Chapter 5 – Decision-Making: The Essence of the Manager’s Job
The Decision-Making Process
 Define decision and decision-making process.
 Describe the eight steps in the decision-making process.
A decision is a choice. The decision-making process consists of eight steps that begin
with (1) and (2) identifying a problem and decision criteria and (3) allocating weights to
those criteria; move to (4) developing, (5) analyzing, and (6) selecting an alternative that
can resolve the problem; (7) implementing the alternative; and concludes with (8)
evaluating the decision’s effectiveness. (See Exhibit 6-1.)
The Manager as Decision Maker
 Discuss the assumptions of rational decision making.
 Describe the concepts of bounded rationality, satisficing, and escalation of
commitment.
 Explain intuitive decision making.
 Contrast programmed and nonprogrammed decisions.
 Contrast the three decision-making conditions.
 Explain maximax, maximin, and minimax decision choice approaches.
 Describe the four decision-making styles.
 Discuss the twelve decision-making biases managers may exhibit.
 Describe how managers can deal with the negative effects of decision errors and
biases.
 Explain the managerial decision-making model.
The assumptions of rationality (see Exhibit 6-6) are as follows: the problem is clear
and unambiguous; a single, well-defined goal is to be achieved; all alternatives and
consequences are known; preferences are clear, constant, and stable; no time or cost
constraints exist; and the final choice will maximize the payoff.
Bounded rationality says that managers make rational decisions but are bounded
(limited) by their ability to process information. Satisficing is when decision makers
accept solutions that are good enough. Escalation of commitment is when managers
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increase commitment to a decision even when they have evidence it may have been a
wrong decision.
Intuitive decision making is making decisions on the basis of experience, feelings,
and accumulated judgment. (See Exhibit 6-7.)
Programmed decisions are repetitive decisions that can be handled by a routine
approach and are used when the problem being resolved is straightforward, familiar, and
easily defined (structured). Nonprogrammed decisions are unique decisions that require a
custom-made solution and are used when the problems are new or unusual and for which
information is ambiguous or incomplete. (See Exhibit 6-8.)
Certainty is a situation when a manager can make accurate decisions because all
outcomes are known. Risk is a situation when a manager can estimate the likelihood of
certain outcomes. Uncertainty is a situation where a manager is not certain about the
outcomes and can’t even make reasonable probability estimates.
When decision makers face uncertainty, their psychological orientation will
determine whether they follow a maximax choice (maximizing the maximum possible
payoff); a maximin choice (maximizing the minimum possible payoff); or a minimax
choice (minimizing the maximum regret—amount of money that could have been made if
a different decision had been made).
There are four decision-making styles. The directive style has a low tolerance for
ambiguity and a rational way of thinking. The analytic style has a high tolerance for
ambiguity and a rational way of thinking. The conceptual style has a high tolerance for
ambiguity and an intuitive way of thinking. The behavioral style has a low tolerance for
ambiguity and an intuitive way of thinking. (See Exhibit 6-12.)
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The 12 common decision-making errors and biases including: overconfidence,
immediate gratification, anchoring, selective perception, confirmation, framing,
availability, representation, randomness, sunk costs, self-serving bias, and hindsight. (See
Exhibit 6-13.) Managers can avoid the negative effects of such errors and biases by being
aware of them and then not doing them. They should also pay attention to how they do
make decisions and the heuristics (rules of thumb) they actually use. Finally, managers
might want to ask those around them to help identify weaknesses in their decisionmaking style and try to improve on them.
The managerial decision making model (see Exhibit 6-14) helps explain how the
decision-making process is used to choose the best alternative(s) either through
maximizing or satisficing and then implement and evaluate the alternative. It also helps
explain what factors affect the decision-making process including the decision-making
approach (rationality, bounded rationality, intuition); the types of problems and decisions
(well-structured and programmed or unstructured and nonprogrammed); the decisionmaking conditions (certainty, risk, uncertainty); and the decision maker’s style (directive,
analytic, conceptual, behavioral).
Decision Making for Today’s World
 Explain how managers can make effective decisions in today’s world.
 List the six characteristics of an effective decision-making process.
 Describe the five habits of highly reliable organizations.
Managers can make effective decisions by understanding cultural differences in
decision making; knowing when it’s time to call it quits; and by using an effective
decision-making process.
