Chapter 8: Managing Decision Making and Problem Solving

Decision Making Process

The overall process that includes recognizing and defining a situation, identifying alternatives, choosing the "best" alternative, and putting the choice into practice

Programmed Decisions

Decisions that are structured, routine, and often recurring, which can be handled with established procedures (e

g

, ordering new supplies or recurring sponsorship)

Nonprogrammed Decisions

Decisions that are unstructured, unique, and occur infrequently, requiring significant time and resources and relying heavily on a manager's intuition and experience (e

g

, new products, mergers, or facility decisions)

Decision Making Under Certainty

The condition that exists when a decision-maker knows all the alternatives and the outcomes associated with each, resulting in very little ambiguity or risk of making a bad decision (though rare in business)

Decision Making Under Risk

A common condition where a decision-maker knows the alternatives but can only estimate the potential costs and payoffs with a certain probability, involving moderate ambiguity

Decision Making Under Uncertainty

The most common condition for major decisions where the decision-maker doesn't know all the alternatives, the risks, or the likely outcomes, making it the most ambiguous and error-prone condition

Classical Model of Decision Making

A prescriptive approach that tells managers how they should make decisions by assuming they have complete information, can eliminate uncertainty to achieve certainty, and evaluate all aspects logically and rationally

Step 1 in Rational Decision Making

Recognizing and defining the decision situation

Step 2 in Rational Decision Making

Identifying alternatives

Step 3 in Rational Decision Making

Evaluating alternatives

Step 4 in Rational Decision Making

Selecting the best alternative

Step 5 in Rational Decision Making

Implementing the chosen alternative

Step 6 in Rational Decision Making

Following up and evaluating the results

Evidence-Based Management

An approach to decision making that involves facing the hard facts, encouraging people to tell the truth, being committed to using the best evidence to guide actions, and avoiding basing decisions on untested beliefs or uncritical "benchmarking

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Administrative Model

A descriptive model that focuses on behavioral processes and explains how managers actually make decisions, typically using incomplete information, being constrained by bounded rationality, and tending to satisfice

Bounded Rationality

The concept that managers try to be rational but are limited (or "bounded") by their own values, skills, unconscious reflexes, and access to incomplete information and knowledge

Satisficing

The decision-making behavior where managers choose the first alternative they find that meets a minimum standard of acceptability rather than searching exhaustively for the absolute best possible alternative

Coalition

An informal alliance of individuals or groups formed to achieve a common goal, which is often a preferred decision alternative

Escalation of commitment

The phenomenon where a company continues to follow a chosen course of action even when it's clearly wrong because people are often reluctant to admit a mistake in the face of mounting evidence of failure

Risk Propensity

The extent to which a decision maker is willing to gamble when making a decision; affects whether a manager is cautious (conservative, fewer major losses/successes) or aggressive (risky investments, higher chance of major losses/successes)

Ethics in Decision Making

An individual's personal beliefs about right and wrong behavior, which are a key factor in managerial decision-making, particularly when a decision affects other people

B Corporations (B Corps)

For-profit companies that voluntarily commit to high standards of social and environmental performance, measuring success not only by profit but also by their impact on society and the environment

Interacting Groups and Teams

The most common method where an existing or new group meets to discuss, debate, and make a decision; the advantage is sparking new ideas, but a disadvantage is that political factors can heavily influence the outcome

Delphi Groups

A method used to gather expert opinions anonymously and without direct face-to-face interaction; responses are summarized, shared, and experts are asked for another round of predictions until a consensus is reached, avoiding group interaction biases

Nominal Groups

A technique where group members meet face-to-face but work independently at first to write down alternatives, which are then shared, discussed for clarification, and voted on, with the highest-ranking alternative chosen

Group Decision Making Advantage

More information and knowledge are available, more alternatives are likely to be generated, and there is likely more acceptance of the final decision, leading to better decisions generally

Group Decision Making Disadvantage

The process takes longer and is costlier, may lead to undesirable compromise decisions, allows one person to dominate, and risks the occurrence of groupthink

Groupthink

A phenomenon where the desire for group harmony and conformity outweighs the goal of making the best possible decision