Critical Thinking and
Decision-Making Processes
Overview
 Decisions are made in an atmosphere in which there is
uncertainty, risk, time pressure, imperfect information
and a lack of knowledge as to responses.
 Decision making is a part of ALL the management
functions: planning, organizing, leading, and
controlling;
 Focus on this chapter: decisions made in the name of
the organization by managers.
A. Organizational Decision Making
 Manager’s primary function = decision making—the
process of identifying and solving problems creatively;
making appropriate and rational decisions!
 1.
Theories of Managerial Decision Making


A. Classical theory
B. Behavioral (administrative) theory
A.
Organizational Decision Making (cont’d)
 A. Classical theory:
* represents an ideal model, with maximizing outcomes as a
primary goal;
* maximizing = process of making decisions that is aimed at
realizing the best possible outcome on one dimension –
seeking the best answer! Used with non-programmed
decisions
* considered the normative model – defines how a decision
maker should make decisions
 B. Administrative theory:
* describes how managers actually make decisions with
uncertain outcomes where satisficing is necessary
A.
Organizational Decision Making (cont’d)
Satisficing:
* manager adopts the solution that minimally meets the
objectives, often found in the first acceptable option that
arises;
* alternatives are not studied much;
* commonly used and appropriate with programmed and
recurring decisions
Example: Purchasing software without reviewing whether
the same needs exist this year as last year.
A.
Organizational Decision Making (cont’d)
Optimizing:
* involves the selection of the BEST alternative from a range
of options that have been evaluated within existing
time/price constraints;
* involves the use of the classical decision-making
model more than the other two types.
Example: Selecting a particular brand of computers to
buy for use within the entire office from a range of six
major options and within the time allotted.
A.
Organizational Decision Making (cont’d)
 Characteristics of “Classical Theory”
Managers are expected to:
* gather information
* examine it objectively
* consider all alternative solutions
* make an appropriate choice of alternatives
leading to the best possible outcome
* managers who are “left-brain” thinkers tend to
arrive at logical and analytical decisions and are
stronger advocates of the classical theory
A.
Organizational Decision Making (cont’d)
 Identification of the problem – clearly stated/defined
 Presence of certainty – amount of risk is evident and
easily determined
 Information about alternatives – full set of information
about each alternative available and expected
outcomes are determined
 Maximization of outcomes – direct application of
classical theory results in rational choice of
alternatives in relation to the maximization of
outcomes
 Goal – attempt to make the ideal decision
A.
Organizational Decision Making (cont’d)
 Characteristics of “Behavioral (administrative)
Theory” – based on work of Herbert A. Simon; how
managers actually make decisions in business
situations
Model incorporates two basic concepts: (1)
bounded rationality and (2) satisficing
* managers who are “right-brain” thinkers tend to rely
more on intuitive and creative pursuits and more apt
to follow a behavioral model
A.
Organizational Decision Making (cont’d)
 Identification of the problem – problem exists and is
identified but difficulty in determining what it is;
vagueness
 Presence of uncertainty and intuition – exists because
there is only incomplete information available; sometimes
manager must use intuition, based on personal experience
 Information about alternatives – limited information
available about alternative solutions and outcomes
 Satisficing decision making - managers select the
alternative solution that satisfies “minimal” decision
criteria and seems “good enough”
A.
Organizational Decision Making (cont’d)
 Classical procedures – associated with high
performance in stable environment
 Behavioral procedures – associated with high
performance in unsuitable environments where
decisions made under more complex and difficult
conditions within a short time span
A.
Organizational Decision Making (cont’d)
 2. Two Types of Decisions to be Made


Programmed:
* decisions made routinely/recurring basis
* most often do not require huge expenditures
* less complex in nature (buying copy paper/stocking the
supply cabinet)
Nonprogrammed:
* have no precedents/situations not dealt with previously
* have no rules, procedures or policies for manager to follow
A.
Organizational Decision Making (cont’d)
 3. Personal v. Organizational Decisions – follow
proper protocol to make sure the two areas do not
collide!
 4. Business Decisions
* leaders are expected to act in a totally rational
manner
* moral responsibility of management – making
decisions that affect the work lives of others
* emotions and intuition enter into the making of
business decisions
A.
Organizational Decision Making (cont’d)
* need for rational behavior – follow a wellestablished logical process
* most decisions combine objectivity and
subjectivity
* use of decision-making aids
- computers
- statistics
- decision trees
B. Critical Thinking
 Definition: means using evidence and reason to
evaluate claims, dilemmas, or choice options
* rational decision making requires critical thinking
* unique, unanticipated, not encountered before –
requires a more detailed process to define, analyze and
solve “nonprogrammed” decisions
 1.
Scientific Method – steps of critical thinking;
method of research follows scientific rules that
knowledge can be obtained in an unbiased
manner
B. Critical Thinking (cont’d)
 2. Logical Reasoning Using the Scientific Process
a. Identifying/defining problem – most important
step!