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The six characteristics of an effective decision-making process include (1) it focuses
on what’s important; (2) it’s logical and consistent; (3) it acknowledges both subjective
and objective thinking and blends both analytical and intuitive approaches; (4) it requires
only “enough” information as is necessary to resolve a problem; (5) it encourages and
guides gathering relevant information and informed opinions; and (6) it’s straightforward,
reliable, easy to use, and flexible.
The five habits of highly reliable organizations are (1) not being tricked by their
successes; (2) deferring to experts on the front line; (3) letting unexpected circumstances
provide the solution; (4) embracing complexity and; (5) anticipating, but also anticipating
limits.
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Chapter 5 – Key Terms
decision
A choice from two or more alternatives.
decision-making process
A set of eight steps that include identifying a
problem, selecting an alternative, and evaluating the
decision’s effectiveness.
problem
A discrepancy between an existing and a desired
state of affairs.
decision criteria
Criteria that define what’s relevant in a decision.
rational decision making
Decision-making behavior where choices are
consistent and value-maximizing within specified
constraints.
bounded rationality
Decision-making behavior that’s rational, but
limited (bounded) by an individual’s ability to
process information.
satisficing
Accepting solutions that are “good enough.”
escalation of commitment
An increased commitment to a previous decision
despite evidence that it may have been wrong.
intuitive decision making
Making decisions on the basis of experience,
feelings, and accumulated judgment.
structured problems
Straightforward, familiar, and easily defined
problems.
programmed decision
A repetitive decision that can be handled by a
routine approach.
procedure
A series of interrelated sequential steps that can be
used to respond to a well-structured problem.
rule
An explicit statement that tells managers what they
can or cannot do.
policy
A guideline for making decisions.
unstructured problems
Problems that are new or unusual and for which
information is ambiguous or incomplete.
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nonprogrammed decisions
A unique decision that requires a custom-made
solution.
certainty
A situation in which a manager can make accurate
decisions because all outcomes are known.
risk
A situation in which the decision maker is able to
estimate the likelihood of certain outcomes.
uncertainty
A situation in which a decision maker has neither
certainty nor reasonable probability estimates
available.
directive style
A decision-making style characterized by low
tolerance for ambiguity and a rational way of
thinking.
analytic style
A decision-making style characterized by a high
tolerance for ambiguity and a rational way of
thinking.
conceptual style
A decision-making style characterized by a high
tolerance for ambiguity and an intuitive way of
thinking.
behavioral style
A decision-making style characterized by a low
tolerance for ambiguity and an intuitive way of
thinking.
heuristics
Rules of thumb that managers use to simplify
decision making.
business performance
management (BPM)
software
IT software which provides key performance
indicators to help managers monitor
efficiency of projects and employees.
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Deciding with groups
Understanding Groups
 Define the different types of groups.
 Describe the five stages of group development.
Formal groups are work groups defined by the organization’s structure that have
designated work assignments and specific tasks. (See Exhibit 15-1 for a list of formal
groups.) Informal groups are social in nature.
The five stages of group development (see Exhibit 15-2) are as follows: forming
(joining the group and defining the group’s purpose, structure, and leadership), storming
(intragroup conflict), norming (close relationships develop and the group becomes
cohesive), performing (performing the task at hand), and adjourning (group prepares to
disband).
Explaining Work Group Behavior
 Explain the major components that determine group performance and satisfaction.
 Discuss how roles, norms, conformity, status systems, group size, and group
cohesiveness influence group behavior.
 Explain how group norms can both help and hurt an organization.
 Define groupthink and social loafing.
 Describe the relationships between group cohesiveness and productivity.
 Discuss how conflict management influences group behavior.
 Tell the advantages and disadvantages of group decision making.
The major components that determine group performance and satisfaction (see
Exhibit 15-3) are: the external conditions imposed on the group, group member
resources, group structure, group processes, and group tasks.
People play different roles in groups. These roles tend to either be task-oriented or
member-oriented. Norms are standards or expectations that are accepted and shared by
group members and dictate factors such as work output levels, absenteeism, promptness,
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and amount of socializing on the job. Conformity is the pressure felt by members to
behave according to the group. A group’s status system has to do with its grading,
position, or ranking of certain people or positions within the group. Smaller groups are
faster at completing tasks, but larger groups get better results. Group cohesiveness refers
to the degree to which members are attracted to a group and share the group’s goals.
Norms can help an organization because they can influence work expectations.
