8th edition
Steven P. Robbins
Mary Coulter
Decision Making
• Decision
A choice from two or more alternatives.
• The Decision-Making Process
A set of eight steps that include identifying a
problem, selecting an alternative, and
evaluating the decision’s effectiveness.
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Slide 2
The Decision-Making Process
•
The eight steps in the decision-making process
1. Identifying a problem
2. Identifying decision criteria
3. Allocating weights to the criteria
4. Developing alternatives
5. Analyzing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluating decision effectiveness
Slide 3
The DecisionMaking
Process
Exhibit 6.1
Step 1: Identifying a Problem
Finding a discrepancy (difference) between an existing
(current) and a desired state of affairs (things are not going
as they should).
Three Characteristics (aspects) of Problems.
A problem is identified when:
 A manager becomes aware (conscious) of it.
 There is pressure to act and solve the problem.
 The resources needed to take action are available (means,
authority, information).
Note: It is important not to confuse a problem with the
symptoms (visible indications) of the problems.
Slide 5
Step 2: Identifying Decision Criteria
• Managers must determine and list the relevant
(important, significant) criteria (factors, items) to include in
making a choice — or one criterion that will guide
(direct) a decision — aimed at resolving the problem
identified in step 1.
 Costs that will be incurred (investment required)
 Risks likely to be encountered (chance of failure)
 Outcomes that are desired (growth of the firm)
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Slide 6
Step 3: Allocating Weights to the Criteria
Prioritizing the criteria that were identified in step
2 by assigning (giving) a “weight” to each.
Decision criteria are not of equal importance
Assigning a weight to each item (criterion) places the
items in the correct priority (order of importance) in the
decision making process.
E.g. Giving the most important criterion a weight of 10 and
then assign weights to the rest against that standard: A
weight of 10 would be twice as important as a weight of 5.
Slide 7
Step 4: Developing Alternatives
• Listing viable (workable) alternatives (other possible
actions) that could resolve the problem.
Alternatives are only listed without evaluation.
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Slide 8
Step 5: Analyzing Alternatives
• Appraising (evaluating, analyzing) each alternative’s
strengths and weaknesses against the criteria
established in steps 2 and 3.
Alternatives are analyzed for their effectiveness
in resolving the issue.
Slide 9
Step 6: Selecting an Alternative
• Choosing the best alternative from among those
considered.
Once the criteria in the decision have been
weighted, and viable alternatives analyzed,
the alternative with the highest total in step 5
is chosen.
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Slide 10
Step 7: Implementing the Decision
• Putting the chosen alternative into action.
Conveying (communicating) the decision to those
who will implement it and gaining (getting) their
commitment (cooperation) to the decision.
Slide 11
Step 8: Evaluating the Decision
Effectiveness
• Evaluating (measuring) the outcome (result) of the
decision to see if the problem has been resolved.
• The soundness (quality, goodness) of the decision is
judged by its outcomes.
 How effectively was the problem solved resulting from
the chosen alternatives?
 If the problem was not solved, what went wrong?
Slide 12
Making Decisions
• Rational decision making describes choices that are
consistent (logical) and value-maximizing (for the best advantage)
within specified constraints (defined limits).
Assumptions (accepted truths) of Rationality
 Perfectly rational decision makers would…
 be fully objective (neutral, fair-minded), and logical.
 carefully define a problem.
 have a clear and specific goal.
 Identify all viable alternatives.
 select the alternative that maximizes goal
achievement.
 maximize the organization’s interests, not their own
interests.
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Slide 13
Assumptions of Rationality
Exhibit 6.6
Influences on Decision Making
Certain assumptions of rationality in the decision-making
process are not always realistic (practical) with respect to how
managers actually make decisions.
• Bounded Rationality
 Managers tend to make decisions rationally, but are often
limited (bounded) by their ability to process information.
• Satisficing
 Because they cannot possibly analyze all information on
all alternatives, managers accept solutions that are “good
enough”. They satisfice rather than maximize.
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Slide 15
Influences on Decision Making
Decision making may be influenced by the organization’s
culture, internal politics, power considerations and by…
Escalation of Commitment
 An
increasing or continued commitment to a previous
decision despite evidence that the decision may have
been wrong.

