CH2: Making Decisions

Contemporary Management

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Contemporary Management - Dr. Marwan El Messiry – Eslsca School of Business – MBA Program 2020
 ACTIVITY

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Contemporary Management - Dr. Marwan El Messiry – Eslsca School of Business – MBA Program 2020
 Write down all possible decisions that managers
ACTIVITY
are likely to make across the four common
management process stages

Directing Evaluation
Planning Organizing
(Leading) and Control

Continuous
Improvement

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Contemporary Management - Dr. Marwan El Messiry – Eslsca School of Business – MBA Program 2020
 Planning Organizing Leading Control Improvement

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Contemporary Management - Dr. Marwan El Messiry – Eslsca School of Business – MBA Program 2020
Decisions Managers May Make

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 Decisions Managers May Make

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Decision: A process Of Making a choice from
two or more alternatives.

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 Evaluating
Decision

Execution

Analyzing &
Selecting
Alternatives
Developing
Alternative
Allocating
Weight to
Identifying Criteria
Decision
Criteria
Identifying
The Problem
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 The Decision-Making Process
Step 1: Identify a Problem
– Problem – an obstacle that makes it difficult to achieve a desired goal
or purpose.
– Every decision starts with a problem, a discrepancy between an
existing and a desired condition.
– Example – Amanda is a sales manager whose reps need new laptops.
Discrepancy

Problem
Existing Desired
Condition Condition

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 The Decision-Making Process
Step 2: Identify Decision Criteria
– Decision Criteria are factors that are important (relevant) to
resolving the problem.
– Example – Tarek decides that memory and storage
capabilities, display quality, battery life, warranty, and carrying
weight are the relevant criteria in her decision.

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 The Decision-Making Process
Step 3: Allocate Weights to the Criteria
– If the relevant criteria aren’t equally important, the decision
maker must weight the items in order to give them the
correct priority in the decision.

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 General Criteria for
Evaluating
Possible Courses of
Action

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Contemporary Management - Dr. Marwan El Messiry – Eslsca School of Business – MBA Program 2020
 The Decision-Making Process
Step 4: Develop Alternatives
– List viable alternatives that could resolve the problem
– Example – Tarek, identifies eight laptops as possible choices.
(See Exhibit 2-3.)

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 Possible Alternatives

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 The Decision-Making Process
Step 5: Analyze and Selecting Alternatives
– Appraising each alternative’s strengths and weaknesses.
– An alternative’s appraisal is based on its ability to resolve the issues
related to the criteria and criteria weight.
– The alternative with the highest total weight is chosen.

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 Evaluation of Alternatives
Weight 10 X Score 10

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 Step 6: Execution (Implement the Alternative)
The Decision- • Putting the chosen alternative into action
Making Process • Conveying the decision to and gaining
commitment from those who will carry out the
alternative

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 The Decision-Making Process
Step 7: Evaluate Decision 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?

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 Making Decisions: Rationality
Rational Decision-Making
Describes choices that are logical and consistent while maximizing value.
Assumptions of Rationality
– The decision maker would be fully objective and logical

– The problem faced would be clear and unambiguous

– The decision maker would have a clear and specific goal and know all possible
alternatives and consequences and consistently select the alternative that
maximizes achieving that goal

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 Making Decisions:
Bounded Rationality

• Bounded Rationality – decision-

making that’s rational but limited
(bounded) 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.

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 Making Decisions: The Role of Intuition
Making decisions based on experience, feelings, and accumulated judgment.

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 What Is Intuition?

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 Structured Problems Programmed Decision
Straightforward, familiar, and easily a repetitive decision that can be handled
defined problems. by a routine approach.

PROCEDURE POLICY
series of sequential a guideline for making
steps used to respond to decisions.
a well-structured
RULE
problem. an explicit statement
that tells managers what
can or cannot be done.

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 Unstructured Problems Non-Programmed
problems that are new or unusual and for Decisions
which information is ambiguous or
unique and nonrecurring and involve
incomplete.
custom made solutions.

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Contemporary Management - Dr. Marwan El Messiry – Eslsca School of Business – MBA Program 2020 25
 Programmed Versus
Non-Programmed Decisions

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 Decision-Making Conditions
Where are most of our decisions?
Risk – a situation in which the
decision maker can estimate Certainty – a situation
Decision
the likelihood of certain in which a manager
Making
outcomes. can make accurate
Conditions
decisions because all
outcomes are known.

Uncertainty – a situation in which a decision maker

has neither certainty nor reasonable probability
estimates available.

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 Managing Risk
• Managers can use historical data from past experiences or secondary
information that lets them assign probabilities to different alternatives.

• Managers use this information to help make decisions by calculating the

expected value – the expected return from each possible outcome – by
multiplying expected revenues by (the probability).

• This exercise will give the manager an idea of the average revenue that
they can expect over time if everything relative to the probability
remains constant.
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 Expected Value

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 Common Decision-Making Biases

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 Decision-Making Biases and Errors

Heuristics – using “rules of thumb” to simplify decision-

making.

