READING 1: DECISION MAKING

In carrying out management functions, such as planning, organising, motivating and controlling,
a manager will be continually making decisions- making is a key management responsibility.

Some decisions are of the routine kind. They are decisions which are made fairly quickly, and
are based on judgment. Because a manager is experienced, he knows what to do in certain
situations. He does not have to think too much before taking action. For example, a supervisor in
a supermarket may bring back a product. The manager does not have to gather a great deal of
additional information before making the decision.

Other decisions are often intuitive ones. They are not really rational. The manager may have
hunch or a gut feeling that a certain course of action is the right one. He will follow that hunch
and act accordingly. Thus when looking for a agent in an overseas market a sales manager may
have several companies to choose from. However, he may go for one organization simply
because he feels it would be the most suitable agent. He may think that the chemistry between
the two firms is right. Such a decision is a based on hunch, rather than rational thought.

Many decisions are more difficult to make since they involve problem - solving. Very often, they
are strategic decisions involving major courses of action which will affect the future direction of
the enterprise. To make good decisions, the manager should be able to select, rationally, a course
of action. In practice, decisions are usually made in circumstances which are not ideal. They
must be made quickly, with insufficient information. It is probably rare that a manager can make
an entirely rational decision.

When a complex problem arises, like where to locate a factory or which new products to
develop, the manager has to collect facts and weigh up courses of action. He must be systematic
with dealing with the problem. A useful approach to this sort of decision-making is as follows:
the process consists of four phases: i) defining the problem; ii) analyzing and collecting
information; iii) working out options and iv) deciding on the best solution.

As a first step, the manager must identify and define the problem. And it is important that he
does not mistake the symptoms of a problem for the real problem he must solve. Consider the
case of a department store which finds that profits are falling and sales decreasing rapidly. The
falling profits and sales are symptoms of a problem. The manager must ask himself what the
store’s real problem is.Does the store have the wrong image? Is it selling the wrong goods or the
right goods at the wrong prices? Are its costs higher than they should be?

At this early stage, the manager must also take into account the rules and principles of the
company which may affect the final decision. These factors will limit the solution of the
problem.

One company may have the policy of buying goods only from home suppliers; another firm
might, on principle, be against making special payments to secure a contract; many enterprises
have a rule that managerial positions should be filled by their own staff, rather than by hiring
outside personnel. Rules and policies act as constraints, limiting the action of the decision-taker.

The second step is to analyse the problem and decide what additional information is necessary
before a decision-making. However, as already mentioned, the manager will rarely have all the
knowledge he needs. This is one reason why making decision involves a degree of risk. It is the
manager's job to minimise that risk.

Once the problem has been defined and the facts collected, the manager should consider the
options available for solving it. This is necessary because there are usually several ways of
solving a problem. In the case of the department store, the management may decide that the store
has the wrong image. A number of actions might be possible to change the image. New products
could be introduced and existing lines dropped; advertising could be stepped up; the store might
be modernized and refurbished or customer service might be improved.

It is worth nothing that, in some situations, one of the options may be to take no action at all.
This is a decision just as much as taking a more positive course of action. Peter Drucker, in his
book The Pratice of Management, gives a good example of the no-action option. He writes about
a shipping company which, for twenty years, had problems filling a top position. Each person
selected got into difficulties when doing the job.

Before making a decision, the managerwill carefully assess the options, considering the
advantages and disadvantages of each one. Having done this, he will have to take a decision.
Perhaps he will compromise, using more than one option. Thus, the manager of the department
store may solve his problem by making changes in the product range, increasing advertising and
improving the interior of the store.

I. Understanding the main points: Decide whether the following statements are true or false.

1 Before taking a routine decision managers must collect a great deal of information. F

2 When choosing an overseas agent most managers rely on their intuition F

3 When a firm dismisses one of its junior managers it is making a strategic decision. T

4 Managers cannot always wait until they have all the necessary information before T
taking important decisions

5 The first thing managers must do when solving a problem is to collect all the facts T
6 Because of their company’s rules and policies managers may not be able to take F
certain actions in order to solve a problem
7 After collecting all of the necessary information managers have to identify the T
various actions they could take to solve a problem
8 When important decisions have to be made managers need to use a systematic T
process of decision-making

II. Find words or phrases in the text which mean the same as the following:

1. Very important (paragraph 1) a key

2. Immediately, without hesitation (pr 2) quickly,
3. Occurs, appears (pr 5) arises
4. Put, build, establish (pr 5) - locate
5. Consider carefully, assess (pr 5) - weigh up courses of
6. Bear in mind, consider, remember (pr7) – take into account
7. Succeed in getting, win (pr8)
8. Choices, possible courses of action (pr10) consider
9. Increased (pr10) be stepped up
10. Take a middle course of action (pr 12) compromise
III. The phrases Make a decision, Take a decision, Take into account, Solve a problem are
examples of collocation. This refers to words which are frequently grouped together.
Complete the following sentences with appropriate verbs.

