Chapter 06

DECISION MAKING:DECISION MAKING:THE ESSENCE OFTHE ESSENCE OFTHE MANAGER’STHE MANAGER’S

JOBJOB6-6-11

Learning Objectives

You should learn to:1,Outline the steps in the decision-making

process2,Explain why decision making is so

pervasive in organizations3,Describe the rational decision maker4,Contrast the perfectly rational and

bounded rational approaches to decision making

5,Explain the role that intuition plays in the decision-making process

6-6-22

Learning Objectives (cont.)

You should learn to:

6,Identify the two types of decision problems and the two types of decisions that are used to solve them

7,Differentiate the decision conditions of certainty, risk, and uncertainty

8,Describe the different decision-making styles

6-6-33

Decisions– choices from two or more alternatives– all organizational members make decisions

Decision-Making Process– a comprehensive, 8-step process– Step 1 - Identifying a Problem

• problem - discrepancy between an existing and a desired state of affairs

– must be such that it exerts pressure to act– manager is unlikely to characterize a

situation as a problem unless s/he has necessary resources to act 管理者不太可能将某些事情作为问题，如果他们不具有采取行动的必要资源

1,Outline the steps in the decision-making process

6-6-44

The Decision-Making Process

ProblemIdentification

“My salespeopleneed new

computers”

Identification of Decision Criteria

PriceWeightWarrantyScreen typeReliabilityScreen size

Allocation ofWeights to

Criteria

Reliability 10Screen size 8Warranty 5Weight 5Price 4Screen type 3

Development of Alternatives

AcerCompaqGatewayHPMicromediaNECSonyToshiba

Implementationof an Alternative

GatewayEvaluationof Decision

Effectiveness

Analysis ofAlternatives

AcerCompaqGatewayHPMicromediaNECSonyToshiba

Selection of anAlternative

AcerCompaqGateway HPMicromediaNECSonyToshiba 6-6-55

© Prentice Hall, 2002

Decision-Making Process (cont.)– Step 2 - Identifying Decision Criteria

• decision criteria - what’s relevant in making a decision

– Step 3 - Allocating Weights to the Criteria• must weight the criteria to give them

appropriate priority in the decision– Step 4 - Developing Alternatives

• list the viable 可行的 alternatives that could resolve the problem without evaluating them

– Step 5 - Analyzing Alternatives• each alternative is evaluated against the criteria

Decision Making (cont.)

6-6-66

Assessed Values of Notebook Computer Alternatives Against Decision Criteria

6-6-77

Evaluation of Laptop Computer Alternatives Against Criteria and Weights

6-6-88

Decision Making (cont.)Decision-Making Process (cont.)

– Step 6 - Selecting an Alternative• choosing the best alternative from among those

considered– Step 7 - Implementing the Alternative

• implementation - conveying the decision to those affected by it and getting their commitment to it

– participation in decision-making process inclines people to support the decision

– decision may fail if it is not implemented properly

– Step 8 - Evaluating Decision Effectiveness• determine whether the problem is resolved

6-6-99

2,Explain why decision making is so pervasive in organizations

6-6-1010

3,Describe the rational decision makingl Rational Decision Making

– decisions are consistent 前后一致的 , value-maximizing choices within specified constraints

– managers assumed to make rational decisions

– Assumptions of Rationality - decision maker would:

– be objective and logical

– carefully define a problem

– have a clear and specific goal

– select the alternative that maximizes the likelihood of achieving the goal

– make decision in the firm’s best economic interests

• managerial decision making seldom meets all the tests

6-6-1111

Assumptions Of Rationality

RationalDecisionMaking

Problem isclear and

unambiguous

Single, well-defined goal

is to be achievedAll alternatives

and consequences

are known

Preferencesare clear

Preferences 偏好are constantand stable

No time or costconstraints exist

Final choicewill maximize

payoff

6-6-1212

4,Contrast the perfectly rational and boundedly rational approaches to decision making

Bounded Rationality– behave rationally within the parameters 参数 of a

simplified decision-making process that is limited by an individual’s ability to process information

– satisfice 满意 - accept solutions that are “good enough”

Is a common error committed in the DM process?escalation of commitment - increased commitment

to a previous decision despite evidence that it may have been wrong• refusal to admit that the initial decision may

have been flawed

6-6-1313

5,Explain the role that intuition plays in the decision-making process

Role of Intuition– intuitive decision making - subconscious

process of making decisions on the basis of experience and accumulated judgment

• does not rely on a systematic or thorough analysis of the problem

• generally complements a rational analysis

6-6-1414

What Is Intuition?Decisions basedon experience

Decisions basedon feelings and

emotions

Decisions basedon ethical values

or culture

Decisions basedon subconscious

data

Decisions basedon skills,

knowledge,or training

Intuition

Affect-initiateddecisions

Experienced-based decisions

Values orethics-based

decisions

Subconsciousmental

processing

Cognitive 认知的 -based

decisions

6-6-1515

6,Identify the two types of decision problems and the two types of decisions that are used to solve them

Types of Problems and Decisions– Well-Structured Problems - straightforward,

familiar, and easily defined– Programmed Decisions - used to address structured

problems– minimize the need for managers to use

discretion– facilitate organizational efficiency

• procedure - series of interrelated sequential steps顺序的步骤 used to respond to a structured problem

