Decision Making
•Decision
– Making a choice from two or more alternatives.
•The Decision-Making Process
– 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 decision’s effectiveness.
The Situation
• Hamzah is a sales manager whose sales representatives need new laptops because their old ones are outdated and inadequate for doing their job.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 company’s policy to purchase, not lease.
The Decision-Making Process
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.
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)
Step 3: Allocating Weights to the Criteria
• Decision criteria are not of equal importance:
– Assigning a weight to each item places the items in the correct priority order of their importance in the decisionmaking process.
Criteria and Weights for Computer Replacement Decision
Criterion
Weight
Memory and Storage Battery life
Carrying Weight Warranty Display Quality
10 8
6 4 3
Step 4: Developing Alternatives
• Identifying viable alternatives
– Alternatives are listed (without evaluation) that can resolve the problem.
Step 5: Analyzing Alternatives
•Appraising each alternative’s strengths and weaknesses
– An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3.
Assessed Values of Laptop Computers Using Decision Criteria
Step 6: Selecting an Alternative
•Choosing the best alternative
– The alternative with the highest total weight is chosen.
Step 7: Implementing the Alternative •Putting the chosen alternative into action – Conveying the decision to and gaining commitment from those who will carry out the decision
Evaluation of Laptop Alternatives Against Weighted Criteria
Step 8: Evaluating the Decision’s 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?
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.
Decisions in the Management Functions