7 Chapter 4

The Decision-Making Process

 ● Discuss the role of
information in the
management process.
● Identify how managers
Planning Ahead - approach problems and
KEY TAKEAWAYS decisions.
● Describe the six steps in the
decision-making process?
● Describe the potential
pitfalls and sources of
creativity in managerial
decision making.
 1. Information, Technology, and
Management
a) Information and information
systems

Chapter 4 b)
c)
Data Mining and Analytics
Business Intelligence and

Outline 2.
Executive Dashboards
Problem Solving and Managerial
Decisions
a) Managers as Problem Solvers
b) Problem-Solving Approaches
and Styles
c) Structured and Unstructured
Problems
d) Crisis Problems
e) Problem-Solving Environments
 3. The Decision-Making Process
a) Step 1 – Identify and Define
the Problem
b) Step 2 – Generate and

Chapter 4 Evaluate Alternative Courses

of Action

Outline c) Step 3 – Decide on a Preferred

Course of Action
d) Step 4 – Implement the
Decision
e) Step 5 – Evaluate Results
f) At All Steps – Check Ethical
Reasoning
4. Issues in Managerial Decision
Making
a) Decision errors and traps
b) Creativity in decision making
 Information, Technology, &
Management
● Managers must have
- Technological competency

Information, + Ability to understand new

technologies and to use them

Technology, to their best advantage

- Information competency

& + Ability to locate, gather,

organize, and display

Managemen information for decision making

and problem solving

t
- Analytical competency
+ Ability to evaluate and analyze
information to make actual
decisions and solve real
problems
 What is useful information?
○ Data
Information, ■ Raw facts and
observations
Technology, & ○ Information

Management ■ Data made useful and

meaningful for decision
making
○ Information drives
management functions
 ● Characteristics of useful
information:

Information, ○ Timely
○ High quality
Technology, & ○ Complete

Management ○ Relevant
○ Understandable
● Analytics: systematic
gathering and processing of
data to make it useful as
information
 Data Mining and Analytics

⚫ Data mining is the process of

Information, analyzing data to produce
useful information for decision
Technology, & makers.

Management ⚫ Big data exists in huge

quantities and is difficult to
process without sophisticated
mathematical and computing
techniques.
⚫ Management with analytics
involves systematic gathering
and processing of data to
make informed decisions.
 Business intelligence and
Executive Dashboards
○ Management information
systems
Information, ■ Use IT to collect,

Technology, & organize, and distribute

data for use in decision
Management making
○ Business intelligence
■ Taps information systems
to extract and report data
in organized ways that
are helpful to decision
makers
 Executive dashboards
■ Visually update and
Information, display key
performance indicators
Technology, & and information on a
real-time basis
Management
 Information needs in
organizations

Information, ○ Information exchanges with

the external environment:
Technology, & ■ Gather intelligence
information
Management ■ Provide public information
○ Information exchanges
within the organization:
■ Facilitate decision making
■ Facilitate problem solving
 Figure 7.1 Internal and external
information needs in organizations
 Problem Solving and
Managerial Decisions
Problem Solving ○ Managers as Information
Processors
and Managerial ■ Continually gather, give,
Decisions and receive information
■ Now as much electronic
as it is face to face
■ Always on, always
connected
 Figure 7.2 The manager as an
information-processing nerve center
 Problem solving
○ The process of identifying a
discrepancy between actual
and desired performance and
Problem taking action to resolve it

Solving and ● Decision

○ A choice among possible
Managerial alternative courses of action
● Performance threat
Decisions ○ Something is wrong or has
the potential to go wrong
● Performance opportunity
○ Situation offers the chance
for a better future if the right
steps are taken
 Problem Solving and Managerial Decisions
Problem-solving approaches or styles:

Problem avoiders Problem solvers Problem seekers

● Inactive in ● Reactive in gathering ● Proactive in
information information and anticipating problems
gathering and solving problems and opportunities and
solving problems taking appropriate
action to gain an
advantage
 Systematic versus intuitive
thinking
Problem Solving ● Systematic thinking
approaches problems in a
and Managerial rational, step-by-step, and
Decisions analytical fashion

● Intuitive thinking
approaches problems in a
flexible and spontaneous
fashion
 Multidimensional thinking
applies both intuitive and

Problem systematic thinking

○ Effective multidimensional
Solving and thinking requires skill at
strategic opportunism
Managerial
Decisions
Problem Solving and Managerial
Decisions
Managers use different cognitive styles
 Types of problems
○ Structured problems are
Problem ones that are familiar,
straightforward, and clear
Solving and with respect to information
needs
Managerial ○ Programmed decisions

