PART THREE C H A P T E R 6
Decision Making: The Essence of of the Manager’s Manager’s Job Management 10e, Stephen P. Robbins & Mary Couter Managers make decisions. And they want those decisions to be good decisions. In this chapter, we’re going to stdy the steps in the decision!making process. "e’## a#so #ook at the $arios things that in%ence a manager as he or she makes decisions. &ocs on the fo##owing #earning otcomes as yo read and stdy this chapter. !earning "ut#omes '.( Describe the eight steps in the decision!making process. '.) E*p#ain the three ways managers make decisions. '.+ #assify decisions and decision!making conditions. '.- Describe dierent decision!making sty#es and discss how biases aect decision making. './ Identify eecti$e decision!making techni0es. 1
E$er E$eryo yone ne in an orga organi ni2a 2ati tion on mak makes deci decisi sion ons, s, bt bt deci decisi sion on maki making ng is parti partic# c#ar# ar#y y impor importan tantt in a manag manager er’s ’s 3ob. 3ob. Decis Decision ion makin making g is sch sch an important part of a## for manageria# fnctions that decision making is said to be synonymos with managing. The comp#e*ity of manageria# decision making ranges from rotine choices to high#y comp#icated isses. In hapter ', stdents #earn abot the decision!making process and stdy mode#s and gide#ines for making eecti$e programmed and nonprogrammed decisions. The opening opening sitation sitation in 4A 4A Manager’s Di#emma5 Di#emma5 te##s te##s of Michae# 6arr 6arrett’s ett’s cha##enge as a E7 of 8E Money hina. &acing a prob#em common to hinese 9nancia# instittions, Mr. 6arrett’s attempt at brainstorming was not initia##y accepted. After a whi#e, emp#oyees opened opened p and new ideas to impro$e ser$ice were oered by the emp#oyees. tdents are asked to pt themse#$es in 6arrett’s position and decide how they wo#d e$a#ate the eecti$eness of the new system. "hat decision criteria wo#d they se;
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TI=8 ?@7E A $e#ision is a choice made from two or more a#ternati$es. The $e#ision%maing pro#ess is a set of eight steps that inc#de identifying a prob#em, se#ecting an a#ternati$e, and e$a#ating the decision’s eecti$eness. ee E'hibit 6%1 for an i##stration of the decision!making process.B A. tep (: Identifying a problem. A probem is a discrepancy between an e*isting and a desired state of aairs. In order to identify a prob#em, yo as a manager sho#d recogni2e and nderstand the three characteristics of prob#ems: (. Co mst be aware of the prob#em. 6e sre to identify the acta# prob#em rather than a symptom of the prob#em. ). Co mst be nder pressre to act. A tre prob#em pts pressre on the manager to take action a prob#em withot pressre to act is a prob#em that can be postponed. +. Co mst ha$e the athority or resorces to act. "hen managers recogni2e a prob#em and are nder pressre to take action bt do not ha$e necessary resorces, they sa##y fee# that nrea#istic demands are being pt pon them. 6. tep ): Identifying decision criteria . (e#ision #riteria are criteria that de9ne what is re#e$ant in a decision. . tep +: Allocating weights to the criteria . The criteria identi9ed in tep ) of the decision!making process do not ha$e e0a# importance, so the decision maker mst assign a weight to each of the items in order to gi$e each item accrate priority in the decision. E'hibit 6%) #ists the criteria and weights for Joan’s franchise prchase decision. D. tep -: Developing alternatives . The decision maker mst now identify $iab#e a#ternati$es that co#d reso#$e the prob#em. E. tep /: Analyzing alternatives. Each of the a#ternati$es mst now be critica##y ana#y2ed by e$a#ating it against the criteria estab#ished in steps ) and +. E'hibit 6%* shows the $a#es that Amanda assigned to each of her a#ternati$es for a new compter. E'hibit 6%+ re%ects the weighting for each a#ternati$e, as i##strated in E'hibits 6%) and 6%*. &. tep ': Selecting an alternative . This step to se#ect the best a#ternati$e from among those identi9ed and assessed is critica#. If criteria weights ha$e been sed, the decision maker simp#y se#ects the a#ternati$e that recei$ed the highest score in tep /. 8. tep : Implementing the alternative. The se#ected a#ternati$e mst be imp#emented by eecti$e#y commnicating the decision to the indi$ida#s who wi## be aected by it and winning their commitment to the decision. <. tep F: Evaluating decision eectiveness . This #ast step in the decision!making process assesses the res#t of the decision to determine whether or not the prob#em has been reso#$ed.
