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Management: Second Arab World Edition
Robbins, Coulter, Sidani, Jamali

Chapter 6: Managers as Decision Makers

Lecturer: [Insert your name here]

Learning Outcomes
Follow this Learning Outline as you read and study this chapter.

6.1 Describe the eight steps in the decision-making process

Define decision.

Describe the eight steps in the decision-making process.

6.2 Explain the three ways managers make decisions

Discuss the assumptions of rational decision making.

Describe the concepts of bounded rationality, satisficing, and escalation of commitment.

Explain intuitive decision making.

Learning Outcomes

6.3 Classify decisions and decision-making conditions

Explain the two types of problems and decisions.

Contrast the three decision-making conditions.

6.4 Describe different decision-making styles and discuss

how biases affect decision making

Describe two decision-making styles.

Discuss the twelve decision-making biases.

Explain the managerial decision-making model.

Describe decision-making practices in the Arab context.

Learning Outcomes

6.5 Describe effective decision-making practices in today’s world

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

List the six characteristics of an effective decision-making process.

List the five habits of highly reliable organizations.

Describe the Eight Steps in
the Decision-Making Process

1. Define decision.

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

The Decision-Making Process

Decision

Making a choice from two or more alternatives.

The Decision-Making Process

Identifying a problem and decision criteria and allocating weights to the criteria.
Developing, analyzing, and selecting an alternative that can resolve the problem.
Implementing the selected alternative.
Evaluating the decision’s effectiveness.

The Situation

Sarah is a sales manager whose reps need new laptops because their old ones are outdated and inadequate for doing their job. To make it simple, assume that it is not economical to add memory to the old computers and it is the company’s policy to purchase, not lease.

Exhibit 6–1
The Decision-Making Process

Problem

It is an obstacle that makes achieving a desired goal or purpose difficult. It is a discrepancy between an existing and desired state of affairs.

Characteristics of Problems

A problem becomes a problem when a manager becomes aware of it.
There is pressure to solve the problem.
The manager must have the authority, information, or resources needed to solve the problem.

Step 1: Identifying the Problem

Decision criteria are factors that are important (relevant) to resolving the problem such as:

Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)

Step 2: Identifying Decision Criteria

Decision criteria are not of equal importance:

Assigning a weight to each item places the items in the correct priority order of their importance in the decision-making process.

Step 3: Allocating Weights to the Criteria

Exhibit 6–2 Criteria and Weights for Computer Replacement Decision

Criterion Weight

Memory and Storage 10

Battery life 8

Carrying Weight 6

Warranty 4

Display Quality 3

Identifying viable alternatives

Alternatives are listed (without evaluation) that can resolve the problem.

Step 4: Developing Alternatives

Appraising each alternative’s strengths and weaknesses

An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3.

Step 5: Analyzing Alternatives

Exhibit 6–3 Possible Alternatives

Choosing the best alternative

The alternative with the highest total weight is chosen.

Step 6: Selecting an Alternative

Exhibit 6–4 Evaluation of Alternatives

Putting the chosen alternative into action

Conveying the decision to and gaining commitment from those who will carry out the decision

Step 7: Implementing the Alternative

The soundness of the decision is judged by its outcomes

How effectively was the problem resolved by outcomes resulting from the chosen alternatives?
If the problem was not resolved, what went wrong?

Step 8: Evaluating Decision Effectiveness

Quick Learning Review

Decision-making process starts with:

a. Identifying decision criteria

b. Identifying a problem

c. Selecting an alternative

d. Identifying what is important or relevant in resolving a problem

“Alternatives” in the decision-making process need to be:

a. Developed, selected, analyzed and well-implemented

b. Developed, analyzed, selected and well-implemented

c. Analyzed, developed, selected and well-implemented

d. Developed and well-implemented

Explain the Three Ways
Managers Make Decisions

1. Discuss the assumptions of rational decision making.

2. Describe the concepts of bounded rationality, satisficing, and escalation of commitment.

3. Explain intuitive decision making.

Managers Making Decisions

Decision making is part of all four managerial functions (next slide). In fact, that is why we say that decision making is the essence of management.

And that is why managers ‒ when they plan, organize, lead, and control ‒ are called decision makers.

