Decision makingDecision making

6–1

L E A R N I N G O U T L I N E L E A R N I N G O U T L I N E Follow this Learning Outline as you read and study this chapter.Follow this Learning Outline as you read and study this chapter.

The Decision-Making ProcessThe Decision-Making Process

• Define decision and decision-making process.Define decision and decision-making process.

• Describe the eight steps in the decision-making process.Describe the eight steps in the decision-making process.

The Manager as Decision MakerThe Manager as Decision Maker

• Contrast programmed and non programmed decisions.Contrast programmed and non programmed decisions.

• Explain how managers can make effective decisions in Explain how managers can make effective decisions in today’s world.today’s world.

6–3

Decision MakingDecision Making

• DecisionDecision Making a choice from two or more alternatives.Making a choice from two or more alternatives.

• The Decision-Making ProcessThe Decision-Making Process Identifying a problem and decision criteria and Identifying a problem and decision criteria and

allocating weights to the criteria.allocating weights to the criteria.

Developing, analyzing, and selecting an alternative Developing, analyzing, and selecting an alternative that can resolve the problem.that can resolve the problem.

Implementing the selected alternative.Implementing the selected alternative.

Evaluating the decision’s effectiveness.Evaluating the decision’s effectiveness.

The Decision-Making ProcessThe Decision-Making Process

Step 1: Identifying the ProblemStep 1: Identifying the Problem

• ProblemProblem

A discrepancy between an existing and desired state A discrepancy between an existing and desired state of affairs.of affairs.

• Characteristics of ProblemsCharacteristics of Problems

A problem becomes a problem when a manager A problem becomes a problem when a manager becomes aware of it.becomes aware of it.

There is pressure to solve the problem.There is pressure to solve the problem.

The manager must have the authority, information, or The manager must have the authority, information, or resources needed to solve the problem.resources needed to solve the problem.

Step 2: Identifying Decision CriteriaStep 2: Identifying Decision Criteria

• Decision criteria are factors that are important Decision criteria are factors that are important (relevant) to resolving the problem.(relevant) to resolving the problem. Costs that will be incurred (investments required)Costs that will be incurred (investments required)

Risks likely to be encountered (chance of failure)Risks likely to be encountered (chance of failure)

Outcomes that are desired (growth of the firm)Outcomes that are desired (growth of the firm)

Step 3: Allocating Weights to the CriteriaStep 3: Allocating Weights to the Criteria

• Decision criteria are not of equal importance:Decision criteria are not of equal importance: Assigning a weight to each item places the items in Assigning a weight to each item places the items in

the correct priority order of their importance in the the correct priority order of their importance in the decision making process.decision making process.

Exhibit 6–2Exhibit 6–2 Criteria and Weights for Computer Replacement DecisionCriteria and Weights for Computer Replacement Decision

Criterion Weight

Memory and Storage 10

Battery life 8

Carrying Weight 6

Warranty 4

Display Quality 3

Step 4: Developing AlternativesStep 4: Developing Alternatives

• Identifying viable alternativesIdentifying viable alternatives Alternatives are listed (without evaluation) that can Alternatives are listed (without evaluation) that can

resolve the problem.resolve the problem.

Step 5: Analyzing AlternativesStep 5: Analyzing Alternatives

• Appraising each alternative’s strengths and Appraising each alternative’s strengths and weaknessesweaknesses An alternative’s appraisal is based on its ability to An alternative’s appraisal is based on its ability to

resolve the issues identified in steps 2 and 3.resolve the issues identified in steps 2 and 3.

Exhibit 6–3Exhibit 6–3 Assessed Values of Laptop Computers Assessed Values of Laptop Computers Using Decision CriteriaUsing Decision Criteria

Step 6: Selecting an AlternativeStep 6: Selecting an Alternative

• Choosing the best alternativeChoosing the best alternative The alternative with the highest total weight is The alternative with the highest total weight is

chosen.chosen.

Step 7: Implementing the AlternativeStep 7: Implementing the Alternative

• Putting the chosen alternative into action.Putting the chosen alternative into action. Conveying the decision to and gaining commitment Conveying the decision to and gaining commitment

from those who will carry out the decision.from those who will carry out the decision.

Exhibit 6–4Exhibit 6–4 Evaluation of Laptop Alternatives Evaluation of Laptop Alternatives Against Weighted CriteriaAgainst Weighted Criteria

Step 8: Evaluating the Decision’s Step 8: Evaluating the Decision’s EffectivenessEffectiveness

• The soundness of the decision is judged by its The soundness of the decision is judged by its outcomes.outcomes.

How effectively was the problem resolved by How effectively was the problem resolved by outcomes resulting from the chosen alternatives?outcomes resulting from the chosen alternatives?

If the problem was not resolved, what went wrong?If the problem was not resolved, what went wrong?

Exhibit 6–5Exhibit 6–5 Decisions in the Management FunctionsDecisions in the Management Functions

Assumptions of RationalityAssumptions of Rationality

Types of Problems and DecisionsTypes of Problems and Decisions

• Structured ProblemsStructured Problems

Involve goals that clear.Involve goals that clear.

Are familiar (have occurred before).Are familiar (have occurred before).

Are easily and completely definedAre easily and completely defined—infor—information about mation about the problem is available and complete.the problem is available and complete.

• Programmed DecisionProgrammed Decision

A repetitive decision that can be handled by a routine A repetitive decision that can be handled by a routine approach.approach.

Types of Programmed DecisionsTypes of Programmed Decisions

• PolicyPolicy A general guideline for making a decision about a A general guideline for making a decision about a

structured problem.structured problem.

• ProcedureProcedure A series of interrelated steps that a manager can use A series of interrelated steps that a manager can use

to respond (applying a policy) to a structured problem.to respond (applying a policy) to a structured problem.

• RuleRule An explicit statement that limits what a manager or An explicit statement that limits what a manager or

employee can or cannot do.employee can or cannot do.

Policy, Procedure, and Rule ExamplesPolicy, Procedure, and Rule Examples

• PolicyPolicy

Accept all customer-returned merchandise.Accept all customer-returned merchandise.

• ProcedureProcedure

Follow all steps for completing merchandise return Follow all steps for completing merchandise return documentation.documentation.

• RulesRules

Managers must approve all refunds over $50.00.Managers must approve all refunds over $50.00.

No credit purchases are refunded for cash.No credit purchases are refunded for cash.

Problems and Decisions (cont’d)Problems and Decisions (cont’d)

• Unstructured ProblemsUnstructured Problems

Problems that are new or unusual and for which Problems that are new or unusual and for which information is ambiguous or incomplete.information is ambiguous or incomplete.

Problems that will require custom-made solutions.Problems that will require custom-made solutions.

• Nonprogrammed DecisionsNonprogrammed Decisions

Decisions that are unique and nonrecurring.Decisions that are unique and nonrecurring.

Decisions that generate unique responses.Decisions that generate unique responses.