MGMT2010
Topic 9
Decision Making
Course Learning Objectives
(CLO)
CLO4:
Diagnose the impact of leadership style on
decision making and managing change in the
organizations.
What is decision making?
The process of making a
choice from a number of
alternative options.
Decisions are based on the
values, preferences, and
beliefs of the decision-
maker.
Do supervisors make a lot of
decisions?
Supervisors can make hundreds of decisions each week.
Often, they never think about the process they use to make the decision
Supervisors can improve the way they
make decisions by understanding how
the decision- making process works.
We Will Focus On Three Types Of
Decision Making
Rational Decision Making
Effective decision makers identify, select, and apply the best possible
decision.
Bounded Rationality Decision Making
We seek a decision that will be good enough, rather than the best
possible decision.
Intuitive Decision Making
We base decisions on our ‘gut’ feelings.
Rational Choice Decision Making
Effective decision makers select the best alternative by calculating the
probability that various outcomes will occur from the choices and the
expected satisfaction from each of those outcomes.
Two main elements of rational choice
• The probability that each outcome will occur
• The valence or expected satisfaction of each outcome
• The highest returns or highest satisfaction
Basically, calculating the best alternative is rational decision making
Rational Choice Decision Making
Rational Choice Decision Making
1. Identify problem or opportunity
• What is a problem?
• The difference between your current state and
your desired state – “What is” vs. “What ought
to be”
• What is an opportunity?
• The difference between your current state and
something better than your desired state that
was not previously expected
Rational Choice Decision Making
2. Choose the best decision process
• Deciding how to decide
• Does the decision maker have enough information or
do others need to be involved in the process?
• “Do we have enough info to understand why our
sales are below target?”
• Can decisions be made using established rules and
procedures?
• If yes, then it is a programmed decision?
• If no, then it is a non-programmed decision – based
on new or complex problems or unclear
Rational Choice Decision Making
• 2 Types of Decisions
• Programmed
• A simple, routine matter for which there is an
established decision rule since it has been resolved in the
past
• An optimal solution has already been identified (e.g.,
calculating payroll)
• Non-programmed
• A new, complex matter for which there is not an
established decision rule (e.g., handling a labour relations
issue)
Rational Choice Decision Making
3. Develop possible choices
• Assume the decision maker has access to all possible
solutions
• Usually starts by looking for ready-made solutions that
have worked for past similar problems
4. Choose the best alternative
• Chosen by “calculating” the alternative that is the
most useful (or the highest subjective expected
outcome)
• How?
• Estimate the approximate satisfaction each alternative
gives you
Rational Choice Decision Making
5. Implement selected alternative
• The rational choice model assumes that this should
occur without problems
6. Evaluate the selected choice
• Using feedback to measure if the difference between
the current state and the desired state is smaller
• Evaluate whether the gap between current and
desired state has narrowed
• Difference between ‘what is’ and ‘what ought to be’
We Will Focus On Three Types Of
Decision Making
Rational Decision Making
Effective decision makers identify, select, and apply the best possible
decision.
Bounded Rationality Decision Making
We seek a decision that will be good enough, rather than the best
possible decision.
Intuitive Decision Making
We base decisions on our ‘gut’ feelings.
Bounded Rationality Decision
Making
• Early alternatives and solutions are quickly
adopted because of perceptual limitations.
• Managers often don’t have access to all the
information they need.
• Managers are not aware of all the alternatives and
can’t predict the consequences of each one.
• Organizational goals constrain decisions.
• Conflicting goals of multiple stakeholders can force
a compromise of a decision.
Bounded Rationality Decision
Making
Bounded Rationality Decision
Making
• Bounded Rationality explains why it is
difficult to apply rational decision-making as
a human
• Therefore, humans tend not to make fully
rational decisions.
• Humans tend to make bounded rational
decisions
• They process limited and imperfect information
and rarely try to select the best choice
What is satisficing? Why do we do it?
Satisficing means you choose an alternative that is
satisfactory or “good enough” to solve your problem.
We do it because of limitations we may have:
• Imperfect Information
• Time Constraint
• Cognitive limitations - when a person has certain
limitations in mental functioning and in skills such as
communication, self-help, and social skills.
Bounded Rationality Decision
Making
• Since rational decision-making requires a
complex process
• It is more likely people make decisions
using bounded rational decision-making
• Specifically, they process limited and
imperfect information and rarely try to
select the ultimate “best choice”.
What is you Main Takeaway
from Today’s Class?
