MGT230

CHAPTER 7
Decision Making, Learning,
Creativity, and Entrepreneurship

Prepared by: Zahra Hani

 What is decision making process?
It is the process by which managers respond to threats and opportunities.

What is the difference between threats and opportunities?

Threats Opportunities
The process by which managers respond to The process by which managers respond to
events that adversely affect the performance of events that improve the performance of the
the organization. organization.
Negative events = threats Positive events = opportunities

What are the decision making steps?

1. Recognize the need for a decision:
Managers here must recognize the need for a new decision, this recognition
for a need can be stimulated by events such as any change in the
environment (example: when there is a change in the technology or new
methods of doing a job).
2. Generate alternatives:
Managers must develop many alternatives such as plan A, plan B, plan C.
3. Assess the alternatives:
Here the manager must check the advantages and disadvantages of each
alternative. Generate assessment criteria includes checking if the
alternative/plan is legal, ethical, economic feasible and practical.
4. Choose among the alternatives:
Here the alternatives must be ranked and a decision must be taken to chose
the most favorable alternative.
5. Implement the chosen alternatives:
Managers must carry on the chosen alternative and implement it.
6. Learn from feedback:
Managers must compare what happened to what was expected to happen
and check whether the expectations are met.

Prepared by: Zahra Hani

 Types of decisions:
There are 2 types of decisions:
1. Programmed decision
2. Non-programmed decision
Programmed decision
- Used in routine / frequent situation
- Used in simple-moderate situations
- Established rules, policies
- The information is available.
Prepared by: Zahra Hani
Non-programmed decision
- Used in non-routine decisions
- Used in complex situations
- There are no rules that are already
established
- Information is NOT available
- There are 2 approaches:
1. Intuition: taking decisions based
on feelings or beliefs. There is
no effort or time (on spot
decisions) taken while taking
such decision.
2. Reasoned judgement: decisions
based on reasoned judgement,
there are time and effort that
have to be taken while taking
such decisions.
 Decision making models:
There are 2 decision making models:
1. Classical
2. Administrative

Classical (ideal) Administrative (reality)

- Information is available - Some / no available information.

- Managers are rational - Managers have bounded rationality.
- Certainty in decision making - There is risk / uncertainty in decision
It results in the optimum decision = most making.
appropriate decision It results in a satisfying decision =
accepted decision.
(it is when managers explore limited
options and choose an accepted
decision. Such decision is a result of
absence of information and bounded
rationality)

Bounded rationality = ‫العقالنية المحدودة‬

Bounded rationality is formed from “rules of thumb” ‫البديهيات‬
‫يعني العقالنية المحدودة سببها البديهيات او ممكن التجارب السابقة‬
When we use rule of thumb it is called “heuristics” ‫االستدالل‬
The heuristics can cause a person to either choose:
1- Right decision
2- Wrong decision (if we continue to commit wrong decision it will cause
us to have “systematic errors” ‫) أخطاء منهجية‬
Systematic errors: errors that people make again and again that cause
us to result in wrong decisions.
‫ لما‬، ‫الزم نفهم انه العقالنية المحدودة عند الشخص ممكن تخليه يتخذ قرارات بديهية او قرارات على حسب تجربته السابقة‬
:‫االنسان يتخذ نفس هالقرارات البديهية هذي نسميه استدالل و الزم نعرف انه ممكن يخلي هاالنسان يتخذ واحد من االثنين‬
‫ قرار صحيح‬-1
‫ قرار خطأ (و الزم نعرف انه لما نستمر في اخطائنا هالشي بنسميه اخطاء منهجية اللي بيخلينا بالنهاية نتخذ قرارات‬-2
)‫خطأ‬

Prepared by: Zahra Hani

 Why can information be incomplete?

1. Time constrain and information cost: lack of time and it costs so much
money to search for information through resources.

2. Face risk and uncertainty:

Risk – some information is available and probabilities can be built.
Uncertainty – no / very limited available information, so the outcomes
are usually unknown.

3. Ambiguous information: information is available but is understood in

different way by different people.

Decision making bias

There are 4 decision making bias:
1. Representativeness bias: when an inappropriate decision is taken
because it was based on small sample.

2. Confirmation bias: decisions are based on strongly existing beliefs even if

some of the belief may be WRONG.

3. Illusion if control ‫وهم السيطرة‬: when a manager believe that he can do a

specific job even though in real he cannot, he can here result in taking
inappropriate decision.

4. Escalating of commitment: it is when a manger continues committing to a

project even when the evidence shows that the project is failing.

What is blind spot bias?

Failing to recognize our own biases result in another bias which is called BLIND
SPOT BIAS.
Prepared by: Zahra Hani