| Question | Answer |
| Decision | Making a choice from two or more alternatives. |
| The Decision-Making Process(P/D/W/D/A/A/A/E) | -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 |
| 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. |
| Decision criteria are factors that are important (relevant) to resolving the problem. | -Costs that will be incurred (investments required)
-Risks likely to be encountered (chance of failure)
-Outcomes that are desired (growth of the firm) |
| 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. |
| Identifying viable alternatives | Alternatives are listed (without evaluation) that can resolve the problem. |
| 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. |
| Choosing the best alternative | The alternative with the highest total weight is chosen. |
| Putting the chosen alternative into action. | Conveying the decision to and gaining commitment from those who will carry out the decision. |
| 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 | Managers make consistent, value-maximizing choices with specified constraints. |
| Assumptions are that decision makers | -Are perfectly rational, fully objective, and logical.
-Have carefully defined the problem and identified all viable alternatives.
-Have a clear and specific goal
-Will select the alternative that maximizes outcomes in the organization’s interests rath |
| Bounded Rationality | Managers make decisions rationally, but are limited (bounded) by their ability to process information.
Assumptions are that decision makers:
Will not seek out or have knowledge of all alternatives
Will satisfice—choose the first alternative encountered |
| The Role of Intuition | Intuitive decision making
Making decisions on the basis of experience, feelings, and accumulated judgement. |
| Structured Problems | Involve goals that clear.
Are familiar (have occurred before).
Are easily and completely defined—information about the problem is available and complete |
| Programmed Decision | A repetitive decision that can be handled by a routine approach. |
| Types of Programmed Decisions A Policy | A general guideline for making a decision about a structured problem. |
| Types of Programmed Decisions A Procedure | A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem. |
| Types of Programmed Decisions 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. |
| Unstructured Problems | -Problems that are new or unusual and for which information is ambiguous or incomplete.
-Problems that will require custom-made solutions. |
| Nonprogrammed Decisions | -Decisions that are unique and nonrecurring.
-Decisions that generate unique responses. |
| Certainty | A ideal situation in which a manager can make an accurate decision because the outcome of every alternative choice is known. |
| Risk | A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives. |
| Uncertainty | Limited or information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers to rely on intuition, hunches, and “gut feelings”. |
| Maximax | the optimistic manager’s choice to maximize the maximum payoff |
| Maximin | the pessimistic manager’s choice to maximize the minimum payoff |
| Minimax: | the manager’s choice to minimize his maximum regret. |
| Dimensions of Decision-Making Styles | -Ways of thinking
*Rational, orderly, and consistent
*Intuitive, creative, and unique
-Tolerance for ambiguity
*Low tolerance: require consistency and order
*High tolerance: multiple thoughts simultaneously |
| Types of Decision Makers | -Directive
*Use minimal information and consider few alternatives.
-Analytic
*Make careful decisions in unique situations.
-Conceptual
*Maintain a broad outlook and consider many alternatives in making long-term decisions.
-Behavioral
*Avoid confli |
| Decision-Making Biases and Errors Heuristics | Using “rules of thumb” to simplify decision making. |
| Decision-Making Biases and Errors Overconfidence Bias | Holding unrealistically positive views of one’s self and one’s performance. |
| Decision-Making Biases and Errors Immediate Gratification Bias | Choosing alternatives that offer immediate rewards and that to avoid immediate costs |
| Decision-Making Biases and Errors Anchoring Effect | Fixating on initial information and ignoring subsequent information. |
| Decision-Making Biases and Errors Selective Perception | Selecting organizing and interpreting events based on the decision maker’s biased perceptions. |
| Decision-Making Biases and Errors Confirmation Bias | Seeking out information that reaffirms past choices and discounting contradictory information. |
| Decision-Making Biases and Errors Framing Bias | Selecting and highlighting certain aspects of a situation while ignoring other aspects. |
| Decision-Making Biases and Errors Availability Bias | Losing decision-making objectivity by focusing on the most recent events. |
| Decision-Making Biases and Errors Representation Bias | Drawing analogies and seeing identical situations when none exist. |
| Randomness Bias | Creating unfounded meaning out of random events. |
| Sunk Costs Errors | Forgetting that current actions cannot influence past events and relate only to future consequences. |
| Self-Serving Bias | Taking quick credit for successes and blaming outside factors for failures. |
| Hindsight Bias | Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact |
| Guidelines for making effective decisions: | -Know when it’s time to call it quits.
-Practice the five “whys”.
-Be an effective decision maker. |
| Habits of highly reliable organizations (HROs) | -Are not tricked by their success.
-Defer to the experts on the front line.
-Let unexpected circumstances provide the solution.
-Embrace complexity.
-Anticipate, but also anticipate their limits. |
| Characteristics of an Effective Decision-Making Process | -It focuses on what is important.
-It is logical and consistent.
-It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking. |
| Characteristics of an Effective Decision-Making Process | -It requires only as much information and analysis as is necessary to resolve a particular dilemma.
-It encourages and guides the gathering of relevant information and informed opinion.
-It is straightforward, reliable, easy to use, and flexible. |
| Error and bias... | Overconfidence b,Immediate gratification b, Anchoring effect,Selective perception b, Confirmation b,Framing b,Availability b, Representative b, Randomness b,Sunk cost error, self serving b,hindsight b. |
| How to avoid error and bias? | -being aware of them and try not to exhibit them
-pay attention to how they make decision
-try to identify the heuristics they typically use |