However, that’s also the reason that norms can hurt an organization.
Groupthink is when a group exerts extensive pressure on individuals to align their
opinions to conform to others’ opinions. Social loafing is the tendency for an individual
to expend less effort (loaf) when working in a group.
When a highly cohesive group’s goals are aligned with organizational goals, it
will experience a strong increase in productivity. However, if the group is not cohesive, it
will experience only a moderate increase in productivity. If a highly cohesive group’s
goals are not aligned with organizational goals, there’s a decrease in productivity. (See
Exhibit 15-5.)
Conflict is any perceived incompatible differences. Conflict and how it’s
managed can influence group behavior. Relationship conflicts almost always are
dysfunctional. Low levels of process conflict and low-to-moderate levels of task conflict
can be functional. (See Exhibit 15-8.)
When making decisions, groups tend to be more accurate and creative and have a
higher degree of acceptance of the decision. However, groups are not as fast or efficient
as individuals when making decisions. (See Exhibit 15-6.)
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Creating Effective Teams
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Compare groups and teams.
Explain why teams have become so popular in organizations.
Describe the four most common types of teams.
List the characteristics of effective teams.
Work teams are different from work groups. (See Exhibit 15-10.) Work groups
interact primarily to share information and to make decisions that help each group
member individually do his or her job more efficiently and effectively. Work teams work
intensely on a specific, common goal using their positive synergy, individual and mutual
accountability, and complementary skills.
Teams have become popular because teams typically outperform individuals
when the tasks being done require multiple skills, judgment, and experience.
The four most common types of teams are problem-solving teams, self-managed
teams, cross-functional teams, and virtual teams.
Effective teams have the following characteristics: clear goals, relevant skills,
mutual trust, unified commitment, good communication, negotiating skills, appropriate
leadership, internal support, and external support. (See Exhibit 15-11.)
Current Challenges in Managing Teams
 Discuss the challenges of managing global teams.
 Explain the role of informal (social) networks in managing teams.
Global teams face challenges from: group member resources, group structure
(conformity, status, social loafing, and cohesiveness), group processes, and the manager’s
role. (See Exhibit 15-12.). Social networks describe the patterns of informal connections
among individuals within teams. These informal social relationships can hinder or help
the team’s effectiveness.
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Deciding with groups – Key Terms
group
Two or more interacting and interdependent individuals
who come together to achieve specific goals.
forming
The first stage of group development in which people join
the group and then define the group’s purpose, structure,
and leadership.
storming
The second stage of group development which is
characterized by intragroup conflict.
norming
The third stage of group development which is
characterized by close relationships and cohesiveness.
performing
The fourth stage of group development when the group is
fully functional.
adjourning
The final stage of group development for temporary groups
during which group members are concerned with wrapping
up activities rather than task performance.
role
Behavior patterns expected of someone occupying a given
position in a social unit.
norms
Standards or expectations that are accepted and shared by a
group’s members.
groupthink
When a group exerts extensive pressure on an individual to
align his or her opinion with others’ opinions.
status
A prestige grading, position, or rank within a group.
social loafing
The tendency for individuals to expend less effort when
working collectively than when working individually.
group cohesiveness
The degree to which group members are attracted to one
another and share the group’s goals.
conflict
Perceived incompatible differences that result in
interference or opposition.
traditional view of conflict The view that all conflict is bad and must be avoided.
human relations view of
conflict
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The view that conflict is a natural and inevitable outcome
in any group.
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interactionist view of
conflict
The view that some conflict is necessary for a group to
perform effectively.
functional conflicts
Conflicts that support a group’s goals and improve its
performance.
dysfunctional conflicts
Conflicts that prevent a group from achieving its goals.
task conflict
Conflicts over content and goals of the work.
relationship conflict
Conflict based on interpersonal relationships.
process conflict
Conflict over how work gets done.
work teams
Groups whose members work intensely on a specific,
common goal using their positive synergy, individual and
mutual accountability, and complementary skills.
problem-solving team
A team from the same department or functional area that’s
involved in efforts to improve work activities or to solve
specific problems.
self-managed work team
A type of work team that operates without a manager and is
responsible for a complete work process or segment.
cross-functional team
A work team composed of individuals from various
specialties.
virtual team
A type of work team that uses technology to link physically
dispersed members in order to achieve a common goal.
social network structure
The patterns of informal connections among individuals
within a group
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