They don’t want to admit that their decision was wrong

Rather than search for new alternatives, they increase their
commitment to the original solution.
E.g. Facts in the Challenger space shuttle disaster on January 28,
1986 indicate an escalation of commitment by decision makers
(managers) to launch the shuttle even though the decision was
questioned by others.
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Slide 16
Influences on Decision Making
• The Role of Intuition (instinctive knowing)
 Intuitive decision making
 Making
decisions on the basis of experience, feelings,
and accumulated judgment.
 Intuition
or “gut feeling” and rational analysis
complement each other.
 An
experienced manager can act with limited
information using his or her judgment to make a
decision.
Page 84
Slide 17
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. 91–99.
Exhibit 6.7
Problems and Decisions
• Programmed Decision
 A repetitive decision that can be handled by a routine
approach
• 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.
•.
Page 85
Slide 19
Types of Programmed Decisions
• A Policy
 A general guideline for making a decision about a
structured problem.
• A Procedure
 A series of interrelated steps that a manager can use to
respond (applying a policy) to a structured problem.
• A Rule
 An explicit statement that limits what a manager or
employee can or cannot do in carrying out the steps
involved in a procedure.
Slide 20
Policy, Procedure, and Rule Example
• 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.
Problems and Decisions (cont’d)
• Non-programmed Decisions
 Decisions that are unique and nonrecurring (are not
repeated).
 Decisions that generate unique responses.
Unstructured Problems
 Problems that are new or unusual and for which
information is ambiguous or incomplete.
 Problems that will require custom-made solutions.
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Slide 22
Types of Problems, Types of Decisions, and
Level in the Organization
Exhibit 6.8
Decision-Making Conditions
• Certainty
When a manager can make an accurate
decision because the outcome of every
alternative is known.
• Risk
When a manager can only estimate the
different outcomes resulting from each
alternative.
Page 87
Slide 24
Decision-Making Conditions
• Uncertainty
Limited or no information prevents estimation of
outcomes resulting from alternatives and may
force managers to use intuition, hunches, and
“gut feelings”.

Maxi-max: the optimistic manager’s choice to maximize the
maximum payoff

Maxi-min: the pessimistic manager’s choice to maximize the
minimum payoff

Mini-max: the manager’s choice to minimize his maximum regret.
Page 88
Slide 25
Payoff Matrix
Exhibit 6.10
Regret Matrix
Exhibit 6.11
Making Decisions
 Decision-Making
Styles
 Directive: Use minimal information and consider few alternatives.
 Analytic: Make careful decisions in unique situations.
 Conceptual: Maintain a broad outlook (wide perception) and consider
many alternatives in making long-term decisions.
 Behavioral: Avoid conflict by working well with others and being
receptive (accept) to suggestions.
 Decision-Making
Biases (wrong attitudes) and Errors
 Using “rules of thumb” (fixed, easy guidelines) to simplify decision making.
 Holding unrealistically (too high) positive views of one’s self and one’s
performance.
 Choosing alternatives that offer immediate rewards to avoid immediate
costs.
Slide 28
The Managerial Decision-Making Model
• Summing up Managerial Decision Making
 The decision making process is shaped (formed) in
various degrees by four factors that play a role in how
managers choose the “best” alternative, implement it,
and determine whether or not it takes care of the
problem:
 The
decision-making approach being followed.
 The
decision-making conditions.
 The
type of problem being dealt with.
 The
manager’s own style of decision making.
Page 91
Slide 29
Overview of Managerial Decision Making
Exhibit 6.14
Decision Making for Today’s World
• Guidelines for making effective decisions:
Know when it is time to call it quits. Recognize
when a decision is not working and it is time to move on.
Practice the five “whys”. Learning to ask “why” not
just once, but five times forces decision makers to
examine more deeply the causes of the problem and
possible solutions.
Be an effective decision maker. >>>
Page 92
Slide 31
Decision Making for Today’s World
Characteristics of an Effective Decision-Making
Process
1 - It focuses on what is important.
2 - It is logical and consistent.
3 - It acknowledges both subjective and objective thinking and
blends (mixes) analytical with intuitive (instinctive) thinking.
4 - It requires only as much information and analysis as is
necessary to resolve a particular dilemma.
5 - It encourages and guides the gathering of relevant
information and informed opinion.
6 - It is straightforward (free from ambiguity), reliable, easy to use,
and flexible.
Slide 32
Decision Making for Today’s World
Habits of highly reliable organizations (HROs)
1. Are not tricked (led to mistakes) by their success.
2. Defer to (let decide) the experts on the front line.
3. Let unexpected circumstances provide the
solution.
4. Embrace (include, welcome) complexity.
5. Anticipate, but also anticipate their limits.
Slide 33
C H A P T E R R E V I E W 1/3
The Decision-Making Process (slides 2 & 5 to 12)
• Define decision and decision-making process.
• Describe the eight steps in the decision-making process.
C H A P T E R R E V I E W 2/3
The Manager as Decision Maker (slides 13, 15 to 20, 22, 24, 25, 29)
• Discuss the assumptions of rational decision making.
• Describe the concepts of bounded rationality, satisficing, and
escalation of commitment.
• Explain what intuition is and how it affects decision making.
• Contrast programmed and non-programmed decisions.
• Contrast the three decision-making conditions.
• Explain maxi-max, maxi-min, and mini-max decision choice
approaches.
• Explain the managerial decision-making model.
C H A P T E R R E V I E W 3/3
Decision Making for Today’s World (slides 29, 30, 31,33)
• Explain how managers can make effective decisions in
today’s world.
• List six characteristics of an effective decision-making
process.
• Describe the five habits of highly reliable organizations.