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MA=A8E@ MA>I=8 DEII7= At this point in the stdy of hapter ', stdents wi## #earn abot the manager as a decision maker and how decisions are acta##y made in organi2ations. In this section, stdents e*amine how decisions are made, the types of prob#ems and decisions faced by rea#!#ife managers, the conditions nder which managers make decisions, and decision! making sty#es. A. Making Decisions: @ationa#ity. Manageria# decision making is assmed to be rationa#Gthat is, making choices that are consistent and $a#e!ma*imi2ing within 78
speci9ed constraints. If a manager co#d be perfect#y rationa#, he orshe wo#d be completely #ogica# and ob3ecti$e. (. @ationa# decision making assmes that the manager is making decisions in the best interests of the organization , not in his or her own interests. ). The assmptions of rationa#ity can be met i the manager is faced with a simp#e prob#em in which (B goa#s are c#ear and a#ternati$es #imited, )B time pressres are minima# and the cost of 9nding and e$a#ating a#ternati$es is #ow, +B the organi2ationa# c#tre spports inno$ation and risk taking, and -B otcomes are concrete and measrab#e. 6. Making Decisions: 6onded @ationa#ity. In spite of these #imits to perfect rationa#ity, managers are e*pected to be rationa# as they make decisions. 6ecase the perfectly rationa# mode# of decision making isn’t rea#istic, managers tend to operate nder assmptions of bonded rationa#ity, which is decision!making beha$ior that is rationa#, bt #imited bondedB by an indi$ida#’s abi#ity to process information. (. Hnder bonded rationa#ity, managers make satis-#ing decisions, in which they accept so#tions that are 4good enogh.5 ). Managers’ decision making may be strong#y in%enced by the organi2ation’s c#tre, interna# po#itics, power considerations, and by a phenomenon ca##ed increased es#aation o #ommitmentGan commitment to a pre$ios decision despite e$idence that it may ha$e been wrong. .
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Making Decisions: The @o#e of Intition. Managers a#so reg#ar#y se their intition. Intiti$e decision making is a sbconscios process of making decisions on the basis of e*perience and accm#ated 3dgment. E'hibit 6%6 describes the 9$e dierent aspects of intition. (. Making decisions on the basis of gt fee#ing doesn’t necessari#y happen independent#y of rationa# ana#ysis the two comp#ement each other. ). A#thogh intiti$e decision making wi## not rep#ace the rationa# decision! making process, it does p#ay an important ro#e in manageria# decision making.
TC?E 7& DEII7= A=D DEII7=!MA>I=8 7=DITI7= A. Types of Decisions. Managers enconter dierent types of prob#ems and se dierent types of decisions to reso#$e them. (. Stru#ture$ probems are straightforward, fami#iar, and easi#y de9ned. In dea#ing with strctred prob#ems, a manager may se a programme$ $e#ision, which is a repetiti$e decision that can be hand#ed by a rotine approach. Managers re#y on three types of programmed decisions: a. A pro#e$ure is a series of interre#ated se0entia# steps that can be sed to respond to a strctred prob#em. b. A rue is an e*p#icit statement that te##s managers what they can or cannot do. c. A poi#y is a gide#ine for making decisions. ). nstru#ture$ probems are prob#ems that are new or nsa# and for which information is ambigos or incomp#ete. These prob#ems are best hand#ed by a nonprogramme$ $e#ision that is a ni0e decision that re0ires a cstom! made so#tion. 79
a. At higher #e$e#s in the organi2ationa# hierarchy, managers dea# more often with dic#t, nstrctred prob#ems and make nonprogrammed decisions in attempting to reso#$e these prob#ems and cha##enges. b. ower!#e$e# managers hand#e rotine decisions themse#$es, sing programmed decisions. They #et pper!#e$e# managers hand#e nsa# or dic#t decisions. 6.
Decision!Making onditions (. Certainty is a sitation in which a manager can make accrate decisions becase a## otcomes are known. &ew manageria# decisions are made nder the condition of certainty. ). More common is the sitation of ris, in which the decision maker is ab#e to estimate the #ike#ihood of certain otcomes. +.
