Foundations of Decision Making

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How Do Managers make Decisions?

8 steps in Decision Making:
1.Identify the problem.
2.Identify decision criteria.
3.Allocation of weights to criteria.
4.Development of alternatives.
5.Analysis f alternatives.
6.Selection of an alternative.
7.Implementation of alternative.
8.Evaluation of decision effectiveness.

Common Errors in decision making process:
Overconfidence bias
Selective perception bias
Hind Sight

3 Decision making approaches

Rational Decision Making  Making logical and consistent choices to maximize value. A rational decision maker would be fully objective and logical with a clear and specific goal.
Bounded Rationality  Recognizes manager’s ability to be rational within the bounds of their ability to process information, leading to satisficing (selection of solutions which are “good enough” Decisions may also be influenced by Escalation of Commitment

- Increased commitment to a previous decision.
- Despite evidence that it may have been wrong.

Intuitive Decision Making  Making decisions on the basis of experience, feelings & accumulated judgment. 5 Aspects of intuition
1.Subconscious processing
2.Value / ethic based decisions
3.Experience based decisions
4.Affect initiated decisions (emotional response)
5.Cognitive based decisions

Decision Making Conditions Managers Face

Structured problems are straight forward familiar problems which are easily definable.

Unstructured Problems are new or unusual for which information is ambiguous or incomplete e.g. decision to enter a new market segment or merge two organisations.

Programmed Decision Making is a repetitive decision that can be handled using a routine approach following a Rule policy or procedure decreasing the need for a decision to be made •Rule: Explicit statement that tells employees what can or cannot be done. •Policy: Guideline for making decisions

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