• Describe the eight steps in the decision-

making process
• Explain the four ways managers make decisions
• Classify decisions and decision-making
conditions
• Classify decisions and decision-making
conditions
• Identify effective decision-making techniques
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Decision Making
• Decision - making a choice from two or more
alternatives.
• Problem - an obstacle that makes it difficult to
achieve a desired goal or purpose.

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The Decision Making Process
1. Identifying a problem and decision criteria
and allocating weights to the criteria
2. Developing, analyzing, and selecting an
alternative that can resolve the problem
3. Implementing the selected alternative
4. Evaluating the decision’s effectiveness

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Exhibit 7-1: Decision-Making Process

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Step 1: Identifying a Problem
• 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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Exhibit 7-2: Important Decision Criteria

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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 decision-making process.

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Step 4: Developing Alternatives
• Identifying viable alternatives
– Alternatives are listed (without evaluation) that
can resolve the problem.

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 Exhibit 7-3: Possible Alternatives

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Step 5: Analyzing Alternatives
• Appraising each alternative’s strengths and
weaknesses
– An alternative’s appraisal is based on its
ability to resolve the issues related to the
criteria and criteria weight.

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Exhibit 7-4: Evaluation of Alternatives

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Step 6: Selecting an Alternative
• Choosing the best alternative
– The alternative with the highest total weight is
chosen.

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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 alternative

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Step 8: Evaluating Decision
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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Exhibit 7-5: Decisions Managers May Make

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Rational Decision-Making
• Rational Decision-Making - describes choices
that are logical and consistent while
maximizing value.
• Bounded Rationality - decision making that’s
rational, but limited (bounded) by an
individual’s ability to process information.
• Satisfice - accepting solutions that are “good
enough.”

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Intuitive Decision-Making
• Intuitive decision-
making
– Making decisions on the
basis of experience,
feelings, and
accumulated judgment.

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 Exhibit 7-6: What Is Intuition?

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 Programmed vs. Non-
Programmed Decisions
• Programmed Decision - a repetitive decision
that can be handled by a routine approach.
• Non-programmed Decisions - unique and
nonrecurring decisions that require a custom-
made solution.

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 Types of Programmed
Decisions
• Procedure - a series of interrelated steps that
a manager can use to apply a policy in
response to a structured problem.
• Rule - an explicit statement that limits what a
manager or employee can or cannot do.
• Policy - a general guideline for making a
decision about a structured problem.

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 Exhibit 7-7: Programmed Versus
Non-programmed Decisions

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Types of Problems
• Structured Problems - straightforward,
familiar, and easily defined problems.
• Unstructured Problems - problems that are
new or unusual and for which information is
ambiguous or incomplete.

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Decision-Making Situations
• Certainty
– a situation in which a manager can make an
accurate decision because the outcome of every
alternative choice is known.
• Risk
– 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 7-8: Expected Value

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Decisions Under Uncertainty
• Limited information prevents estimation of
outcome probabilities for alternatives .
• Limited information forces managers to rely on
intuition, hunches, and “gut feelings.”
• Maximax: the optimistic manager’s choice to maximize the
maximum payoff.
• Maximin: the pessimistic manager’s choice to maximize the
minimum payoff.
• Minimax: the manager’s choice to minimize maximum
regret.

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 Exhibit 7-9: Payoff Matrix

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 Exhibit 7-10: Regret Matrix

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