Decisions apply solutions that are

readily available from past
experiences to solve
structured problems
 Types of problems
○ Unstructured problems
Problem are ones that are full of
ambiguities and
Solving and information deficiencies
○ Nonprogrammed
Managerial decisions apply a specific

Decisions solution to meet the

demands of a unique
problem
○ Commonly faced by
higher-level management
 Crisis decision making
○ A crisis involves an
Problem unexpected problem that
can lead to disaster if not
Solving and resolved quickly and
appropriately
Managerial
Decisions
 ● Rules for crisis
management:

Problem ○ Figure out what is going

on
Solving and ○ Remember that speed
matters
Managerial ○ Remember that slow
counts, too
Decisions ○ Respect the danger of
the unfamiliar
○ Value the skeptic
○ Be ready to “fight fire
with fire ”
Problem Solving and Managerial
Decisions
Managers make decisions with various
amounts of information
offers complete information on possible action alternatives and their
consequences

lacks complete information but offers probabilities of the likely

Risk environment
outcomes for possible action alternatives

lacks so much information that it is difficult to assign probabilities to

Uncertain
the environment
likely outcomes of alternatives
Figure 7.3 Three environments for
managerial decision making and
problem solving
 Figure 7.4 Steps in managerial
decision making and problem solving
 Step 1 — Identify and define
the problem
The Decision- ○ Focuses on information
gathering, information
Making processing, and deliberation
○ Decision objectives should
Process be established
○ Common mistakes in
defining problems:
■ Defining the problem too
broadly or too narrowly
■ Focusing on symptoms
instead of causes
■ Choosing the wrong problem
 Step 2 — Generate and
Evaluate Alternative Courses of

The Decision- Action

○ Potential solutions are
Making formulated and more
information is gathered,
Process data are analyzed, the
advantages and
disadvantages of
alternative solutions are
identified
○ Approaches for evaluating
alternatives:
■ Stakeholder analysis
■ Cost-benefit analysis
 Step 2 — Generate and
Evaluate Possible Courses of
The Decision- Action (cont.)
○ Criteria for evaluating
Making Process alternatives:
■ Benefits
■ Costs
■ Timeliness
■ Acceptability
■ Ethical soundness
 Step 2 — Generate and
Evaluate Possible Courses of

The Decision- Action (cont.)

○ Common mistakes:
Making ■ Abandoning the search
for alternatives too
Process quickly
 Step 3 — Decide on a Preferred
Course of Action

The Decision- – Two different approaches

• Behavioral model leads
Making to satisficing decisions
• Classical model leads
Process to optimizing decisions
Figure 7.5 Differences in the classical and
behavioral decision-making models
 Step 4 — Implement the
Decision

The Decision- ○ Involves taking action to

make sure the solution
Making decided upon becomes a
reality
Process ○ Managers need to have
willingness and ability to
implement action plans
○ Lack-of-participation error
should be avoided
 Step 5 — Evaluate Results
○ Involves comparing actual
The Decision- and desired results
○ Positive and negative
Making consequences of chosen
course of action should be
Process examined
○ If actual results fall short
of desired results, the
manager returns to earlier
steps in the decision-
making process
The Decision-Making Process
At all steps, check ethical reasoning!
○ Ask these spotlight questions

Utility ● Does the decision satisfy all

constituents or stakeholders?
● Does the decision
Rights respect the rights and
duties of everyone?
● Is the decision consistent
Justice with the canons of justice?

● Is the decision consistent with

Caring my responsibilities to care?
 Issues in decision making
○ How do decision errors
Issues in happen?
○ Heuristics are strategies
Managerial for simplifying
Decision Making decision making
Issues in Managerial Decision
Making
● Bases a decision on recent information
Availability Bias or events

Representativeness ● Bases a decision on similarity to other

Bias situations

Anchoring and ● Bases a decision on incremental

adjustment from a prior decision point
Adjustment Bias
● Trying to solve a problem in the context
Framing Error in a positive or negative context

● Focusing on information that confirms a

Confirmation Error decision already made

Escalating ● Continuing a course of action even

Commitment though it is not working
 Creative Decision making:
○ Creativity is the
Issues in generation of a novel idea
or unique approach that
Managerial solves a problem or crafts
an opportunity
Decision ■ Big-C creativity occurs
Making when extraordinary
things are done by
exceptional people
■ Little-C creativity occurs
when average people
come up with unique
ways to deal with daily
events and situations
 Personal creativity drivers

Issues in Creativity
● Task Expertise
Managerial ● Task Motivation
● Creativity Skills
Decision
Making
 Situational creativity drivers

Issues in Creativity
● Team Creativity Skills
Managerial ● Management
● Support
Decision ● Organizational
● Culture
Making