Chapter 7

• Managerial Decision Making:

o Decision making: the process by which managers respond to opportunities and threats by analyzing
options and making decisions about goals and courses of action.
o Decisions in response to opportunities: managers respond to ways to improve org. performance.
o Decisions in response to threats: occurs when managers are impacted by adverse events to the org.
o Decision making: the cooking of the decision according to the inputs.
o Decision taking: final decision responsible.
• Types of Decision Making:
o Programmed Decisions: routine, almost automatic process.
▪ Managers have made decision many times before.
▪ There are rules or guidelines to follow.
▪ Example: Deciding to reorder office supplies.
o Non-programmed Decisions: unusual situations that have
not been often addressed.
▪ No rules to follow since the decision is new.
▪ Decisions based on information, and a manger’s intuition.
▪ Example: Should the firm invest in a new technology?
• Decision Making Challenges:
o Uncertainty: The condition when the information available to make management decision is incomplete.
o Risk: The level of uncertainty as to the outcome of a decision.
o Decision scope: The effect & time horizon of the decision.
o Conflict: It is always difficult to get everyone to agree about what to do. Management decision making
is often characterized by conflict over opposing goals.

• Decision Making Inputs:

o Objectives (company, team, personal, social ….).
o Information.
o Knowing your company culture.
o Responsibilities/ Authority.
o Available resources.
o Forecasting future.
• Decision Making Steps:
1. Frame the situation: Study and analyze surrounding environment
2. Generate alternatives: managers must develop feasible alternative courses of action.
▪ If good alternatives are missed, the resulting decision is poor.
▪ It is hard to develop creative alternatives, so managers need to look for new ideas.
▪ Don’t generate more than 5 alternatives to prevent analysis paralysis.
3. Evaluate alternatives: what are the advantages and disadvantages of each alternative?
o Managers should specify criteria, then evaluate.
4. Choose among alternatives: managers rank alternatives and decide.
5. Implement choose alternative: managers must now carry out the alternative (setup a plan).
6. Learn from feedback: managers should consider what went right and wrong with the decision and learn.
7. Without feedback, managers never learn from experience and make the same mistake over.

• Decision Criteria:
o Decision criteria are principles, guidelines or requirements that are used to make a decision.
o Every organization, situation, and decision maker has some criteria that guide or rule his/her decisions.
o It is better to assign weights for criteria (criteria weighting).

• Evaluating a Decision:
o Legal: Managers must first be sure that an alternative is legal.
o Ethical: The alternative must be ethical and not hurt stakeholders
unnecessarily.
o Economically feasible: Can our organization’s performance goals
sustain this alternative?
o Practical: Does the management have the capabilities & resources
to do it?

• The Z-Model for Decision Making:

o The Z-Model is a special approach to decision making and problem solving which enhances a team's
ability to make the proper decisions together.
o The most important fact about Z-Model is that making decisions is not just using specific tools rather is
to consider the human side and its difficulties to address solutions to the problems.

• Bounded Awareness in Decision Making:

o Bounded awareness occurs when people fail to see information in their environment because they are
overly focused on some other issues of what is out there.
o This means that some important information might be ignored /overlooked by people during the process
of making decision.
• Opportunity Cost:
o Opportunity cost is an economics term that refers to the value of what you have to give up in order to
choose something else. In a nutshell, it's a value of the road not taken.
o Your resources as business owner are always limited. That is, you have a finite amount of time, money,
and expertise, so you can’t take advantage of every opportunity that comes along. If you choose one,
you necessarily have to give up on others. They are mutually exclusive. The value of those others is
your opportunity cost.
• Decision Making Errors & Biases:
1. Overconfidence Bias: Believing too much in our
own ability to make good decisions, especially
when outside of own expertise. Happens during
psychological euphoria.
2. Immediate Gratification Bias: Choosing
alternatives that offer immediate rewards or
results and that to avoid immediate costs.
Happens during psychological stress.
3. Anchoring Bias: The tendency to fixate on initial
information as a starting point and failing to
adequately adjust (complete) for subsequent
information.
4. Selective Perception Bias: Selecting, organizing and interpreting events based on the decision maker’s
biased personal perceptions.
5. Confirmation Bias: The Tendency to seek out information that reaffirms past choices to discount
information that contradicts past judgment (seek info to support decision only).
6. Framing Bias: Selecting and highlighting certain aspects of a situation while ignoring other aspects.
7. Availability Bias: Tendency for people to base judgments on information that is most readily available.
8. Representation Bias: Drawing analogies and seeing identical situations when none exist (copy-paste).
9. Randomness Bias: Creating unfounded meaning out of random events.
10. Sunk Costs Errors: Forgetting that current actions cannot influence past events or repair wrong past
decision and relate only to future consequences. Costs that may be avoided if action is taken. In other
words, a sunk cost is a sum paid in the past that is no longer relevant to decisions about the future.
11. Self-Serving Bias: Taking quick credit for successes and blaming outside factors for failures (It is the belief
that individuals tend to ascribe success to their own abilities and efforts but ascribe failure to external
factors). Also it may mean select a decision that serves decision maker own agenda.
12. Hindsight Bias: It is a term used in psychology to explain the tendency of people to overestimate their
ability to have predicted an outcome that could not possibly have been predicted, when an outcome
(either expected or unexpected) occurs - and the belief that one actually predicted it correctly, ignore
unclear or incomplete factors.

• Group Decision Making:

o Many decisions are made in a group setting; Groups tend to reduce cognitive biases and can call on
combined skills, and abilities.
o 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.

• Managing Group Decision Making:

o Nominal Group Technique (NGT):
▪ It is a group process involving problem identification, solution generation, and decision making.
▪ First, every member of the group gives their view of the solution, with a short explanation.
▪ Then, duplicate solutions are eliminated from the list of all solutions, and the members proceed
to rank and vote the solutions, 1st, 2nd, 3rd, 4th, and so on.
▪ The decision alternative that receives the highest ranking from the group is selected.
 o Delphi Technique:
▪ Similar to NGT, yet it does not involve face to face meetings.
▪ Each member receives a questionnaire to select the convenient alternative (form his point of
view) and submit it.
▪ The results are then returned to each member and re-asked for selecting the convenient
alternative. Some members may change selection and others may stick to their original selection.
▪ We may need several rounds till reach final decision
o Brain Storming Technique:
▪ It is a group creativity technique by which efforts are made to find a conclusion for a specific
problem by gathering a list of ideas spontaneously contributed by its members.
▪ People are able to think more freely, and they suggest as many spontaneous new ideas as
possible.
▪ All the ideas are noted down without criticism and after the session the ideas are evaluated.
▪ Efficient brain storming:
➢ Needs a good facilitator to assist information exchange among participants.
➢ Direct relevant people only should be invited to the brain storming session.
➢ Maximum 10-15 participant.
• Org. Learning:
o Organizational Learning: Managers seek to improve member’s ability to understand the organization and
environment so as to raise effectiveness.
o The learning organization: managers try to improve the people’s ability to behave creatively to maximize
organizational learning .

Good Luck ☺ ☺