chp6

© 2008 Weihrich and Cannice Chapter 6. Decision Making 1

MANAGEMENT: A GLOBAL AND ENTREPRENEURIAL PERSPECTIVE by Weihrich, Cannice, and Koontz

Decision Making

Chapter

6

© 2008 Weihrich and Cannice 2Chapter 6. Decision Making

1. Decision making as a rational process.2. The development of alternative courses of action with

consideration of the limiting factor.3. The evaluation of alternatives and making a choice.4. The differences between programmed and

nonprogrammed decisions.5. The differences between decisions made under

conditions of certainty, uncertainty, and risk.6. The importance of creativity and innovation in

managing.

After studying this chapter, you should understand:


Decision Making

• Decision making is the selection of a course of action from among alternatives.


Decision - Making Process

1. Premising

2. Identifying alternatives

3. Evaluating alternatives in terms of the goal sought

4. Choosing an alternative, that is, making a decision


Limited, or “Bounded,” Rationality

• Limitations of information, time, and certainty limit rationality, even though a manager tries earnestly to be completely rational.

• Satisficing is picking a course of action that is satisfactory or good enough under the circumstances.


Development of Alternatives and the Limiting Factor

• A limiting factor is something that stands in the way of accomplishing a desired objective.

• The principle of the limiting factor: By recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected.


Quantitative and Qualitative Factors

• Quantitative factors are factors that can be measured in numerical terms.

• Qualitative, or intangible, factors are those that are difficult to measure numerically.


Marginal Analysis

• Marginal analysis is to compare the additional revenue and the additional cost arising from increasing output.


Cost-Effectiveness Analysis

• Cost-effectiveness analysis seeks the best ratio of benefit and cost.


Selecting an Alternative: Three Approaches

When selecting from among alternatives, managers can use:

1. Experience.

2. Experimentation.

3. Research and analysis.


Fig. 6-1 Bases for Selecting From Among Alternative Courses of Action


Programmed and Nonprogrammed Decisions

• Programmed decisions are used for structured or routine work.

• Nonprogrammed decisions are used for unstructured, novel, and ill-defined situations of a nonrecurring nature.


Fig. 6-2 Nature of Problems and Decision Making in the Organization


Creativity and Innovation

• Creativity refers to the ability and power to develop new ideas.

• Innovation means the use of new ideas.


The Creative Process

• The creative process is seldom simple and linear.

• It generally consists of four overlapping and interacting phases:

1. Unconscious scanning

2. Intuition

3. Insight

4. Logical formulation or verification


Rules for Brainstorming

1. No ideas are criticized.

2. The more radical the ideas are, the better.

3. The quantity of idea production is stressed.

4. The improvement of ideas by others is encouraged.


KEY IDEAS AND CONCEPTS FOR REVIEW

• Decision making• Limited or bounded

rationality• Satisficing• Principle of the limiting factor• Quantitative factors• Qualitative factors• Marginal analysis• Cost-effectiveness analysis• Three approaches to

selecting an alternative

• Programmed decisions• Nonprogrammed decisions• Decision making under

certainty, uncertainty, and risk

• Creativity• Innovation• Creative process• Brainstorming• Creative manager

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