© 2004 H. Weihrich Chap. 6. Decision Making 1

Chapter 6. Decision Making

ESSENTIALS OF MANAGEMENT:

An International PerspectiveSixth Edition

Weihrich and Koontz

© 2004 H. Weihrich Chap. 6. Decision Making 2

After studying this chapter, you understand:

1. Decision making as a rational process.

2. The development of alternative courses of action

3. The selection from among alternatives.

4. The differences between programmed and nonprogrammed decisions.

5. Decisions made under conditions of certainty, uncertainty, and risk.

6. The importance of creativity and innovation in managing.

7. The major principles, or guides, for planning

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Decision Making

• Decision making is defined as the selection of a course of action from among alternatives

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Decision Making Process

1. Premising,

2. Identifying alternatives,

3. Evaluating alternatives in terms of the goal sought, and

4. Choosing an alternative, that is, making a decision

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Limited, or "Bounded," Rationality

• Limitations of information, time, and certainty limit rationality, even though a manager tries earnestly to be completely rational

• Satisficing is picking a course of action that is satisfactory or good enough under the circumstances

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Development of Alternatives and the Limiting Factor

• A limiting factor is something that stands in the way of accomplishing a desired objective

• The principle of the limiting factor: By recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected

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Quantitative and Qualitative Factors

• Quantitative factors are factors that can be measured in numerical terms

• Qualitative, or intangible, factors are those that are difficult to measure numerically

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Marginal Analysis

• Marginal analysis is to compare additional revenues and the additional cost arising from increasing output

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Cost Effectiveness Analysis

• Cost effectiveness analysis seeks the best ratio of benefit and cost

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Selecting an Alternative: Three Approaches

When selecting from among alternatives, managers can use:

1. Experience,

2. Experimentation, and

3. Research and analysis.

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Programmed And Nonprogrammed Decisions

• Programmed decisions are used for structured or routine work

• Nonprogrammed decisions are used for unstructured, novel, and ill‑defined situations of a nonrecurring nature

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Creativity and Innovation

• Creativity refers to the ability and power to develop new ideas

• Innovation means the use of new ideas

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The Creative Process1. The creative process is seldom simple and

linear

2. It generally consists of four overlapping and interacting phases:

3. Unconscious scanning

4. Intuition

5. Insight

6. Logical formulation or verification

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Rules for Brainstorming

1. No ideas are criticized

2. The more radical the ideas are, the better

3. The quantity of idea production is stressed

4. The improvement of ideas by others is encouraged