1. Source: Management by Stephen Robbins and Mary
Coulter, 10th Edition

2. The Decision Making Process
 Decision making is the essence of management.
Mangers, when they plan, organize, lead, and control,
make decisions.
 Decisions- a choice from two or more alternatives
 To make a decision, a manager must follow a process to
be more effective and efficient.

3. 8 Steps of Decision Making Process
1. Identification of a Problem
 Problem- an obstacle that makes achieving a desired
goal or purpose difficult
 Gathering of information
 Root cause analysis- separating the symptoms from
the “real problem”

4. 8 Steps of Decision Making Process
2. Indentifying Decision Criteria- identifying possible
resolution to the problem. Must consider the pros
and cons of each criteria based on what is needed.

5. 8 Steps of Decision Making Process
3. Allocating Weights to the Criteria- each possible
solution must have features or cons and pros. A
manager should score the criteria according to the
need of the situation.

6. 8 Steps of Decision Making Process
5. Developing Alternatives- as manager it is advised you
select a viable alternative that could also resolve the
problem. At this point we are just listing not
evaluating the alternatives.

7. 8 Steps of Decision Making Process
6. Analyzing Alternatives- each alternative is evaluated
by using the criteria created in step 2.

8. 8 Steps of Decision Making Process
7. Selecting an Alternative-choosing the best
alternative or the one that scored the highest total in
step 5.

9. 8 Steps of Decision Making Process
7. Implementing the Alternative- putting the decision
into action by conveying into those affected and
getting their commitment to it.

10. 8 Steps of Decision Making Process
8. Evaluating Decision Effectiveness- evaluating the
outcome or result of the decision to see of the
problem was resolved. If the problem still persists,
the managers should re-assess the problem and start
over again.

11. Making Decisions
 Rational Decision Making – a type of decision making
in which choices are logical and consistent and
maximizes value. Mangers have to be objective as well.
 Assumption of Rationality- the decision is made to the
best interest of the organization. These decisions are
not realistic.

12. Making Decisions
 Bounded Rationality-decisions making that’s rational
but limited (bounded) by an individuals ability to
process information.
 Satisfice- accept solution that is good enough.
 Escalation of Commitment- an increase in
commitment to the previous decision despite of high
probability of failure or mistake.

13. Making Decisions
 The Role of Intuition- managers use their intuition in
making decisions. Most of this managers have long
managerial experiences already.
 Intuitive Decision Making- making decision on the
basis of experience, feelings, and accumulated
judgment.
 Values/Ethics based -Experience Based
 Affect initiated (Emotions) -Cognitive Based
 Subconscious mental processing

14. Types of Decisions
 Structured Problems and Programmed decisions- a
straightforward, familiar, and easily defined problem
that can be solved by a repetitive decision that can be
handled by a routine approach
 Procedure-a series of sequential steps used to respond
to a well-structured problem.
 Rule-an explicit statement that tells managers what
can or can’t be done.
 Policy-a guideline for making decisions.

15. Types of Decisions
 Unstructured Problems and Non-Programmed
decisions-a problem that is new or unusual and for
which information is ambiguous or incomplete usually
resolved by a unique and non recurring decision that
requires customer made solution.

16. Decision Making Conditions
 Certainty- a situation in which a decision maker can
make accurate decision because all outcomes are
known.
 Risk-a situation in which the decision maker is able to
estimate the likelihood of a certain outcome.
 Uncertainty-a situation in which a decision maker has
neither certainty nor reasonable probability estimates
available

17. Uncertainty
 Maximax- used by optimistic managers. Maximizing
of maximum payoff
 Maximin-somehow a pessimist manager. Maximizing
the minimum payoff.
 Minimax- minimize the maximum regret.

18. Decision Making Styles
 Linear Thinking Style- a decision characterized by a
person’s reference for using external data and facts and
processing this information through rational and
logical thinking.
 Non-Linear Thinking Style- a decision style
characterized by a person’s preference for the internal
sources of information and processing this
information with internal insights, feeling, and
hunches.

19. Biases and Errors
 Overconfidence Bias-too much confidence on oneself
or knowledge and resources.
 Immediate gratification-the want of immediate
rewards
 Anchoring Effect-fixate their decision on an initial
information as a starting point.
 Selective Perception Bias-selective organization and
perception of events
 Confirmation Bias-reaffirms their past choices and
discount information that contradicts past judgment

20. Biases and Errors
 Framing Bias- selecting and highlighting certain aspects of
a situation while excluding others.
 Availability bias-tend to remember events that are most
recent and vivid in memory. Distorts ability to be objective.
 Representation Bias-similarity to previous events
 Randomness Bias-creation meaning out of random events.
 Sunk Costs Errors-forgetting current choices can’t correct
the past.
 Self Serve Bias-credit self for success and blame others for
failure
 Hindsight Bias-false belief that they could have predicted
the outcome

21. Quantitative Decision Making Aids
 Pay off Matrix

22. Quantitative Decision Making Aids
 Decision Tree-are a useful way to analyze hiring,
marketing, investment, equipment purchase, pricing,
and similar decisions that involve progression of
decisions.

23. Quantitative Decision Making Aids
 Break Evan Analysis – used to make profit projections

24. Quantitative Decision Making Aids

25. Quantitative Decision Making Aids
 Ratio Analysis
 Current Ratio- company’s current asset vs current
liabilities. The answer should be =>2:1
 Acid-Test Ration- same as current only that the
inventory is reduced based on the dollar value. Ratio
should be 1:1

28. Quantitative Decision Making Aids
 Linear Programming- a mathematical technique used
to resolve allocation problems. Maybe used in
transportation, advertising budget, staffing, etc.
 Queuing theory- a technique that balances the cost of
having a waiting line against the cost of service to
maintain that line.

29. Quantitative Decision Making Aids
 Economic Order Quantity- is a technique used for
lowbalancing purchase, ordering, carrying, stock out
costs to derive the optimum quantity for a purchase
order.