1. Source: Management by Stephen Robbins and Mary Coulter, 10th Edition

2. The Decision Making Process Decision making is the essence of management. Mangers, when they plan, organize, lead, and control, make decisions. Decisions- a choice from two or more alternatives To make a decision, a manager must follow a process to be more effective and efficient. 3. 8 Steps of Decision Making Process 1. Identification of a Problem Problem- an obstacle that makes achieving a desired goal or purpose difficult Gathering of information Root cause analysis- separating the symptoms from the real problem 4. 8 Steps of Decision Making Process 2. Indentifying Decision Criteria- identifying possible resolution to the problem. Must consider the pros and cons of each criteria based on what is needed. 5. 8 Steps of Decision Making Process 3. Allocating Weights to the Criteria- each possible solution must have features or cons and pros. A manager should score the criteria according to the need of the situation. 6. 8 Steps of Decision Making Process 5. Developing Alternatives- as manager it is advised you select a viable alternative that could also resolve the problem. At this point we are just listing not evaluating the alternatives. 7. 8 Steps of Decision Making Process 6. Analyzing Alternatives- each alternative is evaluated by using the criteria created in step 2. 8. 8 Steps of Decision Making Process 7. Selecting an Alternative-choosing the best alternative or the one that scored the highest total in step 5. 9. 8 Steps of Decision Making Process 7. Implementing the Alternative- putting the decision into action by conveying into those affected and getting their commitment to it. 10. 8 Steps of Decision Making Process 8. Evaluating Decision Effectiveness- evaluating the outcome or result of the decision to see of the problem was resolved. If the problem still persists, the managers should re-assess the problem and start over again. 11. Making Decisions Rational Decision Making a type of decision making in which choices are logical and consistent and maximizes value. Mangers have to be objective as well. Assumption of Rationality- the decision is made to the best interest of the organization. These decisions are not realistic. 12. Making Decisions Bounded Rationality-decisions making thats rational but limited (bounded) by an individuals ability to process information. Satisfice- accept solution that is good enough. Escalation of Commitment- an increase in commitment to the previous decision despite of high probability of failure or mistake. 13. Making Decisions The Role of Intuition- managers use their intuition in making decisions. Most of this managers have long managerial experiences already. Intuitive Decision Making- making decision on the basis of experience, feelings, and accumulated judgment. Values/Ethics based -Experience Based Affect initiated (Emotions) -Cognitive Based Subconscious mental processing 14. Types of Decisions Structured Problems and Programmed decisions- a straightforward, familiar, and easily defined problem that can be solved by a repetitive decision that can be handled by a routine approach Procedure-a series of sequential steps used to respond to a well-structured problem. Rule-an explicit statement that tells managers what can or cant be done. Policy-a guideline for making decisions. 15. Types of Decisions Unstructured Problems and Non-Programmed decisions-a problem that is new or unusual and for which information is ambiguous or incomplete usually resolved by a unique and non recurring decision that requires customer made solution. 16. Decision Making Conditions Certainty- a situation in which a decision maker can make accurate decision because all outcomes are known. Risk-a situation in which the decision maker is able to estimate the likelihood of a certain outcome. Uncertainty-a situation in which a decision maker has neither certainty nor reasonable probability estimates available 17. Uncertainty Maximax- used by optimistic managers. Maximizing of maximum payoff Maximin-somehow a pessimist manager. Maximizing the minimum payoff. Minimax- minimize the maximum regret. 18. Decision Making Styles Linear Thinking Style- a decision characterized by a persons reference for using external data and facts and processing this information through rational and logical thinking. Non-Linear Thinking Style- a decision style characterized by a persons preference for the internal sources of information and processing this information with internal insights, feeling, and hunches. 19. Biases and Errors Overconfidence Bias-too much confidence on oneself or knowledge and resources. Immediate gratification-the want of immediate rewards Anchoring Effect-fixate their decision on an initial information as a starting point. Selective Perception Bias-selective organization and perception of events Confirmation Bias-reaffirms their past choices and discount information that contradicts past judgment 20. Biases and Errors Framing Bias- selecting and highlighting certain aspects of a situation while excluding others. Availability bias-tend to remember events that are most recent and vivid in memory. Distorts ability to be objective. Representation Bias-similarity to previous events Randomness Bias-creation meaning out of random events. Sunk Costs Errors-forgetting current choices cant correct the past. Self Serve Bias-credit self for success and blame others for failure Hindsight Bias-false belief that they could have predicted the outcome 21. Quantitative Decision Making Aids Pay off Matrix 22. Quantitative Decision Making Aids Decision Tree-are a useful way to analyze hiring, marketing, investment, equipment purchase, pricing, and similar decisions that involve progression of decisions. 23. Quantitative Decision Making Aids Break Evan Analysis used to make profit projections 24. Quantitative Decision Making Aids 25. Quantitative Decision Making Aids Ratio Analysis Current Ratio- companys current asset vs current liabilities. The answer should be =>2:1 Acid-Test Ration- same as current only that the inventory is reduced based on the dollar value. Ratio should be 1:1 26. Quantitative Decision Making Aids Linear Programming- a mathematical technique used to resolve allocation problems. Maybe used in transportation, advertising budget, staffing, etc. Queuing theory- a technique that balances the cost of having a waiting line against the cost of service to maintain that line. 27. Quantitative Decision Making Aids Economic Order Quantity- is a technique used for lowbalancing purchase, ordering, carrying, stock out costs to derive the optimum quantity for a purchase order.