| 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 |