• rule - explicit 清楚的 statement of what to do or not to do

• policy - guidelines or parameters for decision making 6-6-1616

6,Identify the two types of decision problems and the two types of decisions that are used to solve them

Types of Problems and Decisions (cont.)– Poorly-Structured Problems - new, unusual

problems for which information is ambiguous or incomplete

– Nonprogrammed Decisions - used to address poorly- structured problems• produce a custom-made response• more frequent among higher-level managers

– few decisions in the real world are either fully programmed or nonprogrammed

6-6-1717

Types Of Problems, Types Of Decisions, And Level In The Organization

ProgrammedDecisions

NonprogrammedDecisions Level in

Organization

Top

LowerWell-structured

Ill-structured

Type ofProblem

6-6-1818

7,Differentiate the decision conditions of certainty, risk, and uncertainty

Decision-Making Conditions– Certainty - outcome of every alternative is known

• idealistic rather than realistic– Risk - able to estimate the probability of outcomes

stemming from each alternative• expected value - the conditional return from each

possible outcome– multiply expected revenue from each outcome

by the probability of each outcome

6-6-1919

Expected Value for Revenues from the Addition of One Ski Lift

6-6-2020

6 -

21

© Prentice Hall, 2002

Decision Trees

Decision Decision pointpoint

Outcome Outcome pointpointBranch of Branch of

solutionsolution

probability

Value ofValue of loss and profitloss and profit

Expected Value= Value of loss and profit* Expected Value= Value of loss and profit* probabilityprobability

6 -

22

© Prentice Hall, 2002

example

P125P125

Rent 20,000sq.ftRent 20,000sq.ft

Rent 12,000sq.ftRent 12,000sq.ft

strong0·70strong0·70

weak0·30weak0·30

strong0·70strong0·70

weak0·30weak0·30

$320,000$320,000

$50,000$50,000

$240,000$240,000

$130,000$130,000

Expected value Expected value 320*0·70+50*0·3320*0·70+50*0·3

0=2390=239

Expected value Expected value 240240*0·70+130*0·70+130*0·30=207*0·30=207

6 -

23

© Prentice Hall, 2002

例 :某公司计划开发一种新产品 ,设计了豪华型和普及型两个型号 :个型号 :

豪华型 :成功盈利 800 万元，成功的概率为 60%, 失败亏损 300 万元 . 失败的概率为 40%;普及型 :成功盈利 600 万元 . 成功的概率为 70%.失败亏损 30 万元 . 失败的概率为 30% 。

6 -

24

© Prentice Hall, 2002

决策方案 自然状态及概率 支付值 期望值

豪华型豪华型

普及型普及型

成功成功 0·600·60

失败失败 0·40·400成功成功 0·70·700

失败失败 0·30·300

800800

-300-300

600600

-30-30

800*0·60+800*0·60+ （（ -30-3000 ）） *0·40=360*0·40=360

600*0·70+600*0·70+ （（ -3-300 ））

*0·30=411*0·30=411

Decision-Making Conditions (cont.) – Uncertainty - not certain about outcomes and

unable to estimate probabilities• psychological orientation of decision maker

– maximax choice - optimistic» maximizing the maximum possible payoff

最大最大选择

– maximin choice - pessimistic » maximizing the minimum possible payoff

最大最小选择

– minimax - minimize the maximum “regret”– 最小化其最大遗憾

6-6-2525

Payoff Matrix 收益矩阵

6-6-2626

Regret Matrix( 遗憾矩阵 )

6-6-2727

8,Describe the different decision-making styles

Decision-Making Styles 决策风格

– two dimensions define the approach to decision making• way of thinking - differs from rational to

intuitive• tolerance for ambiguity模糊承受力 - a high

need for consistency and order in making decision so that ambiguity is minimized.

• define four decision-making styles• Directive - fast, efficient, and logical• Analytic - careful and able to adapt or cope with

new situations• Conceptual - able to find creative solutions• Behavioral - seek acceptance of decisions 6-6-2828

Decision-Making Styles

Analytic

Directive Behavioral

Rational IntuitiveWay of Thinking

Conceptual

High

Low

Tol

eran

ce f

or A

mb

igu

ity

6-6-2929

What are Advantages &Disadvantages in Group Decision Making?

– Advantages - diverse employees:• provide fresh perspectives• offer differing interpretations of problem

definition• increase the likelihood of creative and unique

solutions– Disadvantages - diverse employees:

• require more time to reach a decision• may have problems of communication• may create a more complex, confusing, and

ambiguous decision-making process• may have difficulty in reaching agreement 6-6-3030

Overview Of Managerial Decision Making

Decision-MakingProcess

Types of Problems and Decisions• Well-structured

- programmed• Poorly structured

- nonprogrammed

Decision-Making Conditions• Certainty

• Risk• Uncertainty

Decision Maker Style• Directive• Analytic

• Conceptual• Behavioral

Decision-Making Approach• Rationality

• Bounded Rationality• Intuition

Decision• Choose best alternative - maximizing - satisficing• Implementing• Evaluating

6-6-3131