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n#ertainty is a sitation in which the decision maker is not certain and cannot e$en make reasonab#e probabi#ity estimates concerning otcomes of a#ternati$es. a. The choice of a#ternati$e is in%enced by the #imited amont of information a$ai#ab#e to the decision maker. b. It’s a#so in%enced by the psycho#ogica# orientation of the decision maker. (B An optimistic manager wi## fo##ow a maximax choice, ma*imi2ing the ma*imm possib#e payo. ee E'hibit 6%10./ )B A pessimistic manager wi## prse a maximin choice, ma*imi2ing the minimm possib#e payo. ee E'hibit 6%10 and PoerPoint si$e 6% )./ +B The manager who desires to minimi2e the ma*imm 4regret5 wi## opt for a minimax choice. ee E'hibit 6%11/
DEII7=!MA>I=8 TCE Managers ha$e dierent sty#es in making decisions and so#$ing prob#ems. 7ne perspecti$e proposes that peop#e dier a#ong two dimensions in the way they approach decision making. A. Linear-Nonlinear Thinking Profile. 1. Research shows that an individuals thinking sty#e re%ects two dimensions: (B the sorce of information yo tend to se and )B how yo process that information #inearG rationa#, #ogica#, ana#ytica# or non#inearGintiti$e, creati$e, insightf#B. ). These for dimensions are co##apsed into two sty#es. The inear thining stye is characteri2ed by a person’s preference for sing e*terna# data and facts and processing this information throgh rationa#, #ogica# thinking to gide decisions and actions. The noninear thining stye , is characteri2ed by a preference for interna# sorces of information and processing this information with interna# insights, fee#ings, and hnches to gide decisions and actions. Managing 2oror#e (i3ersity The 4aue a$$e$ o (i3ersity in (e#ision Maing
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Making good decisions can be toghK 7ne important sggestion for making better decisions is to tap into the di$ersity of the work grop. Di$erse emp#oyees can: (. pro$ide fresh perspecti$es on isses, ). oer diering interpretations on how a prob#em can be de9ned, +. be more open to trying new ideas, -. be more creati$e in generating a#ternati$es, /. and be more %e*ib#e in reso#$ing isses. E$en thogh di$ersity in decision making can be $a#ab#e, drawbacks e*ist. ome drawbacks may inc#de (. #ack of common perspecti$e, which re0ires more time to discss isses. ). commnication cha##enges partic#ar#y if #angage barriers are presentB +. additiona# comp#e*ity, confsion, and ambigity as a res#t of di$erse opinions. Ask yor stdents abot an important decision sch as deciding on a ma3or. Did they ask others for their opinions; Did they seek ot ad$ice from a $ariety of peop#e; As ftre managers in the bsiness wor#d, yor stdents sho#d consider the $a#e added throgh di$ersity in decision making. 6. Decision!Making 6iases and Errors Managers se dierent sty#es and 4r#es of thmb5 heuristi#sB to simp#ify their decision making. (. vercon!dence bias occrs when decision makers tend to think that they know more than they do or ho#d nrea#istica##y positi$e $iews of themse#$es and their performance. ). Immediate grati!cation bias describes decision makers who tend to want immediate rewards and a$oid immediate costs. +. The anchoring eect describes when decision makers 9*ate on initia# information as a starting point and then, once set, fai# to ade0ate#y ad3st for sbse0ent information. -. Selective perception bias occrs when decision makers se#ecti$e#y organi2e and interpret e$ents based on their biased perceptions. /. "on!rmation bias occrs when decision makers seek ot information that rearms their past choices and discont information that contradicts their past 3dgments. '. #raming bias occrs when decision makers se#ect and high#ight certain aspects of a sitation whi#e e*c#ding others. . Availability bias is seen when decision makers tend to remember e$ents that are the most recent and $i$id in their memory. F. Decision makers who show representation bias assess the #ike#ihood of an e$ent based on how c#ose#y it resemb#es other e$ents or sets of e$ents. L. $andomness bias describes the eect when decision makers try to create meaning ot of random e$ents. (. The sun% costs error is when a decision maker forgets that crrent choices cannot correct the past. Instead of ignoring snk costs, the decision maker cannot forget them. In assessing choices, the indi$ida# 9*ates on past e*penditres rather than on ftre conse0ences. ((. Self&serving bias is e*hibited by decision makers who are 0ick to take credit for their sccesses and b#ame fai#re on otside factors. 81
(). 'indsight bias is the tendency for decision makers to fa#se#y be#ie$e, once the otcome is known, that they wo#d ha$e accrate#y predicted the otcome. . mming Hp Manageria# Decision Making (. E'hibit 6%1) pro$ides an o$er$iew of manageria# decision making. Managers want to make good decisions becase doing so is in their best interests. ). @egard#ess of the decision, it has been shaped by a nmber of factors, which ha$e been discssed in hapter i*. /.
