Chapter 2: Decision Making

Step 3: allocate weights to the criteria

If the relevant criteria aren't equally important, the decision maker must weight the items in order to give them the correct priority in the decision. Example: The weighted criteria for Amanda's computer purchase are shown in Exhibit 2-2.

Step 4: develop alternatives

List viable alternatives that could solve the problem. Example: Amanda identifies eight laptops as possible choices (shown in Exhibit 2-3).

Managing risk

Managers can use historical data or secondary information to assign probabilities to different alternatives This is used to calculate expected value—the expected return from each possible outcome—by multiplying expected revenue by the probability of each alternative

Evidence-based management

the systematic use of the best available evidence to improve management practice

Characteristics of an effective decision-making process

-Focuses on what's important -Is logical and consistent -Acknowledges subjective and analytical thinking, blends analytical with intuitive thinking -Requires only as much information as is needed to resolve particular dilemma -Encourages the gathering of relevant information -Is straightforward, reliable, easy-to-use, flexible

Unstructured problems and Non programmed decisions

1. problems that are new or unusual and for which information is ambiguous or incomplete 2. unique and nonrecurring and involve custom made solutions

Structured problems and Programmed decisions

1. straightforward, familiar, and easily defined problems 2. repetitive decisions that can be handled by a routine

Big data and decision-making

Big data: the vast amount of quantifiable data that can be analyzed by highly sophisticated data processing -can be a powerful tool in decision making but collecting and analyzing data for data's sake is wasted effort

Decision-making conditions

Certainty: a situation in which a manger 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 her neither certainty nor reasonable probability estimates available

Step 6: select an alternative

Choose the alternative that generates the highest total in step 5

Step 2: identifying the decision criteria

Decision criteria are factors that are important to resolving the problem. Example: Amanda decides that memory and storage capabilities, display quality, battery life, warranty, and carrying weight are the relevant criteria in her decision

Bounded Rationality

Decision making that's rational, but limited by an individual's ability to process information Satisfice: accepting solutions that are "good enough" Escalation of commitment: an increased commitment to a previous decision despite evidence it may have been wrong

Step 8: evaluate decision effectiveness

Evaluate the results or outcome of the decision to see if the problem was resolved If it wasn't resolves, what went wrong?

Slides to review

Planning, organizing, leading, controlling, intuition, programmed vs non programmed, and decision making biases

Step 1: Identify a problem

Problem: an obstacle that makes it difficult to achieve a desired goal or purpose. Every decision starts with a problem, a discrepancy between an existing and a desired condition. Example: Amanda is a sales manager whose reps need new laptops.

Types of programmed decisions

Procedure: a series of sequential steps used to respond to a well-structured problem Rule: an explicit statement that tells managers what can or cannot be done Policy: a guideline for making decisions

Step 7: Implement the alternative

Put the chosen alternative into action Convey the decision to those affected and get their commitment to it

Rationality

Rational Decision-Making: choices that are logical and consistent and maximize value Assumptions of rationality: -Rational decision maker is logical and objective -Problem faced is clear and unambiguous -Decision maker would have clear, specific goal and be aware of all alternatives and consequences -The alternative that maximizes achieving this goal will be selected -Decisions are made in the best interest of the organization

Intuition

making decisions on that basis of experience, feelings, and accumulated judgement