OBS 114
Fundamentals of business management
Unit 5: Chapter 6: Decision making and creativity
1. NATURE OF MANAGERIAL DECISION MAKING
Definitions Decision-making:
Process of how managers respond to opportunities/
threats by:
o analysing options
o determining goals
o courses of action
Decision-making in response to opportunities:
Managers search for ways to:
o increase performance
o benefit stakeholders
o develop new things to capitalize on firm’s strength
Decision making in response to threats:
managers search for ways to increase performance
Programme Routine, virtually automatic decision making
d decision- That follows established rules/ guidelines
making Decisions that have been made many times
No new judgements are needed
Non- Nonroutine decision-making
programme In response to unusual, unpredictable opportunities/
d decision threats
making Managers lack the info needed to develop rules
They then rely on:
o Intuition: feelings, beliefs coming to the mind
o Reasoned judgement: requires effort to gather info
and evaluate
Classical model:
Prescriptive approach
Based on assumption that the decision maker can
evaluate all alternatives
Managers have all the info to make:
an optimum decision: most appropriate decision, that has
the most desirable consequences
Administrative model:
Explains why decision-making is uncertain
Satisfactory decisions are made instead of optimum
decisions
Concepts:
1. Bounded Rationality:
Cognitive limitations that constrain one’s ability to
interpret, process and act on info
2. Incomplete info
, Information is incomplete because of:
o Risk: degree of probability that possible outcomes of a
particular course will occur
o Ambiguous info: info that can be interpreted in multiple/
conflicted ways
o Time constraints and info costs
3. Satisficing
Choosing a satisfactory response to a problem instead of
the optimum decision
2. STEPS IN THE DECISION-MAKING PROCESS
1.Recognize Managers who pursue opportunities to use marketing,
need for a manufacturing, research – create the need to make a
decision decision
2. Generate Failure generates alternatives
alternatives
3. Assess Evaluate advantages/ disadvantages of each decision
alternatives Criteria:
o Legality; ensure it doesn’t violate laws
o Ethicalness; will not harm stakeholders
o Economic feasibility; can it be accomplished?
o Practicality; do managers have the resources
required?
4. Choose Rank various alternatives
among Make sure all info is available
alternatives
5. After course of action is decided – subsequent decisions
Implement follow to implement it
chosen Top managers must assign middle managers the
alternative responsibility to make these follow-up decisions
6. Learn Compare what happened to what was expected to
from happen
feedback Explore why expectations were not met
Derive guidelines that will help in future decision-making
3. COGNITIVE BIASES AND DECISION-MAKING
Prior Results from tendency to base decisions on prior beliefs
hypothesis even if
bias evidence shows beliefs are wrong
Representativ Results from tendency to generalize inappropriately
e bias from a small sample/ single event
Illusion of Tendency to overestimate one’s own ability to control
control activities/ events
Escalating Tendency to commit additional resources to a project
commitment even though it’s failing
Increase investment into a course of action even if it’s:
o illegal
o unethical
Fundamentals of business management
Unit 5: Chapter 6: Decision making and creativity
1. NATURE OF MANAGERIAL DECISION MAKING
Definitions Decision-making:
Process of how managers respond to opportunities/
threats by:
o analysing options
o determining goals
o courses of action
Decision-making in response to opportunities:
Managers search for ways to:
o increase performance
o benefit stakeholders
o develop new things to capitalize on firm’s strength
Decision making in response to threats:
managers search for ways to increase performance
Programme Routine, virtually automatic decision making
d decision- That follows established rules/ guidelines
making Decisions that have been made many times
No new judgements are needed
Non- Nonroutine decision-making
programme In response to unusual, unpredictable opportunities/
d decision threats
making Managers lack the info needed to develop rules
They then rely on:
o Intuition: feelings, beliefs coming to the mind
o Reasoned judgement: requires effort to gather info
and evaluate
Classical model:
Prescriptive approach
Based on assumption that the decision maker can
evaluate all alternatives
Managers have all the info to make:
an optimum decision: most appropriate decision, that has
the most desirable consequences
Administrative model:
Explains why decision-making is uncertain
Satisfactory decisions are made instead of optimum
decisions
Concepts:
1. Bounded Rationality:
Cognitive limitations that constrain one’s ability to
interpret, process and act on info
2. Incomplete info
, Information is incomplete because of:
o Risk: degree of probability that possible outcomes of a
particular course will occur
o Ambiguous info: info that can be interpreted in multiple/
conflicted ways
o Time constraints and info costs
3. Satisficing
Choosing a satisfactory response to a problem instead of
the optimum decision
2. STEPS IN THE DECISION-MAKING PROCESS
1.Recognize Managers who pursue opportunities to use marketing,
need for a manufacturing, research – create the need to make a
decision decision
2. Generate Failure generates alternatives
alternatives
3. Assess Evaluate advantages/ disadvantages of each decision
alternatives Criteria:
o Legality; ensure it doesn’t violate laws
o Ethicalness; will not harm stakeholders
o Economic feasibility; can it be accomplished?
o Practicality; do managers have the resources
required?
4. Choose Rank various alternatives
among Make sure all info is available
alternatives
5. After course of action is decided – subsequent decisions
Implement follow to implement it
chosen Top managers must assign middle managers the
alternative responsibility to make these follow-up decisions
6. Learn Compare what happened to what was expected to
from happen
feedback Explore why expectations were not met
Derive guidelines that will help in future decision-making
3. COGNITIVE BIASES AND DECISION-MAKING
Prior Results from tendency to base decisions on prior beliefs
hypothesis even if
bias evidence shows beliefs are wrong
Representativ Results from tendency to generalize inappropriately
e bias from a small sample/ single event
Illusion of Tendency to overestimate one’s own ability to control
control activities/ events
Escalating Tendency to commit additional resources to a project
commitment even though it’s failing
Increase investment into a course of action even if it’s:
o illegal
o unethical
