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The Decision-Making Process

The Decision-Making Process. Overview. What defines a decision problem The rational model for decision making Modifications of the rational model. Quick Write. Give an example of a decision you had to make. Explain how you thought the issue through. Courtesy of Clipart.com.

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The Decision-Making Process

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  1. The Decision-Making Process

  2. Overview • What defines a decision problem • The rational model for decision making • Modifications of the rational model Chapter 5 Lesson 1

  3. Quick Write Give an example of a decision you had to make. Explain how you thought the issue through. Chapter 5 Lesson 1 Courtesy of Clipart.com

  4. What Defines a Decision Problem Chapter 5 Lesson 1 Courtesy of Clipart.com

  5. The Decision-Making Process Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 121Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  6. Problems and Decision-Making • The decision-making process is a set of eight steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution • A problem, in this context, is a discrepancy, or gap, between what is and what should be Chapter 5 Lesson 1

  7. Identification of a Problem Identifying problems is a big, and often difficult, task for managers They have to compare their current state of affairs with some standard Chapter 5 Lesson 1

  8. Identification of a Problem What Should the Standard Be? Past performance? Previously set goals? Comparison with other parts of the organization? Chapter 5 Lesson 1

  9. Identification of Decision Criteria Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 122 Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  10. Weighting Decision Criteria Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 122 Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  11. Identification of Alternatives Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 123 Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  12. Analysis of Alternatives Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 123 Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  13. Selection of an Alternative Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 123 Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  14. Implementation of the Decision Decision implementation means putting a decision into action Enough analysis. It’s time to buy the car! Chapter 5 Lesson 1 Courtesy of Thinkstock Images

  15. Review the Decision How is the new car working out? • Price? • Comfort? • Durability? • Repair? Chapter 5 Lesson 1 Courtesy of Brand X Images

  16. Buying a Computer Break into groups of three to five. Use the decision-making process to prepare to buy a computer (1) state the problem (2) identify decision criteria (3) weight the criteria (4) identify alternatives (5) analyze alternatives (6) select an alternative based on criteria Explain how you plan to evaluate the effectiveness of your decision Chapter 5 Lesson 1

  17. The problem Is clear and Unambiguous A single, well-defined goal is to be achieved Preferences are clear All alternatives And consequences are known Preferences are constant and stable No time or cost constraints Exist Final choice will maximize economic payoff Lead to Rational Decision Making The Rational Model forDecision Making Assumptions of Rationality Adapted from Fundamentals of Management, 5th Ed.By Robbins/DeCenzo, p. 125 Pearson Prentice Hall, 2005 Chapter 5 Lesson 1

  18. Condoleezza Rice Secretary of State Assumed office January 2005 Rational Decision-Makers A decision maker who was perfectly rational would be fully objective and logical Chapter 5 Lesson 1 Taken from Wikipedia.com

  19. Rational Decision-Makers These assumptions often do not hold true because the rational model demands more certainty than usually exists Chapter 5 Lesson 1 Courtesy of Clipart.com

  20. Certainty Certainty, in this context, is the implication that the decision maker knows the outcome of every possible alternative Chapter 5 Lesson 1 Courtesy of Pixland Images

  21. Risk Risk, in this sense, means the probability that a particular outcome will result from a given decision Chapter 5 Lesson 1

  22. Uncertainty Decision makers often find themselves in uncertainty—the state of incomplete knowledge and inability to determine probable outcomes Chapter 5 Lesson 1 Courtesy of Thinkstock Images

  23. Creativity The rational decision maker also needs creativity—the ability to produce novel and useful ideas Chapter 5 Lesson 1 Courtesy of Clipart.com

  24. Advantages of Creativity • Helps the decision maker understand problems more fully and even see problems that others don’t • Helps a decision maker to identify possible solutions to problems Chapter 5 Lesson 1

  25. Three Components of Creativity • Expertise • Creative-thinking skills • Intrinsic task motivation Chapter 5 Lesson 1 Courtesy of Thinkstock Images

  26. Expertise Mozart – expertise in music Edison – expertise in electricity Einstein – expertise in physics Dali – expertise in art Chapter 5 Lesson 1 Photos Courtesy of Library of Congress

  27. Creative-Thinking Skills • Personality characteristics • Using analogies • Seeing familiar things in new ways Chapter 5 Lesson 1

  28. Intrinsic Task Motivation • Interesting • Exciting • Satisfying • Challenging Chapter 5 Lesson 1 Courtesy of Clipart.com

  29. Discouraging Creativity Environmental Factors • Expected evaluation—focusing on how your work will be evaluated • Surveillance—feeling you’re being watched while you work • External motivators—emphasizing external, tangible rewards • Competition—facing win-lose situations with your peers • Constrained choices—being given limits on how you can do your work Chapter 5 Lesson 1