Exhibit 6–5 Decisions Managers May Make

Making Decisions: Rationality

Managers make consistent, value-maximizing choices with specified constraints.
Assumptions are that decision makers:

Are perfectly rational, fully objective, and logical.

Have carefully defined the problem and identified all viable alternatives.

Have a clear and specific goal.

Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests.

Making Decisions: Bounded Rationality

Bounded Rationality says that managers make decisions rationally, but are limited (bounded) by their ability to process information.
Assumptions are that decision makers:

Will not seek out or have knowledge of all alternatives.

Will satisfice ‒ choose the first alternative encountered that satisfactorily solves the problem ‒ rather than maximize the outcome of their decision by considering all alternatives and choosing the best.

Influence on decision making

Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong.

Making Decisions: The Role of Intuition

Intuitive decision making

Making decisions on the basis of experience, feelings, and accumulated judgment.
Can complement bounded rational decision making, which is a type of decision making in which choices are logical and consistent and maximize value.

Exhibit 6–6 What Is Intuition?

Source: Based on L. A. Burke and M. K. Miller, “Taking the Mystery Out of Intuitive Decision Making,” Academy of Management Executive, October 1999, pp. 91–99.

Quick Learning Review

Because they cannot possibly analyze all information on all alternatives, managers:

a. Maximize rather than satisfice

b. Satisfice rather than maximize

c. Accept solutions that are “good enough”

d. b and c.

Decision making can be:

a. Rational

b. Intuitive

c. Rational and intuitive

d. Based on the unconscious

Classify Decisions and
Decision-Making Conditions

1. Explain the two types of problems and decisions.

2. Contrast the three decision-making conditions.

Types of Decisions

Structured Problems

Involve goals that are clear
Are familiar (have occurred before)
Are easily and completely defined ‒ information about the problem is available and complete
In simpler terms, a structured problem is defined as “A straightforward, familiar, and easily defined problem”.
Examples include: A customer returning a purchase; A student wanting to drop or add a class.

Programmed Decision

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

The 3 Types of Programmed decisions

Procedure

A series of sequential steps that a manager can use to respond (applying a policy) to a structured problem.
For example, accept all customer-returned merchandise.

Rule

An explicit statement that tells managers or employees what can or cannot be done.
For example, managers must approve all refunds over $50.00; no credit purchases are refunded for cash.

Policy (Go to page 142)

“A general guideline for making decisions” about structured problems.
Unlike a rule, a policy establishes general parameters for the decision maker. They contain ambiguous terms that are open for interpretation.

Types of Decisions (cont’d)

Unstructured Problems

Problems that are new or unusual and for which information is ambiguous or incomplete.
Problems that will require custom-made solutions.

Examples include: Building a new manufacturing facility; Restaurants having to adjust their business in order to comply with a curfew law.

Nonprogrammed Decisions

Is a unique and nonrecurring decision that requires a custom-made solution.
These types of decisions generate unique responses.

Exhibit 6–7 Programmed Versus Nonprogrammed Decisions

Decision-Making Conditions

When making decisions, a managers are faced with 3 different conditions:

Certainty

A situation in which a manager can make an accurate decision because the all outcomes are known. (Most ideal situation managers seek)

Risk

A situation in which the manager is able to estimate the likelihood (probability) of certain outcomes. (Is a far more common situation)

Exhibit 6–8 Expected Value for Revenues from the Addition of One Ski Lift

Decision-Making Conditions (cont’d)

Uncertainty

A situation in which a decision maker has neither certainty nor reasonable probability estimates available.

Under these conditions, the choice of alternative is influence by the limited amount of available information and by the psychological orientation of the manager (i.e. The problem and may force managers to rely on intuition, hunches, and “gut feelings”).

Quick Learning Review

A guideline for making decisions is a:

a. Policy

b. Rule

c. Procedure

d. None of the above

A situation in which the decision maker is able to estimate the likelihood of certain outcomes is a:

a. Certainty

b. Risk

c. Uncertainty

d. Accuracy

Describe Different
Decision-Making Styles and
Discuss How Biases Affect
Decision Making

1. Describe two decision-making styles.

2. Discuss the twelve decision-making biases.

3. Explain the managerial decision-making model.

4. Describe decision-making practices in the Arab context.

Decision-Making Styles

Two Decision-Making Styles:

Linear thinking style

A person’s preference for using external data and facts and processing this information through rational, logical thinking.

