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Management: Arab World Edition

Robbins, Coulter, Sidani, Jamali


Chapter 6: Managers as Decision Makers
Lecturer: [Insert your name here]

Learning Outcomes

Follow this Learning Outline as you read and study this chapter.
6.1 The Decision-Making Process

Define decision.

Describe the eight steps in the decision-making process.

6.2 Managers Making Decisions

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Discuss the assumptions of rational decision making.

Describe the concepts of bounded rationality, satisficing, and


escalation of commitment.

Explain intuitive decision making.

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Learning Outcomes
6.3 Types Of Decisions and Decision-Making Conditions

Explain the two types of problems and decisions.

Contrast the three decision-making conditions.

Explain maximax, maximin, and minimax decision choice approaches.

6.4 Decision-Making Styles

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Describe two decision-making styles.

Discuss the twelve decision-making biases.

Explain the managerial decision-making model.

Describe decision-making practices in the Arab context.

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Learning Outcomes
6.5 Effective Decision Making In Todays World

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Explain how managers can make effective decisions in todays


world.

List the six characteristics of an effective decision-making


process.

List the five habits of highly reliable organizations.

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The Decision-Making Process

1. Define decision.
2. Describe the eight steps in the decision-making process.

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Decision Making
Decision

Making a choice from two or more alternatives.

The Decision-Making Process

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Identifying a problem and decision criteria and allocating weights to


the criteria.

Developing, analyzing, and selecting an alternative that can resolve


the problem.

Implementing the selected alternative.

Evaluating the decisions effectiveness.

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The Situation

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Sarah is a sales manager whose reps need new laptops because


their old ones are outdated and inadequate for doing their job. To
make it simple, assume that it is not economical to add memory to
the old computers and it is the companys policy to purchase, not
lease.

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Exhibit 61
The DecisionMaking Process

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Step 1: Identifying the Problem


Problem

A discrepancy between an existing and desired state


of affairs.

Characteristics of Problems

A problem becomes a problem when a manager


becomes aware of it.

There is pressure to solve the problem.

The manager must have the authority, information, or


resources needed to solve the problem.

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Step 2: Identifying Decision


Criteria
Decision criteria are factors that are important
(relevant) to resolving the problem such as:

Costs that will be incurred (investments required)

Risks likely to be encountered (chance of failure)

Outcomes that are desired (growth of the firm)

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Step 3: Allocating Weights to


the Criteria
Decision criteria are not of equal importance:

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Assigning a weight to each item places the items in the


correct priority order of their importance in the decisionmaking process.

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Exhibit 62

Criteria and Weights for Computer


Replacement Decision

Criterion
Memory and Storage

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Weight
10

Battery life

Carrying Weight

Warranty

Display Quality

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Step 4: Developing Alternatives


Identifying viable alternatives

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Alternatives are listed (without evaluation) that can


resolve the problem.

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Step 5: Analyzing Alternatives


Appraising each alternatives strengths and
weaknesses

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An alternatives appraisal is based on its ability to


resolve the issues identified in steps 2 and 3.

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Exhibit 63

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Assessed Values of Laptop


Computers Using Decision Criteria

Step 6: Selecting an Alternative


Choosing the best alternative

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The alternative with the highest total weight is chosen.

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Step 7: Implementing the


Alternative
Putting the chosen alternative into action

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Conveying the decision to and gaining commitment


from those who will carry out the decision

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Exhibit 64

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Evaluation of Laptop Alternatives


Against Weighted Criteria

Step 8: Evaluating the


Decisions Effectiveness
The soundness of the decision is judged by its
outcomes

How effectively was the problem resolved by outcomes


resulting from the chosen alternatives?

If the problem was not resolved, what went wrong?

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Managers Making Decisions

1. Discuss the assumptions of rational decision making.


2. Describe the concepts of bounded rationality, satisficing, and
escalation of commitment.
3. Explain intuitive decision making.

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Managers Making Decisions

Decision making is part of all four managerial functions (next slide).


In fact, that is why we say that decision making is the essence of
management.

And that is why managers when they plan, organize, lead, and
control are called decision makers.

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Exhibit 65 Decisions in the Management Functions

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Making Decisions
Rationality

Managers make consistent, value-maximizing choices with specified


constraints.

Assumptions are that decision makers:

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Are perfectly rational, fully objective, and logical.

Have carefully defined the problem and identified all viable


alternatives.

Have a clear and specific goal.

Will select the alternative that maximizes outcomes in the


organizations interests rather than in their personal interests.

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Making Decisions (contd)


Bounded Rationality

Managers make decisions rationally, but are limited (bounded) by


their ability to process information.

Assumptions are that decision makers:

Will not seek out or have knowledge of all alternatives.

Will satisfice choose the first alternative encountered that


satisfactorily solves the problem rather than maximize the outcome
of their decision by considering all alternatives and choosing the best.

Influence on decision making

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Escalation of commitment: an increased commitment to a previous


decision despite evidence that it may have been wrong.

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The Role of Intuition


Intuitive decision making

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Making decisions on the basis of experience, feelings, and


accumulated judgment.

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Exhibit 66

What Is Intuition?

Source: Based on L. A. Burke and M. K. Miller, Taking the Mystery Out of Intuitive Decision Making, Academy of Management Executive, October
1999, pp. 9199.

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Types Of Decisions and


Decision-Making Conditions
1. Explain the two types of problems and decisions.
2. Contrast the three decision-making conditions.
3. Explain maximax, maximin, and minimax decision choice
approaches.

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Types of Problems and Decisions


Structured Problems

Involve goals that are clear

Are familiar (have occurred before)

Are easily and completely defined information about the problem


is available and complete

Programmed Decision

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A repetitive decision that can be handled by a routine approach.