  30. Modifications of the Rational Model Chapter 5 Lesson 1 Courtesy of Clipart.com

  31. Are You Satisficing? People generally have limited time and ability to process masses of information to reach a decision, so they satisfice – opt to make a decision that is good enough Chapter 5 Lesson 1

  32. Bounded Rationality Behavior that is rational within the parameters of a simplified model of decision making that captures the essential features of a problem Chapter 5 Lesson 1 Courtesy of Polka Dot Images

  33. Bounded Rationality in Practice A decision maker considers a handful of obvious choices, opts for highly visible choices, and will review and evaluate them only to the point of finding a good enough solution Chapter 5 Lesson 1

  34. Common Errors in the Decision-Making Process A heuristic is a kind of shortcut to decision making – an informal method of problem solving, often called a rule of thumb, an educated guess, or common sense Chapter 5 Lesson 1

  35. Three Heuristic Mistakes The availability heuristic is the tendency to base judgments on information that is readily available The representative heuristic isthe tendency for people to base judgment of probability on things with which they are familiar The escalation of commitment is an increased commitment to a previous decision despite negative information Chapter 5 Lesson 1

  36. Rapid Decision-Making You go to the parking lot after school and your car won’t start. You are due at work in an hour. What will you do? …………………………… Your mother says to you, “Run up to the store and pick up some catsup for dinner tonight.” When you arrive at the store, you discover that they are out of the brand your mother normally buys. What will you do? (Note: You have no way of calling home). Chapter 5 Lesson 1

  37. Rapid Decision-Making You take your car into a shop to have the oil changed. The attendant comes out and says, “The manufacturer suggests you should have your automatic transmission fluid changed at 60,000. It’s only $49.99.” Your car has 70,000 miles on it and you have enough money to pay for all the repairs. What will you do? Chapter 5 Lesson 1

  38. Rapid Decision-Making Your teacher tells you on Friday that you will be tested on Chapters 1-4 on Monday. While you knew this test was coming, you did not expect it until the following week. But this is the weekend of your older sister’s wedding and the family has big plans. You know you will not have time to study. What will you do? .............................................................. You sit down with two friends to watch the big game when the power goes out in your house. The whole neighborhood looks like it is blacked out. You really want to watch this game. What will you do? Chapter 5 Lesson 1

  39. Rapid Decision-Making You have saved enough money to buy a new CD player and sound system for your car. How will you go about making your decision on what system to buy? Chapter 5 Lesson 1 Courtesy of Liquidlibrary Images

  40. Review • The decision-making process isa set of eight steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution • A problem is a discrepancy, or gap, between what is and what should be • Decision criteria are factors that are relevant in a decision Chapter 5 Lesson 1

  41. Review • People assume that managers are rational in their decision making – that their decision making is thought to be consistent and value-maximizing within certain constraints • Certainty is the implication that the decision maker knows the outcome of every possible alternative • Risk, in this sense, means the probability that a particular outcome will result from a given decision Chapter 5 Lesson 1

  42. Review • Decision makers often find themselves in uncertainty—the state of incomplete knowledge and inability to determine probable outcomes • The rational decision maker also needs creativity—the ability to produce novel and useful ideas • Extensive research has led to a model of creativity that sees creativity as the result of three components: expertise, creative-thinking skills, and intrinsic task motivation Chapter 5 Lesson 1

  43. Review • People generally have limited time and ability to process masses of information to reach a decision, so they satisfice—make a decision that is good enough • Behavior that is rational within the parameters of a simplified model that captures the essential features of a problem is called bounded rationality Chapter 5 Lesson 1

  44. Review • Practicing bounded rationality involves considering a handful of obvious choices, making decisions based on highly visible choices, and finding good enough solutions • A heuristic is a kind of shortcut to decision making – an informal method of problem solving, often called a rule of thumb, an educated guess, or common sense Chapter 5 Lesson 1

  45. Review • Three common heuristic mistakes are the availability heuristic, the representative heuristic, and the escalation of commitments • The availability heuristic is the tendency to base judgments on information that is readily available but not necessarily accurate Chapter 5 Lesson 1

  46. Review • The representative heuristic isthe tendency for people to base judgment of probability on things with which they are familiar • The escalation of commitment is an increased commitment to a previous decision despite negative information Chapter 5 Lesson 1

  47. Summary • What defines a decision problem • The rational model for decision making • Modifications of the rational model Chapter 5 Lesson 1

  48. What’s Next… Decision-Making Challenges Chapter 5 Lesson 1 Courtesy of Clipart.com

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