11-Mar-24

Chapter 2
Making Decisions

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Learning Objectives
2.1 Describe the eight steps in the decision-making process.
2.2 Explain the five approaches managers can use when
making decisions.
2.3 Classify decisions and decision-making styles.
2.4 Describe how biases affect decision making.
2.5 Identify cutting-edge approaches for improving decision
making.

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Help me buy a laptop

• Budget: 2.5 Lac
• Purpose: I need it for work as well as back at my home
• Time: 15-20 minutes for this activity

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Be A Better Decision Maker

A key to success in management and in your career is
knowing how to be an effective decision maker.

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What is a Decision?
Decision—a choice among two or more alternatives

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Exhibit 2.1 Decision-Making Process

Exhibit 2.1 shows the eight steps in the decision-making process. This process is as
relevant to personal decisions as it is to corporate decisions.

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Decision-Making Process Step 1: Identify a

Problem
• Problem: an obstacle that makes it difficult to achieve a
desired goal or purpose.
• Every decision starts with a problem, a discrepancy
between an existing and a desired condition.
• Example: Amanda is a sales manager whose reps need
new laptops.

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Decision-Making Process Step 2: Identify

the Decision Criteria
• Decision criteria are factors that are important to resolving
the problem.
• Example: Amanda decides that memory and storage
capabilities, display quality, battery life, warranty, and
carrying weight are the relevant criteria in her decision

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Decision-Making Process Step 3: Allocate

Weights to the Criteria
• If the relevant criteria aren’t equally important, the decision
maker must weight the items in order to give them the
correct priority in the decision.
• Example: The weighted criteria for Amanda’s computer
purchase are shown in Exhibit 2.2.

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Exhibit 2.2 Important Decision Criteria

Criterion Weight
Memory and storage 10
Battery life 8
Carrying weight 6
Warranty 4
Display quality 3

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Decision-Making Process Step 4: Develop Alternatives

• List viable alternatives that could solve the problem.

• Example: Amanda identifies eight laptops as possible
choices (shown in Exhibit 2.3).

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Exhibit 2.3 Possible Alternatives

Laptop Memory Battery Carrying Warranty Display
and Life Weight Quality
Storage
Acer Aspire E 10 3 10 8 5
Apple MacBook 8 5 7 10 10
Pro
Dell XPS 13 8 7 7 8 7
Lenovo 7 8 7 8 7
ThinkPad
Lenovo Yoga 8 3 6 10 8

Microsoft 10 7 8 6 7
Surface Book
Razer Blade 4 10 4 8 10
Stealth

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Decision-Making Process Step 5: Analyze

Alternatives Step 6: Select an Alternative
• STEP 5: Once you identify the alternatives you need to
analyze them using the criteria established in Step 2.
• STEP 6: Choose the alternative that generates the highest
total in Step 5.

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Exhibit 2.4 Evaluation of Alternatives

Laptop Memory Battery Carrying Warranty Display Total
and Life Weight Quality
Storage
Acer Aspire E 100 24 60 32 15 231

Apple MacBook 80 40 42 40 30 232

Pro
Dell XPS 13 80 56 42 32 21 231

Lenovo 70 64 42 32 21 229
ThinkPad
Lenovo Yoga 80 24 36 40 24 204

Microsoft 100 56 48 24 21 249

Surface Book

Razer Blade 40 80 24 32 30 206

Stealth

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Decision-Making Process Step 7: Implement

the Alternative
• Put the chosen alternative into action.
• Convey the decision to those affected and get their
commitment to it.

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Decision-Making Process Step 8: Evaluate

Decision Effectiveness
• Evaluate the result or outcome of the decision to see if the
problem was resolved.
• If it wasn’t resolved, what went wrong?

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Exhibit 2.5 Decisions Managers May Make:

Planning and Organizing

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Exhibit 2.5 Decisions Managers May Make:

Leading and Controlling

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The five approaches

managers can use
when making
decisions.

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1 Rationality
• Rational Decision Making: choices that are logical and
consistent and maximize value
• Assumptions of rationality:
– Rational decision maker is logical and objective
– Problem faced is clear and unambiguous
– Decision maker would have clear, specific goal and be
aware of all alternatives and consequences
– The alternative that maximizes achieving this goal will
be selected
– Decisions are made in the best interest of the
organization

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2 Bounded Rationality
• Bounded rationality: decision making that’s rational, but
limited by an individual’s ability to process information
• Satisfice: accepting solutions that are “good enough”
• Affected by:
• the organization’s culture, internal politics, power
• Escalation of commitment – an increased
commitment to a previous decision despite
evidence it may have been wrong.

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3 Intuition
• Intuitive Decision Making: making decisions on
the basis of experience, feelings, and
accumulated judgment

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Exhibit 2.6 What is Intuition?

Exhibit 2.6 shows the five different aspects of intuition identified by researchers studying
managers’ use of intuitive decision making.

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4 Evidence-Based Management
• Evidence-based management (EBMgt): the systematic
use of the best available evidence to improve
management practice.