Overconfidence Bias – holding unrealistically positive

views of oneself and one’s performance

Immediate Gratification Bias – choosing alternatives

that offer immediate rewards and avoid immediate
costs.

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 Decision-Making Biases and Errors (cont.)

Anchoring Effect – fixating on initial information and ignoring

subsequent information.

Selective Perception Bias – selecting,

organizing and interpreting events based on the
decision maker’s biased perceptions.

Confirmation Bias – seeking out information that

reaffirms past choices while discounting contradictory
information.

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 Decision-Making Biases and Errors (cont.)

Framing Bias – selecting and highlighting certain aspects of

a situation while ignoring other aspects.

Availability Bias – losing decision-making objectivity by

focusing on the most recent events.

• Representation Bias – drawing analogies and seeing

identical situations when none exist.

Randomness Bias – creating unfounded meaning out of random

events.
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 Decision-Making Biases and Errors (cont.)

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).

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 Overview of Managerial Decision-Making

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 Guidelines for Making Effective Decisions
• Understand cultural differences

• Create standards for good decision-making

• Know when it’s time to call it quits

• Use an effective decision-making process

• Build an organization that can spot the unexpected and quickly

adapt to the changed environment

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 ▪ Superior to individual decision making
▪ Choices less likely to fall victim to bias
Group Decision ▪ Able to draw on combined skills of group members

Making ▪ Improve ability to generate feasible alternatives

▪ Groups provide a broader perspective
▪ Employees are more likely to be satisfied and to support the final decision
▪ Opportunities for discussion help to answer questions and reduce uncertainties
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 Group Decision Making
Many decisions are made in a group setting.
• Groups tend to reduce cognitive biases and
can call on combined skills, and abilities.
There are some disadvantages with groups:
Group think: biased decision making resulting from
group members striving for agreement.
• Usually occurs when group members rally
around a central manger’s idea (CEO), and
become blindly committed without
considering alternatives.
• The group tends to convince each member
that the idea must go forward.

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 Improved Group
Decision Making
• Devil’s Advocacy: one member of
the group acts as the devil’s
advocate and critiques the way the
group identified alternatives.
• Dialectical inquiry: two different
groups are assigned to the problem
and each group evaluates the other
group’s alternatives.
• Promote diversity: by increasing the
diversity in a group, a wider set of
alternatives may be considered.

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 Use Individual DM Use Group DM
• Short time ▪ Need for innovation and creativity
• Unimportant to group ▪ Data collection

• Manager can take decision ▪ Importance of acceptance

▪ Importance of solution
• Dominate the decision
▪ Complex problem
• Destructive conflict
▪ Democratic process
• Members hesitant
▪ Risk taking solution needed
• Confidential data ▪ Better understanding
• Incapability of members ▪ Whole responsibility
• Manager’s dominance ▪ Feedback required
• Indirect effect on group members

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 The Six Thinking Hats
Edward de Bono

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 The White Hat Only The Facts
● What do you know about

● What are the facts

● What do you need or want to know

● Where would you go to find out this

information

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 The Red Hat Our Feelings
● What are you feeling now

● Which solution is best based on your feelings

● What prejudices are present

● Do you have a gut feeling

● What does your intuition tell you

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 The Black Hat The Devil’s
Advocate
● What should you be cautious about

● Of what should you be careful

● What are the difficulties

● Why won’t this work

● What are the risks

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 The Yellow Hat The Glass
Half Full
● What is good about this

● What would be a positive outcome

● Can this be made to work

● What do you like about this

● What can be the value of this

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 The Green Hat New Ideas

● Can you create another way to do this

● How would you solve this problem

● What other possibilities are there

● What are some other approaches to this issue?

● Can this be done in a more simple way?

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 The Blue Hat The Process
● Summary of everything

● What’s next

● What is the action plan

● Outcome of the meeting

● Are we asking the right questions

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 Organizational Learning and Creativity
• Organizational Learning
• Managers seek to improve a employee’s desire and ability to understand and
manage the organization and its task environment so as to raise effectiveness.
• The Learning Organization
• Managers try to maximize the people’s ability to behave creatively to maximize
organizational learning.

Contemporary Management - Dr. Marwan El Messiry – Eslsca School of

Eslsca School of Business - Dr. Marwan El Messiry - Contemporary Management
Business – MBA2019
Program 2020
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 • Organizational Learning
Organizational • Managers seek to improve a employee’s desire and ability to
understand and manage the organization and its task environment
Learning & so as to raise effectiveness.

Creativity • The Learning Organization

• Managers try to maximize the people’s ability to behave creatively
to maximize organizational learning.

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Senge’s Principles for Creating a Learning Org.?

Peter Michael Senge is an American systems scientist who is a senior lecturer at

the MIT Sloan School of Management, co-faculty at the New England Complex
Systems Institute, and the founder of the Society for Organizational Learning