nonrecurring problems
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4–17
Programmed Decision-Making Aids
• Policy
 A general guide that establishes parameters for
making decisions about recurring problems.
• Procedure
 A series of interrelated sequential steps that can be
used to respond to a well-structured problem (policy
implementation).
• Rule
 An explicit statement that tells managers what they
ought or ought not to do (limits on procedural
actions).
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4–18
Types of Problems, Types of Decisions,
and Level in the Organization
Exhibit 4.8
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4–19
Technology And Decision Making
• Expert systems
 Software that acts like an expert in analyzing and
solving ill-structured problems
 Use
specialized knowledge about a particular problem
area rather than general knowledge
 Use qualitative reasoning rather than numerical
calculations
 Perform at a level of competence higher than that of
nonexpert humans.
• Neural networks
 Software that is designed to imitate the structure of
brain cells and connections among them
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Decision Making: Styles
• Directive style
 Characterizes the low tolerance for ambiguity and a
rational way of thinking of individuals who are logical
and efficient and typically make fast decisions that
focus on the short term.
• Analytic style
 Characterizes the high tolerance for ambiguity
combined with a rational way of thinking of
individuals who prefer to have complete information
before making a decision.
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4–21
Decision Making: Styles (cont’d)
• Conceptual style
 Individuals who tend to be very broad in outlook, to
look at many alternatives, and to focus on the long
run and often look for creative solutions.
• Behavioral style
 Individuals who think intuitively but have a low
tolerance for uncertainty; they work well with others,
are open to suggestions, and are concerned about
the individuals who work for them.
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Decision-Making Styles
Exhibit 4.9
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4–23
Group Decision Making
• Advantages
 Make more accurate
decisions
 Provides more complete
information
 Offers a greater diversity of
experiences and
perspectives
 Generates more alternatives
 Increases acceptance of a
solution
 Increases the legitimacy of
a decision.
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• Disadvantages
 Is more time-consuming
and less efficient
 Minority domination can
influence decision process
 Increased pressures to
conform to the group’s
mindset (groupthink)
 Ambiguous responsibility for
the outcomes of decisions
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When Are Groups Most Effective?
• Creativity
 Groups tend to be more creative than individuals.
• Acceptance of the final solution
 Groups help increase the acceptance of decisions.
• Effectiveness of group decision making
 Groups of five to seven members are optimal for
decision process speed and quality.
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4–25
Improving Group Decision Making
• Brainstorming
 An idea-generating process that encourages
alternatives while withholding criticism.
• Nominal group technique
 A decision-making technique in which group members
are physically present but operate independently.
• Electronic meeting
 A type of nominal group technique in which
participants are linked by computer.
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Web Links
• Visit the Robbins/DeCenzo companion Website
 At www.prenhall.com/robbins for this chapter’s Internet
resources, including chapter quiz and student PowerPoints.
• Diversity Perspectives
 Log onto www.prenhall.com/onekey and take the role of the
foundation director trying to turn a potentially “bad” committee
into a “good” one.
• Enhancing Your Skill in Ethical Decision Making
 Log onto www.prenhall.com/onekey and get ready to enhance
your skill in ethical decision making.
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Video Case Application
The Management Picture: Quick Takes Video 1
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