E&&ETINE DEII7= MA>I=8 &7@ T7DAC’ "7@D Today’s bsiness wor#d re$o#$es arond making decisions, which are often risky ones made with incomp#ete or inade0ate information and nder intense time pressre. now when it is time to ca## it 0its. . Hse an eecti$e decision!making process. D. 6i#d high#y re#iab#e organi2ations <@7sB that practice 9$e habits: (. Do not be tricked by yor own sccess. ). Defer to the e*perts on the front #ines. +. et ne*pected circmstances pro$ide the so#tion. -. Embrace comp#e*ity. /. Anticipate, bt a#so recogni2e the #imits to yor abi#ity to anticipate.
Ansers to Thining About Management 5ssues
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(hy is decision ma%ing often described as the essence of the manager)s *ob+ Decisions are made throghot the performance of a## for fnctions of management. A#most anything a manager does in terms of p#anning, organi2ing, #eading, and contro##ing in$o#$es decision making. The per$asi$eness of decision making in management e*p#ains why managers are often ca##ed decision makers. 'ow might an organization)s culture in,uence the way in which managers ma%e decisions+ An organi2ation’s c#tre might in%ence how managers make decisions by indicating how mch risk taking is permitted and how mch importance is p#aced on the eecti$eness of the decisions made. &or e*amp#e, if an organi2ationa# c#tre rewards decisions that reinforce the stats 0o, these types of decisions wi## #ike#y be made. All of us bring biases to the decisions we ma%e. (hat types of biases might a manager have+ (hat would be the drawbac%s of having biases+ "ould there be any advantages to having biases+ Explain. (hat are the implications for managerial decision ma%ing+ tdents sho#d be encoraged to identify biases that they ha$e encontered or fee# that they themse#$es might ha$e. E*amp#es co#d inc#de the ha#oOhorn eect, c#tra# biases, and age biases. The drawback of biases is their #imiting eect on beha$ior.
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more on instincts and past e*periences in searching for and processing information. The decision!making imp#ication of this #abe# is that it describes the way we think or process information and in trn, in%ences how we tend to make decisions. 7rgani2ations need both systematic and intiti$e thinkers. Each of these sty#es pro$ides a dierent perspecti$e. -As managers use computer and software tools more often they)ll be able to ma%e more rational decisions./ Do you agree or disagree with that statement+ (hy+ A#thogh compter and software too#s a##ow managers to gather information and ana#y2e it more ecient#y, ti#i2ing compters does not necessari#y a##ow managers to be more rationa#. ooking at the assmptions of rationa#ity see E*hibit '.'B, it is apparent that adding compters to the decision!making process does not garantee perfect#y rationa# decision making by managers. 'ow can managers blend the guidelines for ma%ing eective decisions in today)s world with the rationality and bounded rationality models of decision ma%ing or can they+ Explain. A ba#ance is re0ired. Hnder today’s bsiness conditions sch as intense time pressre and higher degrees of risk and ncertaintyB, managers mst practice sond decision! making approaches. >nowing when it’s time to 0it, for e*amp#e, is not inconsistent with rationa#ity and bonded rationa#ity. Is there a dierence between wrong decisions and bad decisions+ (hy do good managers sometimes ma%e wrong decisions+ 0ad decisions+ 'ow can managers improve their decision&ma%ing s%ills+ Time pressres, incomp#ete information, and higher #e$e#s of ncertainty in today’s bsiness en$ironment may #ead to ineecti$e decision making. Managers can impro$e their decision!making ski##s by focsing on si* characteristics of eecti$e decision! making, inc#ding focsing on important criteria, #ogic and consistency b#ending sb3ecti$e and ob3ecti$e thinking with ana#ysis re0iring the information necessary to reso#$e a partic#ar di#emma gathering re#e$ant and informed opinions and remaining %e*ib#e.
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