Chapter Summary by Learning Outcome
4-1 Describe the decision-making process.
The decision-making process consists of eight steps: (1) identify a problem, (2) identify decision criteria, (3) weight the criteria, (4) develop alternatives, (5) analyze alternatives, (6) select alternative, (7) implement alternative, and (8) evaluate decision effectiveness. As managers make decisions, they may use heuristics to simplify the process, which can lead to errors and biases in their decision making. The 13 common decision-making errors and biases include overconfidence, immediate gratification, anchoring, selective perception, confirmation, framing, availability, representation, randomness, sunk costs, self-serving bias, hindsight, and revision bias.
4-2 Explain the three approaches managers can use to make decisions.
The first approach is the rational model. The assumptions of rationality are as follows: The problem is clear and unambiguous; a single, well-defined goal is to be achieved; all alternatives and consequences are known; and the final choice will maximize the payoff. The second approach, bounded rationality, says that managers make rational decisions but are bounded (limited) by their ability to process information. In this approach, managers satisfice, which is when decision makers accept solutions that are good enough. Finally, intuitive decision making is making decisions on the basis of experience, feelings, and accumulated judgment.
4-3 Describe the types of decisions and decision-making conditions managers face.
Programmed decisions are repetitive decisions that can be handled by a routine approach and are used when the problem being resolved is straightforward, familiar, and easily defined (structured). Nonprogrammed decisions are unique decisions that require a custom-made solution and are used when the problems are new or unusual (unstructured) and for which information is ambiguous or incomplete. Certainty involves a situation in which a manager can make accurate decisions because all outcomes are known. With risk, a manager can estimate the likelihood of certain outcomes in a situation. Uncertainty is a situation in which a manager is not certain about the outcomes and can’t even make reasonable probability estimates.
4-4 Discuss group decision making.
Groups offer certain advantages when making decisions—more complete information, more alternatives, increased acceptance of a solution, and greater legitimacy. On the other hand, groups are time-consuming, can be dominated by a minority, create pressures to conform, and cloud responsibility. Three ways of improving group decision making are brainstorming (utilizing an idea-generating process that specifically encourages any and all alternatives while withholding any criticism of those alternatives), the nominal group technique (a technique that restricts discussion during the decision-making process), and electronic meetings (the most recent approach to group decision making, which blends the nominal group technique with sophisticated computer technology).
4-5 Discuss contemporary issues in managerial decision making.
As managers deal with employees from diverse cultures, they need to recognize common and accepted behavior when asking them to make decisions. Some individuals may not be as comfortable as others with being closely involved in decision making, or they may not be willing to experiment with something radically different. Also, managers need to be creative in their decision making because creativity allows them to appraise and understand the problem more fully, including “seeing” problems that others can’t see. Design thinking also influences the way that managers approach decision making, especially in terms of identifying problems and how they identify and evaluate alternatives. Finally, big data is changing what and how decisions are made, but managers need to evaluate how big data might contribute to their decision making.
Discussion Questions
4-1 Why is decision making often described as the essence of a manager’s job?
4-2 Describe the eight steps in the decision-making process.
4-3 All of us bring biases to the decisions we make. What would be the drawbacks of having biases? Could there be any advantages to having biases? Explain. What are the implications for managerial decision making?
4-4 “Because managers have so many powerful decision-making tools to use, they should be able to make more rational decisions.” Do you agree or disagree with this statement? Why?
4-5 Is there a difference between wrong decisions and bad decisions? Why do good managers sometimes make wrong decisions? Bad decisions? How might managers improve their decision-making skills?
4-6 Describe a decision you’ve made that closely aligns with the assumptions of perfect rationality. Compare this decision with the process you used to select your college. Did you depart from the rational model in your college decisions? Explain.
4-7 Explain how a manager might deal with making decisions under conditions of uncertainty.
4-8 Why do you think organizations have increased the use of groups for making decisions and when would you recommend using groups to make decisions?
4-9 Why does a decision maker need to be creative? In which steps of the decision-making process is creativity likely to be most important?
4-10 What is big data? How can managers effectively use big data to improve their decision making? Should managers be cautious in using big data?
4-11 Today’s world is chaotic and fast-paced. How does time pressure affect managerial decision making? What can managers do to still be good decision makers under such conditions?
4-12 Discuss the pros and cons of managers using technology to help make decisions.
4-13 MyLab Management only—additional assisted-graded writing assignment.