Nonlinear thinking style

A person’s preference for internal sources of information and processing this information with internal insights, feelings and hunches.

Exhibit 6–9 12 Common Decision-Making Errors

and Biases

Decision-Making Biases and Errors

When managers make decision, they do no only use their own particular style: they may use heuristics to help make sense of complex situations.

Heuristics – Are “rules of thumb” managers use to simplify decision making. However, using heuristics may lead to errors and biases in processing and evaluating information (see Exhibit 6-9) Page 147:

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.

Decision-Making Biases and Errors (cont’d)

Anchoring Effect

Fixating on initial information and ignoring subsequent information.

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 and discounting contradictory information.

Decision-Making Biases and Errors (cont’d)

Framing Bias

Selecting and highlighting certain aspects of a situation while ignoring other aspects.

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.

Decision-Making Biases and Errors (cont’d)

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).

Overview of Managerial Decision Making

Managers’ decision-making process is affected by four factors:

the decision-making approach

the type of problem

decision-making conditions

their decision-making style

In addition, certain decision-making errors and biases may affect the process.

Exhibit 6–10 Overview of Managerial Decision Making

Practices Of Decision Making In The Arab World

The traditional Arab decision-making process has been impacted by several factors.

A system of networking and collective decision making where the leader/manager consults with other group members to arrive at a decision that has the backing of the community.
The concept of Shura is important. It is not restricted to the political arena; it has its manifestations in different social institutions, including the family and business organizations.

The consultative style seems to be widespread in Arab organizations.

Quick Learning Review

Two decision maker’s styles are:

a. Well structured and unstructured

b. Certainty and uncertainty

c. Linear and nonlinear

d. Programmed and non-programmed

Consultation in decision-making practices in the Arab context is linked to the concept of:

a. Shura

b. Wasta

c. Mediation

d. None of the above

Describe Effective
Decision-Making Practices
in Today’s World

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

2. List the six characteristics of an effective decision-making process.

3. List the five habits of highly reliable organizations.

Effective Decision Making in Today’s World

Guidelines for making effective decisions:

Understand cultural differences.

In some cases, there is no “best” way to make decisions. The best way may depend on the values, attitudes, and beliefs that prevail in a specific culture.

Know when it’s time to stop.

Good decision makers are not afraid to change their minds. They do not become attached to one course of thinking.

Effective Decision Making in Today’s World (cont’d)

Use an effective decision-making process. This process has six characteristics:

It focuses on what is important.

It is logical and consistent.

It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking.

It requires only as much information and analysis as is necessary to resolve a particular dilemma.

It encourages and guides the gathering of relevant information and informed opinion.

It is straightforward, reliable, easy to use, and flexible.

Effective Decision Making in Today’s World (cont’d)

Build an organization that can spot the unexpected and quickly adapt to the changed environment. Karl Weick calls such organizations highly reliable organizations (HROs) and says they share five habits:

Are not tricked by their success.

Defer to the experts on the front line.

Let unexpected circumstances provide the solution.

Embrace complexity.

Anticipate, but also recognize their limits.

Quick Learning Review

A highly reliable organization:

a. Embraces simplicity

b. Embraces complexity

c. Anticipates but doesn’t recognize limits

d. Embraces neutrality

One characteristic of an effective decision-making process is that it:

a. Only acknowledges subjective thinking and blends both analytical and intuitive approaches

b. Only acknowledges objective thinking and blends both analytical and intuitive approaches

c. Acknowledges both subjective and objective thinking

d. Blends analytical approaches

Terms to Know

decision

problem

decision criteria

bounded rationality

satisficing

escalation of commitment

intuitive decision making

rational decision making

structured problems

programmed decision

Procedure

Rule

policy

unstructured problems

nonprogrammed decision

certainty

risk

Uncertainty

Business performance management (BPM) software

Linear thinking style

Nonlinear thinking style

Heuristics

directive style

analytic style

conceptual style