ENGINEERING

MANAGEMENT
Managers as Decision Makers
Chapter:06
 Rational Decision-Making

 Rationality - a logical, step-by-step approach to decision

making, with a thorough analysis of alternatives and their
consequences.
1. The outcome will be completely rational
2. The decision maker uses a consistent system
of preferences to choose the best alternative
3. The decision maker is aware of all alternatives
4. The decision maker can calculate the
probability of success for each alternative
 Bounded Rationality

Bounded Rationality - a theory that suggests that there are

constraints that force a decision maker to be less than
completely rational:
 Limited or unreliable information is available
 Human minds have limited capacity to process the
information
 Limited amount of time is available
 Satisficing

 Satisficing
 Searching for and choosing an acceptable, or satisfactory
response to problems and opportunities, rather than trying to
make the best decision.
 accepting solutions that are “good enough.”
 Managers explore a limited number of options and choose
an acceptable decision rather than the optimum decision.
 Managers assume that the limited options they examine
represent all options.
 This is the typical response of managers when dealing with
incomplete information.

Example: Job searching as a Financial Planner

 Escalation of Commitment

 Committing considerable resources to a proposal/project

and then committing more even if evidence shows the
project is failing.

Example: Investing in Job training

 Intuitive Decision-Making

 Intuition is a feeling or a hunch/guess about something.

You don't have solid facts or evidence to back up your
thoughts, they are just gut feelings or inner voice.

 Making decisions on the basis of experience, feelings,

perception, cognition and accumulated judgment.

 It is very fast and that it does not involve rationalizing and

conscious reasoning.
 Intuitive Decision-Making

 Studies in psychology have found that one needs at least 10

years of domain-specific experience to develop the gut
feeling needed to make good instinctive decisions.
 Types of Problems

 Structured Problems - straightforward, familiar, and

easily defined problems.

 Unstructured Problems - problems that are new or

unusual and for which information is ambiguous or
incomplete.
Programmed vs. Non-Programmed Decisions

 Programmed Decision - a repetitive decision that can be

handled by a routine approach.

 Routine, virtually automatic decision making that follows

established rules or guidelines.
 Managers have made the same decision many times before.
 There are rules or guidelines to follow based on experience with
past decisions.
Programmed vs. Non-Programmed Decisions

 Non-programmed Decisions - unique and

nonrecurring decisions that require a custom-made
solution(fit to the need of a particular person).

 Non-routine decision making that occurs in response to

unusual, unpredictable opportunities and threats.
 The are no rules to follow since the decision is new.
 Decisions are made based on information, and a manager’s
intuition, and judgment.
 Types of Programmed Decisions

 Procedure - a series of interrelated steps that a manager

can use to apply a policy in response to a structured
problem.
 Rule - an explicit statement that limits what a manager or
employee can or cannot do.
 Policy - a general guideline for making a decision about a
structured problem.
Programmed vs. Non-Programmed Decisions
Decision-Making Conditions

The decision maker

faces conditions of…

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

 Decision-Making Situations

 Certainty
 a 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.
 Decision-Making Situations

 Un-Certainty

Limited information prevents estimation of outcome

probabilities for alternatives .
Limited information forces managers to rely on intuition,
hunches, and “gut feelings.”
 Decision-Making Styles

 Linear Thinking Style - a person’s tendency to use external

data/facts; the habit of processing information through rational,
logical thinking, step by step.

 Nonlinear Thinking Style – The term "nonlinear" means that

something is not in a straight line. Non-linear thinkers think in
an entirely different manner. We make connections between
seemingly unrelated things jump from here to there.
Example: Job searching
 Group Decision Making

1. more knowledge through pooling

Advantages of group resources
2. greater understanding due to
involvement in decision stages

1. domination by one forceful

member or dominant ones.
3. amount of time required, because
Disadvantages group is slower than individual to
make a decision
 Group Decision Making

 Brainstorming
 Nominal Group Technique
 Delphi Technique
 Electronic Decisions
 Devil’s Advocacy
 Dialectical Inquiry
 Limits of Group Decision Making

Group Think:
It is a psychological phenomenon that occurs within
a group of people, in which the desire for harmony or
conformity in the group results in an incorrect or deviant
decision-making outcome.

Group members try to minimize conflict and reach a

consensus decision without critical evaluation of alternative
viewpoints.
Terms to Know

 Decision criteria  Procedure

 Rational decision making  Rule

 Bounded rationality  Policy

 Satisfice  Unstructured problems

 Escalation of commitment  Non-programmed

 Intuitive decision making decisions

 Linear thinking style
 Structured problems
 Nonlinear thinking style
 Programmed decision
 Group think
 Group Decisions
 Production Blocking