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Types of Programmed Decisions


Procedure

A series of interrelated steps that a manager can use to respond


(applying a policy) to a structured problem.

Rule

An explicit statement that limits what a manager or employee can or


cannot do.

Policy

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A general guideline for making a decision about a structured


problem.

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Policy, Procedure, and Rule Examples


Policy

Accept all customer-returned merchandise.

Procedure

Follow all steps for completing merchandise return documentation.

Rules

Managers must approve all refunds over $50.00.

No credit purchases are refunded for cash.

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Problems and Decisions


Unstructured Problems

Problems that are new or unusual and for which information is


ambiguous or incomplete.

Problems that will require custom-made solutions.

Nonprogrammed Decisions

Decisions that are unique and nonrecurring.

Decisions that generate unique responses.

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Exhibit 67

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Programmed Versus Nonprogrammed


Decisions

Decision-Making Conditions
Certainty

A situation in which a manager can make an accurate decision


because the outcome of every alternative choice is known.

Risk

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A situation in which the manager is able to estimate the likelihood


(probability) of outcomes that result from the choice of particular
alternatives.

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Exhibit 68 Expected Value for Revenues from the


Addition of One Ski Lift

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Decision Making Conditions


Uncertainty

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Limited information prevents estimation of outcome probabilities for


alternatives associated with the problem and may force managers to
rely on intuition, hunches, and gut feelings.

Maximax: the optimistic managers choice to maximize the


maximum payoff

Maximin: the pessimistic managers choice to maximize the


minimum payoff

Minimax: the managers choice to minimize maximum regret

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Exhibit 69

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Payoff Matrix

Exhibit 610

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Regret Matrix

Decision-Making Styles

1. Describe two decision-making styles.


2. Discuss the twelve decision-making biases.
3. Explain the managerial decision-making model.
4. Describe decision-making practices in the Arab context.

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Decision-Making Styles
Linear thinking style

A persons preference for using external data and facts and


processing this information through rational, logical thinking.

Nonlinear thinking style

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A persons preference for internal sources of information and


processing this information with internal insights, feelings and
hunches.

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Exhibit 611

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Common Decision-Making Errors


and Biases

Decision-Making Biases and Errors


Heuristics

Using rules of thumb to simplify decision making.

Overconfidence Bias

Holding unrealistically positive views of oneself and ones


performance.

Immediate Gratification Bias

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Choosing alternatives that offer immediate rewards and avoid


immediate costs.

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Decision-Making Biases and Errors (contd)


Anchoring Effect

Fixating on initial information and ignoring subsequent information.

Selective Perception Bias

Selecting, organizing and interpreting events based on the decision


makers biased perceptions.

Confirmation Bias

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Seeking out information that reaffirms past choices and discounting


contradictory information.

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Decision-Making Biases and Errors (contd)


Framing Bias

Selecting and highlighting certain aspects of a situation while


ignoring other aspects.

Availability Bias

Losing decision-making objectivity by focusing on the most recent


events.

Representation Bias

Drawing analogies and seeing identical situations when none exist.

Randomness Bias

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Creating unfounded meaning out of random events.

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Decision-Making Biases and Errors (contd)


Sunk Costs Errors

Forgetting that current actions cannot influence past events and


relate only to future consequences.

Self-Serving Bias

Taking quick credit for successes and blaming outside factors for
failures.

Hindsight Bias

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Mistakenly believing that an event could have been predicted once


the actual outcome is known (after-the-fact).

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Exhibit 612

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Overview of Managerial Decision


Making

Practices Of Decision Making In The Arab


World
The traditional Arab decision-making process has been impacted by
several factors.
A

system of networking and collective decision making where the


leader/manager consults with other group members to arrive at a
decision that has the backing of the community.
The

concept of Shura is important. It is not restricted to the political


arena; it has its manifestations in different social institutions, including
the family and business organizations.

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The consultative style seems to be widespread in Arab


organizations.

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Effective Decision Making In


Todays World
1. Explain how managers can make effective decisions in todays
world.
2. List the six characteristics of an effective decision-making
process.
3. List the five habits of highly reliable organizations.

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Decision Making for Todays World


Guidelines for making effective decisions:
1. Understand cultural differences.

In some cases, there is no best way to make decisions. The best


way may depend on the values, attitudes, and beliefs that prevail
in a specific culture.

2. Know when its time to stop.

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Good decision makers are not afraid to change their minds.


They do not become attached to one course of thinking.

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Decision Making for Todays World (contd)


3.Use an effective decision-making process. This process has six
characteristics:

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It focuses on what is important.

It is logical and consistent.

It acknowledges both subjective and objective thinking and


blends analytical with intuitive thinking.

It requires only as much information and analysis as is


necessary to resolve a particular dilemma.

It encourages and guides the gathering of relevant


information and informed opinion.

It is straightforward, reliable, easy to use, and flexible.

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Decision Making for Todays World (contd)


4.Build an organization that can spot the unexpected and quickly
adapt to the changed environment. Karl Weick calls such
organizations highly reliable organizations (HROs) and says they
share five habits:

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Are not tricked by their success.

Defer to the experts on the front line.

Let unexpected circumstances provide the solution.

Embrace complexity.

Anticipate, but also recognize their limits.

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Terms to Know

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decision

procedure

decision-making process

rule

problem

policy

decision criteria

unstructured problems

rational decision making

nonprogrammed decisions

bounded rationality

certainty

satisficing

risk

escalation of commitment

uncertainty

intuitive decision making

directive style

structured problems

analytic style

programmed decision

conceptual style

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Terms to Know (contd)


behavioral style
heuristics
business performance
management (BPM) software

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