1. Although our company wants to expand rapidly, we must…Bear……..in mind that we

have limited cash to do so.
2. It is important to Take…. into account all options before………Made……. a decision.
3. The Finance Director has ……Made……..the conclusion that we must reduce costs by
10%.
4. Finally, the Chairman …Gave………. his opinion about the matter. After we had listened
to him, we were able to ………come……. to an agreement.
5. Patricia ………has……… an interesting suggestion at the meeting.
6. If we don’t come up with new products, we ……Run……. the risk of falling behind our
competitors.
7. Our chairman is too old for the job. Some of the directors have ……Put…… pressure on
him to resign.
8. The writer has Give……. some recommendations in the report.
9. What conclusion have you ……Come…..from the facts given in his letter?
10. I have ……….a great deal of thought to our financial problems
11. After 5 hours’ negotiation, we finally………… agreement.
12. I don’t want to …take… action until I’ve heard everyone’s opinion.

READING 2: BOUNDED RATIONALITY AND INFLUENCES ON DECISION MAKING

Bounded rationality and influences on decision making

Decision making is usually not entirely rational, because so many factors influence the decision
maker. Awareness of this fact stems from the research of psychologist and economist Herbert A.
Simon. He proposed that bounds (or limits) to rationality are present in decision making. These
bounds are the limitations of the human, particularly related to the processing and recall of
information. Bounded rationality means that people's finite (somewhat limited) mental abilities,
combined with external influences over which they have little or no control, prevent them from
making entirely rational decisions.

In more recent year, the irrational side of decision making became incorporated into a branch of
behavioral economics called neuro-economics. Behavioral economics emphasizes that people are
not entirely rational decision makers, such as trying hard to avoid losing money in the stock
market instead of on increasing profits. An individual might hang on to a losing product for too
long.

Research and opinion on bounded rationality emphasizes that humans use problem -solving
strategies which are reasonably rapid, reasonably accurate, and that fit the quantity and type of
information available. In short, people do the best with what they have while making decisions.

As a result of bounded rationality, most decision makers do not have the time or resources to
wait for the best possible. Instead, they search for satisficing decisions, or those that suffice in
providing a minimum standard of satisfaction. Such decisions are adequate, acceptable, or
passable. Many decision makers stop their search for alternatives when they find a satisficing
one. Successful managers recognize that it is difficult to obtain every possible fact before making
a decision.

Accepting the first reasonable alternative may only postpone the need to implement a decision
that truly solves the problem and meets the decision criteria.

Partly because of bounded rationality, decision makers often use simplified strategies, also
known as heuristics.

Intuition

Effective decision makers do not rely on analytical and methodological techniques alone .They
also use their hunches and intuition. Intuition is an experience –based way of knowing or
reasoning in which weighing and balancing evidence are done unconsciously and automatically.
Intuition is also a way of arriving at a conclusion without using the step-by-step logical process.
Intuition can be based mostly on experience or mostly on feeling. The fact that experience
contributes to intuition means that decision makers can become more intuitive by solving many
difficult problems because accumulated facts are an asset to intuition .It also means that decision
makers will have better intuition if they perform the same work for a relatively long period of
time.

Although the use of intuition in managerial decision making is now widely recognized,
researchers have also found limitations to intuition. At the same time, intuition could help point
the executive in the right direction, such as sizing up the overall merits of the company to be
acquired .Major decisions usually begin with intuition.

Personality and cognitive intelligence

The personality and cognitive intelligence of the decision maker influence his or her ability to
find effective solutions. A particularly relevant personality dimension is a person’s propensity
for taking risks. A cautious, conservative dimension is a person typically opts for a low-risk
solution. An extremely cautious person may avoid making major decisions for fear of being
wrong. Organizational pressures can also influence a person’s propensity for risk taking. In
addition to being related to risk taking, cautiousness and conservatism influence decisiveness, the
extent to which a person makes up his or her mind promptly and prudently .Good decision
makers, by definition, are decisive.

Perfectionism exerts a notable impact on decision making. People who seek the perfect solution
to a problem are usually indecisive because they hesitate to accept the fact that a particular
alternative is good enough. Optimism versus pessimism is another relevant personality
dimension. Optimists are more likely to find solutions than pessimists are. Pessimists are more
likely to give up searching, because they perceive situations as being hopeless.

Emotional intelligence

How effective you are in managing your feeling and reading other people can affect the quality
of your decision making. For example, if you cannot control your anger you are likely to make
decisions motivated by retaliation, hostility and revenge. An example would be shouting and
swearing at your team leader because of a word assignment you received. Emotional intelligence
refers to qualities such as understanding one’s own feelings, empathy for others, and the
regulation of emotion to enhance living. This type of intelligence generally affects the ability to
connect with people and understand their emotions. If you cannot read the emotions of others
you are liable to make some bad decisions involving people, such as pushing your boss too hard
to grant a request. Emotional intelligence contains four key factors, all of which can influence
the quality of our decisions.

