MGMT1001: Decision Making

Summary

Decision Making is a step by step process:

1. Identify problem
2. Identify decision criteria
3. Weight the criteria
4. Develop alternatives
5. Analyse alternatives
6. Select alternative
7. Implement alternative
8. Evaluate decision effectiveness
There are mental models in which managers evaluate problems and make
decisions:
o Assumption of rationality: Deals with the decision maker being rational;
that is being objective and logical and knows all alternatives.
o Bounded Rationality: Deals with the decision maker making rational
decisions which are bounded by their limited ability to process all
information.
o Intuition: Deals with the decision maker making decisions based on
experience, emotion and accumulated judgement.
Two types of decisions when it comes to decision making:
o Programmed Decisions: a routine approach used on straightforward
problems.
o Non-programmed Decisions: a custom made approach used on
unusual problems.
There are three decision making conditions:
o Certainty: Decision maker knows all outcomes and can make an
accurate decision
o Risk: Decision maker can estimate the probability of certain outcomes
o Uncertainty: Decision maker is not certain about the outcomes, comes
down to intuition
There are two different decision making styles:
o Linear thinking style: the person has preference for using external data
and being logical
o Non-linear thinking style: the person has preference for using internal
data and being emotional and intuition.
Common errors and Biases in decision making:
o Overconfidence, immediate gratification, anchoring, selective
perception, confirmation, framing, availability, representation,
randomness, sunk costs, self-serving bias and hindsight.
Decision Making techniques:
o Considering cultural differences
o Building an organisation thats adaptive to a dynamic environment
o Using a good decision making process:
Focusing on whats important
Being logical and consistent

Acknowledging subjective and objective thinking

Requiring only enough amount of information
Gathering relevant information and informed opinions

In the decision making process, these 8 steps are used : Identifying the problem,
Identifying decision criteria, weighting the criteria, developing alternatives,
analysing alternatives, selecting alternative, implementing alternative and
evaluating decision effectiveness.
There are three major mental models which managers use to make decisions:
assumption of rationality, Bounded Rationality and Intuition. Assumption of
Rationality is where decision makers are well aware of all alternatives and is
objective. Bounded rationality is where decision makers make rational decisions
which are constrained by their limited ability to process all alternatives and
Intuition is where decision making is based on experience and emotion.
There are three decision making conditions: Certainty, Risk and Uncertainty.
Certainty is when the decision maker knows all outcomes, Risk is when the
decision maker can only estimate the probability of certain outcomes and
uncertainty is not being certain about the outcomes.
In decision making there are two different styles: Linear thinking and Non-linear
thinking. Linear thinking deals with having a preference for external data and
being rational whilst non-linear thinking deals with a preference for internal data
and being intuitive and emotional
In todays context, there are well established decision making techniques used.
These include considering cultural differences as well as using a good decision
making process. The latter deals with 5 key points: Focusing on whats
important, being logical and consistent, Acknowledging subjective and objective
thinking, using an enough amount of information and gathering relevant
information and informed opinions.