4 Chapter

Foundations
of Decision
Making

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Learning Outcomes
• Describe the decision-making process.
• Explain the three approaches managers can use
to make decisions.
• Describe the types of decisions and decision-
making conditions managers face.

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Learning Outcomes (cont.)
• Discuss group decision-making.
• Discuss contemporary issues in managerial
decision making.

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4.1 Describe the
decision-making
process.

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How Do Managers Make Decisions?

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Identifying a Decision Problem
Problem:
a discrepancy between an existing and a desired
state of affairs.

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Identifying Decision Criteria
Relevant Factors:
• Price
• Model
• Size
• Manufacturer
• Options
• Repair record

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Weighting Criteria
1. Most important
criterion assigned a
weight of 10.
2. Other weights
assigned against
this standard.

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Developing Alternatives

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Analyzing Alternatives

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Selecting the Best Alternative

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Implementing the Decision

Decision implementation:
putting a decision into action.

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Evaluating the Decision
Appraising the outcome of the decision:

Was the problem resolved?

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Common Errors

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4.2 Explain the three
approaches
managers can use to
make decisions.

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Three Approaches Used to Make
Decisions: Types of Decisions

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Rational Model
Rational decision making:
choices that are consistent and value-maximizing
within specified constraints.

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Bounded Rationality
Satisfice

Escalation of
commitment

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Intuitive Decision Making

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4.3 Describe the types
of decisions and
decision-making
conditions that
managers face.

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Types of Problems
1. Structured problem
2. Unstructured problem

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Types of Decisions
Programmed:
Repetitive decisions that can be handled
using a routine approach.

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Types of Decisions (cont.)

Nonprogrammed:
Repetitive decisions that can be handled
using a routine approach

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Problems, Decision Types, and
Organizational Levels

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Decision-Making Conditions

• Certainty
• Risk
• Uncertainty

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4.4
Discuss group
decision-making.

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How Do Groups Make Decisions?
Decisions are often made by groups representing
the people who will be most affected by those
decisions.

•Committees
•Task forces
•Review panels
•Work teams

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Advantages of Group Decision
Making

• More complete information

• Diversity of experiences/perspectives
• More alternatives generated
• Increased acceptance of solution
• Increased legitimacy

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Disadvantages of Group Decision
Making

• Time-consuming
• Minority domination
• Ambiguous responsibility
• Pressures to conform

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Groupthink
When a group exerts extensive pressure on an
individual to withhold his or her different views in
order to appear to be in agreement.

• What it does
• How it occurs
• How to minimize it

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When Are Groups Most Effective?
Individual Group
•Faster decision making •More accurate
•More efficient use of decisions
work hours •More creative
•More heterogeneous
representation
•Greater acceptance of
final solution

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Improving Group Decision Making
Make group decisions more creative by:

1. Brainstorming
2. The nominal group technique
3. Electronic meetings

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4.5 Discuss
contemporary
issues in
managerial decision
making.

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Contemporary Issues

National culture influences the way decisions are

made and the degree of risk involved.

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Contemporary Issues
Creativity lets the decision maker:

• Understand a problem more fully

• See problems others can’t
• Identify all viable alternatives

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Contemporary Issues
Design thinking:
approaching
management problems
as designers approach
design problems

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Contemporary Issues

Big data
The vast amounts of quantifiable information
that can be analyzed by highly sophisticated data
processing.

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