1. Self-awareness. The ability to understand your own emotions is the most essential of the
four emotional intelligence competencies. Having high self-awareness allows people to know
their strengths and limitations and have high self-esteem

2. Self-management. The ability to control one’s emotions and act with honesty and integrity in
a consistent and adaptable manner. The right degree of self-management helps prevent a
person from throwing temper tantrums when activities do not go as planned. Effective workers
do not let their occasional bad moods ruin their day.

3. Social awareness. This competency includes having empathy for others and having intuition
about organizational problems. Socially aware workers go beyond sensing the emotions of
others by showing that they care.

4. Relationship management. Includes the interpersonal skills of being able to communicate

clearly and convincingly, disarming conflicts and building strong personal bonds.Effective
individual use relationship management skills to spread their enthusiasm and solve
disagreements, often with kindness and humor.

Quality and Accessibility of Information

Reaching an effective decision usually requires high-quality, valid information. The ability to
supply managers with high-quality information forms the major justification for information
systems. Part of having quality information is being able to base decisions upon solid data.

Accessibility may be even more important than quality in determining which information is used
or not used. Sometimes it takes so much time and effort to search for quality information that the
manager relies on lower quality information that is close at hand. A frequent accessibility
problem is to rely on information from the Internet because it is easy to access, without stopping
to investigate the date of the information.

Closely related to quality and accessibility of information is the tendency on be influenced by the
first information we receive when attempting to solve a problem or make a decision. Anchoring
occurs during decision making when the mind gives too much weight to the first information it
receives. Initial impressions, estimates, or data hold back, or anchor, later thoughts and
judgments. The manager who uses the old information found on the Internet might be overly
influenced by that information. Having been received first, the anchored information becomes
the standard against which to judge other information. Anchoring can therefore lead to wasting
useful information received after the first information.

Another decision- making trap is overconfidence. The risk here comes from associating
confidence with accuracy. The problem then arises because accuracy reflects what we know,
whereas confidence reflects what we think we know. You can test your opinions by searching for
information that challenges your beliefs or facts as a way to help combat the overconfidence trap
and thereby avoid the natural tendency to look only for supporting information.

Political Considerations

Under ideal circumstances, managers make organizational decisions on the basis of the objective
merits of competing alternatives. In reality, many decisions are based on political considerations,
such as favoritism, alliances, or the desire of the decision maker to stay in favor with people who
wield power.

Political factors sometimes influence which data are given serious consideration in evaluating
alternatives. The decision maker may select data that support the position of an influential person
whom he or she is trying to please.

Degree of Certainty

The more certain a decision maker is of the outcome of a decision, the more calmly and
confidently the person will make the decision. Degree of certainty is divided into three
categories: certainty, risk, and uncertainty. A condition of certainty exists when the facts are well
known and the outcome can be predicted accurately. A retail store manager might predict with
certainty that more hours of operation will lead to more sales.

A condition of risk exists when a decision must be made based on incomplete, but accurate,
factual information. Effective managers often accept a condition of risk. A calculated risk is
where the potential return is well worth the cost that will be incurred if the effort fails.

Crisis and Conflict

In a crisis, many decision makers panic. They become less rational and more emotional than they
would in a calm environment. Decision makers who are adversely affected by crisis perceive it to
be a stressful event. As a consequence, they concentrate poorly, use poor judgment, and think
impulsively. Under crisis, some managers do not bother dealing with differences of opinion
because they are under so much pressure. A smaller number of managers perceive a crisis as an
exciting challenge that energizes them toward their best level of problem solving and decision
making.

A recommendation for becoming more adept at making decisions under crisis conditions is to
anticipate crises. Visualize ahead of time how you will react to the situation. Visualization serves
somewhat as a rehearsal for the real event.

Conflict relates to crisis because both can be an emotional experience. When conflict if not
overwhelming, and is directed at real issues, not personalities, it can be an asset to decision
making. By virtue of opposing sides expressing different points of view, problems can be solved
more thoroughly, which leads to better decisions.

Values of the Decision Maker

Ultimately, all decisions are based on values. A manager who places a high value on the personal
welfare of employees tries to avoid alternatives that create hardship for workers and implements
decisions in ways that lessen turmoil. Another value that significantly influences decision
making is the pursuit of excellence. A manager who embraces the pursuit of excellence will
search for the high-quality alternative solution.

Attempting to preserve the status quo mentioned above as a political factor is also a value. If you
value the status quo too highly, you many fail to make a decision that could bring about major
improvements.