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5 Crowdsourcing
• Crowdsourcing: a decision-making approach where you
solicit ideas and input from a network of people outside of
the traditional set of decision makers.

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Types of Decisions: Structured Problems

and Programmed Decisions
• Structured problems: straightforward, familiar, and easily
defined problems
• Programmed decisions: repetitive decisions that can be
handled by a routine approach

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Types of Programmed Decisions

• Procedure: a series of sequential steps used to respond
to a well-structured problem
• Rule: an explicit statement that tells managers what can or
cannot be done
• Policy: a guideline for making decisions

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Types of Decisions: Unstructured Problems

and Nonprogrammed Decisions
• Unstructured problems: problems that are new or
unusual and for which information is ambiguous or
incomplete
• Non-programmed decisions: unique and nonrecurring
and involve custom-made solutions

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Exhibit 2.7 Programmed vs. Non-

programmed Decisions
Characteristic Programmed Nonprogrammed
Decisions Decisions
Type of problem Structured Unstructured
Managerial level Lower levels Upper levels
Frequency Repetitive, routine New, unusual
Information Readily available Ambiguous or incomplete

Goals Clear, specific Vague

Time frame for solution Short Relatively long

Solution relies on… Procedures, rules, Judgment and creativity

policies

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Decision-Making Styles
• Research has identified four different individual decision-
making styles based on two dimensions:
1. An individual’s way of thinking (Rational vs Institutive)
2. An individual’s tolerance for ambiguity (Low vs High)
• The four styles are directive, analytic, conceptual and
behavioral.

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Exhibit 2.8 Decision-Style Model

Exhibit 2.8 shows the decision-style model from A. J. Rowe and J. D. Boulgarides,
Managerial Decision Making (Upper Saddler River, NJ: Prentice Hall, 1992), p. 29.

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Four Decision-Making Styles

• Directive style: low tolerance for ambiguity and seek
rationality
• Analytic style: seek rationality but have a higher tolerance
for ambiguity
• Conceptual style: intuitive decision makers with a high
tolerance for ambiguity
• Behavioral style: intuitive decision makers with a low
tolerance for ambiguity

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Find your decision-making style

• Visit the following site:
• https://www.kent.edu/career/discover-your-decision-making-
style

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Find your decision-making style

• What Is Your Preferred Decision-Making Style?

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Heuristics
• Heuristics or “rules of thumb” can help make sense of
complex, uncertain, or ambiguous information.
• However, they can also lead to errors and biases in
processing and evaluating information.

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Exhibit 2.9 Common Decision-Making Biases

Exhibit 2.9 identifies 12 common decision errors of managers and biases they may have.

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Decision-Making Biases and Errors (1 of 4)

• Overconfidence Bias: holding unrealistically positive
views of oneself and one’s performance
• Immediate Gratification Bias: choosing alternatives that
offer immediate rewards and avoid immediate costs
• Anchoring Effect: fixating on initial information and
ignoring subsequent information

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Decision-Making Biases and Errors (2 of 4)

• Selective Perception Bias: selecting, organizing and
interpreting events based on the decision maker’s biased
perceptions
• Confirmation Bias: seeking out information that reaffirms
past choices while discounting contradictory information
• Framing Bias: selecting and highlighting certain aspects
of a situation while ignoring other aspects

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Decision-Making Biases and Errors (3 of 4)

• Availability Bias: losing decision-making objectivity by
focusing on the most recent events
• Representation Bias: drawing analogies and seeing
identical situations when none exist
• Randomness Bias: creating unfounded meaning out of
random events

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Decision-Making Biases and Errors (4 of 4)

• Sunk Costs Errors: forgetting that current actions cannot
influence past events and relate only to future
consequences
• Self-serving Bias: taking quick credit for successes and
blaming outside factors for failures
• Hindsight Bias: mistakenly believing that an event could
have been predicted once the actual outcome is known
(after-the-fact)

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Cutting-Edge Decision Making

• Technology has changed the ability of managers to access
information. Two technology driven cutting-edge aides to
decision making are:
– Design thinking: approaching management problems
as designers approach design problems
– Big data and Artificial Intelligence: big data refers to
huge and complex data sets now available. Big data
has opened the door to widespread use of artificial
intelligence (AI)

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Big Data and Artificial Intelligence

Big data: the vast amount of quantifiable

data that can be analyzed by highly
sophisticated data processing

Can be a powerful tool in decision making,

but collecting and analyzing data for data’s
sake is wasted effort

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Artificial Intelligence and Machine

Learning Tools
• Artificial Intelligence (AI) – uses computing power to solve
complex problems
– AI systems have the ability to learn and have facilitated
the use of new tools such as:
 Machine learning
 Deep learning
 Analytics

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Machine Learning, Deep Learning, and Analytics

Machine Learning: A method of data analysis that

automates analytical model building.

Deep Learning: A subset of machine learning that use

algorithms to create a hierarchical level of artificial neural
networks that simulate the function of the human brain.

Analytics: The use of mathematics, statistics, predictive

modeling, and machine learning to find meaningful patterns
in a data set.

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