* reasons for failure to identify real causes: 1)
haste; 2)work pressure; 3)discomfort with
ambiguous, vague and ill-defined situations
* results of failure to identify real cause
b. Gathering information about the problem –
investigate fully the circumstances
B. Critical Thinking (cont’d)
 c. Developing alternative solutions
* need for clear objectives – clear statement of the
objective must be developed
* need for creative solutions
– brainstorming = technique designed to help
individuals become freer in exercising their
creativity
- brainwriting = individuals write down their
ideas independently; group reviews and
critiques each idea
B. Critical Thinking (cont’d)
* need for alternative scenarios – an analytical
method with the advantage being the ability of the
manager to examine multiple possibilities rather than
selecting one path to follow
 d. Evaluating alternatives – test of logic requires that
alternatives be evaluated according to same set of
standards
* decision criteria – stated in quantitative or qualitative
terms
1. statistical analysis – the term “statistics” is used generally
to mean DATA (characteristics) for a sample (subset) of a
population; statistical analysis is a set of methods or
techniques for collecting, organizing and interpreting the
data (graphs/tables)
B. Critical Thinking (cont’d)
The way data data are displayed can aid the reader to
derive meanings from the data:
* Graphs – data organized and presented in terms
of: 1) most common plot, or 2) total volume per
time period
* Tables – data organized into arrays by
chronology, size, location or some other
characteristic
B. Critical Thinking (cont’d)
* Inferential statistics – provide techniques for
calculating the odds, or probabilities that certain
events will happen
* Payoff tables or matrices – show results of a
comparison of different alternatives; arranges
information so that comparisons of outcomes can be
examined simultaneously
* Computers have made the preparation of payoff
tables and matrices a much simpler process (Fig. 1-3)
B. Critical Thinking (cont’d)
2. Operations research – includes a wide range of
mathematical formulas and techniques for analyzing a
complex decision problem
* linear programming – used to find the best
answer to situations where many known elements
may be put together in different combinations
that yield different profits
3. Qualitative factors – are those which cannot be
measured directly in quantitative terms
B. Critical Thinking (cont’d)
a. certainty – all possible alternatives must be
known, direct and predictable methods and all
possible outcomes must be known
* Question in the realm of certainty = “What is
the least expensive way to ship a package from point A
to point B?”
* uncertainty – we have little or no information
about possible alternatives or outcomes
* limited certainty – decision maker has some
knowledge about some alternatives but has little
information about outcomes
B. Critical Thinking (cont’d)
b. Risk – where alternatives, the possible
outcomes, and the probabilities of those outcomes
occurring are known, the problem can be converted to
one of “gambling” or risk
4. Analytical tools for decision making
* Decision trees – powerful method of graphing
complex decision problems, especially in which one is
considering a sequence of decisions to be made across
a period of time
* VROOM MODEL – most common decisionmaking tree developed by Vroom and Yelton
B. Critical Thinking (cont’d)
* Decision making using groups – T group, Delphi
technique, nominal group technique, quality circles,
brainstorming (all covered in Ch. 8)
* Computerized decision making – decision support
system (DSS) is an interactive computer-based system that
aids decision makers in solving problems
e. Choosing an alternative – final step
* use judgment as it is needed in addition to
quantitative data
* consider possible negative consquences
* personal values – bias, attitude toward risk,
ambition, fear of public opinion –come into play in the act
of choosing the alternative
B. Critical Thinking (cont’d)
* use of groups or committees for implementation
– compromise, trading votes, filibustering are all
involved in the process of making important
decisions
* implementing the decision (decision has been
made)
* monitoring the decision
- feedback: either positive (decision was
appropriate) or negative (poor decision)
* internal and external environments (evaluate
outcomes)
B. Critical Thinking (cont’d)
3.
Logical Thinking Patterns
a. Inductive reasoning – defines the problem then
moves to identify factors or variables inherent to the
problem;
b. Deductive reasoning – thought processes move
from a general premise toward specific conclusions
c. Comparison – key is to use the same procedures
for comparing all objects or attributes being
investigated
d. Causation – most difficult thought process
C. Creative Thinking in Organizational
Decision Making
CREATIVITY – generation of new ideas;
INNOVATION – is the translation of a new idea into a
new product, service, method of production or even a
new organization
Creativity and innovation need to be encouraged and
fostered by individuals and organizations.
C. Creative Thinking in Organizational Decision
Making (cont’d)
1.
Individual creativity – manager has the awesome
task of identifying people within the organization
who are creative and fostering that creativity
* Highly creative people tend to be:
- more original in thought and ideas;
- willing to shift from one approach to another;
- more flexible and less rigid with time, resources;
- more independent in their pursuit of solutions
- more apt to disobey orders that make no sense
- more difficult to manage (question authority)
C. Creative Thinking in Organizational Decision
Making (cont’d)
2. Creative process in Organizations
a. Idea generation – variety of sources: outside
consultants, employees, new employees, etc.
b. Idea development or problem solving –supported
or inhibited
c. Implementation of creative ideas – high degree of
integration is required among units of an
organization
d. Monitoring of innovation – enables the
organization to examine the results to see if further
research is needed
MOCK EXAM QUESTIONS
MOCK EXAM QUESTIONS (cont’d)
MOCK EXAM QUESTIONS (cont’d)
MOCK EXAM QUESTIONS (cont’d)