Chapter 7

Question 1

A process by which managers/people respond to opportunities and threats that confront them by analyzing option and making determinations about the different options.

Answer 1

Decision Making

Question 2

occur when manager respond to ways to improve organizational performance, profit, and/or customer satisfaction.
E.g. the opportunity of change in people’s consumption pattern during the holy month of Ramadan.

Answer 2

Decisions in response to opportunities

Question 3

events that may result in negative company performance.

Answer 3

Decisions in response to threats

Question 4

Types of decision-making

Answer 4

1- Programmed decision-making: routine, virtually automatic decisions, because they have been done many times in the past and will be done many times in the future, people set rules or guidelines for these decisions. Little ambiguity involved.
E.g. Ordering office supplies, renewing internet connection, paying for utilities, performing employee performance evaluation, weekly/monthly meetings.

2- Non-programmed decision making: Non routine decision made in response to new opportunities or threats. Because non programmed decisions are new, there are no rules or guidelines to help in making them. People respond to these decisions in one of two way:

Question 5

feelings, beliefs, “gut-feeling”, hunches that readily come to mind, the decision is made fast and on-the-spot, require little effort in information gathering.

Answer 5

Intuition

Question 6

Decisions that take time and effort to gather information, list alternatives, and evaluate alternatives.

Answer 6

Reasoned Judgement

Question 7

The classical model of decision-making

Answer 7

assumes that people can make optimum (perfect) decisions.
There are three steps in the classical model:
1- List all alternatives and their consequences (Assumes all information about alternatives and their consequences is available).
2- Evaluate each alterative from best to worst based on personal preference. (assumes that people have the metal facility to process information about alternatives).
3- Select the alternative that has the best future outcome (Assumes that people know what the best outcome in the future is).

Question 8

Administrative Model of Decision Making

Answer 8

Explains that decision making is risky and uncertain and why managers can’t rely on the classical model to make decisions.

Question 9

There are two reasons why decision making is difficult based on the administrative model of decision making:

Answer 9

1- Bounded rationality: there is a large number of alternatives available and people/managers cannot consider information on all of them.
Decisions are limited by cognitive (mental) limitation.

2- Incomplete information: - risk and uncertainty
Risk: when people/managers know the possible outcomes of a certain action and can assign probabilities to them (% of success and failure).
Uncertainty: when people/managers cannot provide probabilities because the future is unknown.
Ambiguous information: a lot of the information provided is not clear and can be seen/interpreted in different ways.
Time constraints and information costs: it takes time and money to collect information.

Question 10

Sources of Cognitive Bias:

Answer 10

• Prior hypothesis bias
• Representativeness
• Illusion of control
• Escalating commitment

Question 11

Prior hypothesis bias

Answer 11

allow strong prior beliefs about a relationship between two variables to affect how we make decisions.

Question 12

Representativeness

Answer 12

The decision maker incorrectly generalizes from a single event or person.

Question 13

Illusion of control

Answer 13

overestimating one’s own ability to control activities, people, events and time

Question 14

Escalating commitment

Answer 14

Committing considerable resources and time to projects even when evidence show that the projects are failing.

Question 15

Model 3: Six Steps in Decision Making

Answer 15

1- Recognize the need for a decision: the most important step, because people can focus and spend time and effort into making the decision.
2- Generate alternatives: list as many alternatives/options as possible.
3- Evaluate Alternatives: the criteria for evaluating alternatives involves: - Legality: are all options/alternatives legal?
- Ethicalness: are the alternatives ethical? Not harming the environment, not harming animals, etc.
- Economically feasible: profitable? Can you afford it? Can the company afford it?
- Practicality: having the ability and resources to select the alternative.
4- Choose among alternatives
5- Implement chosen alternative: the most difficult step.
6- Learn from feedback: consider what went right and wrong with the decision and learn from feedback.