Management

Fifteenth Edition, Global Edition

Chapter 2
Making Decisions

Copyright © 2021 Pearson Education Ltd.

Decision making
Managers at all levels and in all areas of organizations make
decisions. That is, they make choices.

For instance, top-level managers make decisions about their

organization’s goals, where to locate manufacturing facilities,
or what new markets to move into.

Middle- and lower-level managers make decisions about

production schedules, product quality problems, pay raises,
and employee discipline
What is a Decision?
Decision—a choice among two or more
alternatives.

Decision making is the essence of management.

All managers would like to make good decisions

because they’re judged on the outcomes of those
decisions.
Decision Making
• The Decision-Making Process
– Identifying a problem and decision criteria and
allocating weights to the criteria.
– Developing, analyzing, and selecting an
alternative that can resolve the problem.
– Implementing the selected alternative.
– Evaluating the decision’s effectiveness.
Step 1: Identifying the Problem
• Problem
– A discrepancy between an existing and desired state
of affairs.
• Characteristics of Problems
– A problem becomes a problem when a manager
becomes aware of it.
– There is pressure to solve the problem.
– The manager must have the authority, information, or
resources needed to solve the problem.
Step 2: Identifying Decision Criteria

• Decision criteria are factors that are important

(relevant) to resolving the problem such as:
– Costs that will be incurred (investments
required)
– Risks likely to be encountered (chance of
failure)
– Outcomes that are desired (growth of the firm)
 Step 3: Allocating Weights to the Criteria

• Decision criteria are not of equal importance:

Assigning a weight to each item places the
items in the correct priority order of their
importance in the decision-making process.
Exhibit - Criteria and Weights for Computer Replacement Decision

Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3
Step 4: Developing Alternatives
• Identifying viable alternatives
– Alternatives are listed (without evaluation) that
can resolve the problem.

Step 5: Analyzing Alternatives

• Appraising each alternative’s strengths and
weaknesses
 An alternative’s appraisal is based on its ability to
resolve the issues identified in steps 2 and 3.
Exhibit- Evaluation of Laptop Alternatives
Against Weighted Criteria
Step 6: Selecting an Alternative
• Choosing the best alternative
– The alternative with the highest total weight is
chosen.

Step 7: Implementing the

Alternative
• Putting the chosen alternative into action.
 Conveying the decision to and gaining commitment
from those who will carry out the decision.
Step 8: Evaluating the Decision’s
Effectiveness
• The soundness of the decision is judged by its
outcomes.
– How effectively was the problem resolved by
outcomes resulting from the chosen
alternatives?
– If the problem was not resolved, what went
wrong?
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
Bounded Rationality
• 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
Intuition
• Intuitive decision-making: making decisions on the basis
of experience, feelings, and accumulated judgment
• Intuitive decision making can complement both rational and
bounded rational decision making.
• A recent study found that individuals who experienced
intense feelings and emotions when making decisions
actually achieved higher decision-making performance
• The old belief that managers should ignore emotions when
making decisions may not be the best advice
Evidence-based management (EBMgt)
• Evidence-based management= the systematic use of the
best available evidence to improve management practice.
• The four essential elements of EBMgt are:
(1) the decision maker’s expertise and judgment;
(2) external evidence that’s been evaluated by the decision
maker;
(3) opinions, preferences, and values of those who have a
stake in the decision; and
(4) relevant organizational (internal) factors such as context,
circumstances, and organizational members.
Types of Decisions:
1. Structured Problems and Programmed Decisions

Depending on the nature of the problem, a manager

can use one of two different types of decisions.
• Structured problems: straightforward, familiar,
and easily defined problems
• Programmed decisions: repetitive decisions that
can be handled by a routine approach
 Types of Programmed Decisions
• Procedure: a series of sequential steps used to
respond to a well-structured problem
The only difficulty is identifying the problem.
Once it’s clear, so is the procedure.
For instance, a purchasing manager receives a
request from a warehouse manager for 15 tablets for
the inventory clerks. The purchasing manager knows
how to make this decision by following the established
purchasing procedure.
 Types of Programmed Decisions
• Rule : an explicit statement that tells managers what
can or cannot be done
• Rules are frequently used because they’re simple to
follow and ensure consistency.
• For example, rules about lateness and absenteeism
permit supervisors to make disciplinary decisions
rapidly and fairly.
 Types of Programmed Decisions
• Policy: a guideline for making decisions.
• In contrast to a rule, a policy establishes general
parameters for the decision maker rather than
specifically stating what should or should not be
done.
• Policies typically contain an ambiguous term that
leaves interpretation up to the decision maker.
Types of Decisions: Unstructured Problems
and Nonprogrammed Decisions
• Unstructured problems: problems that are new
or unusual and for which information is ambiguous
or incomplete.
• Whether to build a new manufacturing facility in
China is an example of an unstructured problem.
• Nonprogrammed decisions: unique and
nonrecurring and involve custom made solutions
 Programmed vs Nonprogrammed Decisions

Characteristic Programmed Decisions Nonprogrammed

Decisions
Type of problem Structured Unstructured
Managerial level Lower levels Upper levels
Frequency Repetitive, routine New, unusual
Information Readily available Ambiguous or incomplete

Goals Clear, specific Vague

Time frame for solution Short Relatively long

Solution relies on… Procedures, rules, policies Judgment and creativity