Procrastination

Many people are poor decision makers because they procrastinate, or delay taking action without
a valid reason. Procrastination results in indecisiveness and inaction and is a major cause of self-
defeating behavior. Procrastination is a deeply ingrained behavior pattern, and may be based on
such factors as being concerned about being judged as poorly.

Although too much procrastination may interfere with effective decision making, rapid decision
making is not always the most effective. Good decision makers recognize the balance between
procrastination and impulsiveness.
Decision - Making Styles

The various factors that influence the quality of decision making also contribute to a manger's
typical pattern of making decisions, or decision-making style. For example, a manager who relies
heavily on intuition will tend to make decisions quickly without agonizing over data. And a
manager with procrastination tendencies will ponder over as much information as possible and
consult many people before reaching a decision.

According to the Decision Dynamic research, decision styles differ in two fundamental ways:
how information is used, and how options are created. In terms of information, some managers
want to pore over reams of information before making a decision. The opposite approach is to
come to a decision as soon as enough information is available. (This approach is referred to as
satisficing, as described earlier.). In terms of creating options, single focus decision makers are
committed to taking one course of action. In contrast, their multifocused counterparts generate
lists of possible options and many pursue multiple courses. Combining the dimensions of using
information and creating options results in four styles, as follows:

1. Decisive (one option, less information). Decisive decision makers value action, speed,
efficiency, and consistency. After a plan is in place they stick with it and move on to the next
decision. Time is precious to this type of decision maker.

2. Flexible (many options, less information). The flexible style also focuses on speed, yet
adaptability is emphasized. Flexible decision makers gather just enough data to choose a line of
attack, and quickly change course if needed.

3. Hierarchic (one option, more information). People using the hierarchic style analyze a great
deal of information, and seek input from others. They expect a decision to be final and relatively
permanent. An information technology manager might say, "We have studied the problem for
several months, and have received inputs from hundreds of intelligent users. Our single source of
new desktops and laptops will be Gateway Computer." (Gateway is now part of Acer.)

4. Integrative (many options, more information). Instead of looking for a single best solution,
managers using the integrative style frame problems broadly. The integrative style uses input
from many sources, and makes decisions involving multiple courses of action. Also, the decision
may be modified in the future as circumstances change. An executive at Target might say, "For
now, we are going to increase the proportion of full-time staff works."

A key suggestion in relation to decision-making styles is to be aware that they exist. Next, reflect
on your style, including receiving feedback from others. You might recognize, for example, that
you tend to collect too much date before making a decision. You are much like the potential
homebuyer who collects so much information before making a purchase offer that the property is
sold to someone else.

I. Read the text and decide whether the following statements are True or False.

1. Decision making is usually logical as no factors influence the decision maker. F

2. Bounded rationality means that people's finite mental abilities and external influences,
over which they have little or no control, helping them make entirely rational decisions.
F

3. Thanks to bounded rationality, most decision makers have the time or resources to wait
for the best possible. F

4. The personality and cognitive intelligence of the decision maker influence his or her
ability to find effective solutions. T

5. People who seek the perfect solution to a problem are usually decisive. F

6. Effective decision makers only rely on analytical and methodological techniques to

make decisions. F

7. Your effectiveness in managing your feeling and reading other people can affect the
quality of your decision making. T

8. Decision – making style can influence the quality of decision making. T

9. Good decision makers recognize the balance between procrastination and impulsiveness.
T

10. Values of the Decision Maker cannot influence decision making. F

 II. Match the terms in the left column with the equivalents in the right column.

1. Bounded rationality A. A decision that meets the minimum standard of

satisfaction.
2. Satisficing decision
B. An experience –based way of knowing or reasoning in
3. Heuristics.
which weighing and balancing evidence are done
4. Intuition
unconsciously and automatically.
5. Emotional intelligence
C. The observation that people’s limited mental abilities,
6. Decision-Making Styles combined with external influences over which they have

7. Procrastination little or no control, preventing them from making rational

decisions.
8. Conflict
D. A manager’s typical pattern of making decisions.
9. Visualization
E. The simultaneous arousal of two or more incompatible
10. Feedback
motives.

F. The delaying of action for no good reason.

G. A rule of thumb used in decision making.

H. An imagination of something in advance

I. The communication stage in which the receiver responds to

the sender’s message.

J. The ability to connect with people and understand their

emotions.
1C. 2A. 3G. 4B. 5J. 6D. 7F. 8E. 9H. 10I.

III. Complete the following sentences with appropriate words or phrases in the text. If
possible, do not look back at the original reading.

1. Decision making is usually not entirely rational_, because so many factors influence the
decision maker.

2. Intuition can be based mostly on experience or mostly on feeling____.

3. The more_______________ a decision maker is of the __________of a decision, the
more _____________and ____________the person will make the decision

4. Emotional intelligence contains four key factors, all of which can influence the quality of
our decisions