A. A.

Ayu Mas Radha Rani Dewi

1807521063

MANAGEMENT ASSIGNMENT
50 IMPORTANT CONCEPTS OF CHAPTER 7 – DECISION MAKING

1. Decision is a choice made from among available alternatives. Decision

making is the process of identifying and choosing alternative courses of
action.

Example: When your company went bankrupt, you have to choose between
closing the company or take a loan in a bank to help run the business.

2. Two System of Decision Making – System 1 (intuitive and largely

unconscious)
This system operates automatically and quickly. It is our fast, automatic,
intuitive, and largely unconscious mode.

Example: System 1 is capable of making quick decisions, based on very little

information. Maybe the man sitting in the corner reminds you of your high
school math teacher, maybe your eye is instinctively drawn to the dark red
label on the pasta sauce, maybe your barista was wearing a flattering new
shade of lipstick this morning? These fleeting impressions, and the many other
shortcuts you’ve developed throughout your life, are combined to enable
System 1 to make these decisions quickly, without deliberation and conscious
effort.

3. Two System of Decision Making – System 2 (analytical and conscious)

This system is slow, deliberate, analytical, and consciously effortful mode of
reasoning.

Example: How would you decide which college to attend, which house to buy,
or whether to change careers? These are the types of decisions that engage
System 2. They require attention and slow, effortful, considered responses.
You would naturally have gut feelings about each college, house or career
path, but would likely try to supplement them with a much more thoughtful
and rational approach: collecting as much information about each option as
possible, asking your friends, family or colleagues for advice, or making a list
of pros and cons for each option.

4. The Curse of Knowledge is when a people, or usually an expert cursed by

their knowledge and they can’t imagine what it’s like to be as ignorant as the
rest of us. In other words, as our knowledge and expertise grow, we may be
less and less able to see things from an outsider’s perspective. Hence, we are
often apt to make irrational decision.

Example: In a classroom setting, teachers have difficulty teaching novices

because they cannot put themselves in the position of the student. A brilliant
 professor might no longer remember the difficulties that a young student
encounters when learning a new subject.

5. The rational model of decision making, explain how managers should make
decisions. It assumes managers will make logical decisions that will be the
optimum in furthering the organization’s best interest.

Example: When a manager faces a problem in the company, he doesn’t just

make a decision straight away. He identify the problem first, think of the
solution and the alternate solution, and then he implement the solution chosen.

6. Stage 1 in Rational Decision Making – Identify the problem or

opportunity
As a manager, you’ll find problem or even opportunities. But whether you’re
confronted with a problem or an opportunity, the decision you’re called on to
make is how to make improvements.

Example: If your family is growing, and you have a small house which doesn’t
meet your needs. On this case, the cause of the problem is the space

7. Stage 2 in Rational Decision Making – Think up alternative solutions

After you’ve identified the problem or opportunity and diagnosed its causes,
you need to come up with the solutions.

Example: After you identify the problem, you decided that you are going to
buy a bigger house to overcome that issue.

8. Stage 3 in Rational Decision Making – Evaluates alternatives and select a

solution
You need to evaluate each alternatives, not only according to cost and quality
but also according the questions: (1) is it ethical?, (2) is it feasible?, (3) is it
ultimately effective?

Example: But after you evaluate the solution that you thought of, (which is
buying a bigger house) you realize that your solution is not ultimately
effective. So you think of other alternatives. Which is by removing unneeded
stuff in your house to free up space or having a space to build a new room in
the house.

9. Stage 4 in Rational Decision Making – Implement and evaluate the

solution chosen
After you’ve chosen the best solution, you have to implement that solution.
Some implementations is usually straightforward, and some may take months.

Example: After evaluating the pros and cons of the alternative solution, you
decided to free up the space by removing the unneeded stuff in your house.
And you do the action straightforward.
10. The nonrational model of decision making, explain how managers make
decision and they assume that decision making is nearly always uncertain and
risky, making it difficult for managers to make optimal decisions.

Example: Many cigarette smokers are capable of quitting, but they still
continue doing it – especially since they know it’s expensive and bad for their
health. It’s not that they are especially tolerant of risk. Perhaps, some scientist
suggest, it’s because they have poor self-control and can’t resist the short-term
pleasure despite the prospected of long-term disaster.

11. Bounded rationality, is the concept that suggests that the ability of decision
makers to be rational is limited by numerous constraints, such as complexity,
time and money, and their cognitive capacity, values, skills, habits, and
unconscious reflex

Example: When the precept being violated is to “buy footwear that fits one’s
feet” (an admonition that will no doubt find wide acceptance), the consumer’s
action might be to purchase a pair of shoes that is instead one-half size too
large. This behaviour would be considered boundedly rational if the shoes
being purchased were needed for a wedding this afternoon and if a perfectly
fitting pair could be obtained for certain only by visiting each of 10
geographically dispersed shoe shops. In this instance, thinking of the decision
maker simply as an optimizer of comfort would lead to puzzlement at his
selection, but the purchase of poorly fitting shoes looks reasonable enough
when the consumer’s limited knowledge of the retail environment is
considered.

12. Satisficing model

Because of such constraints, managers don’t make an exhaustive search for the
best alternative. Instead, they follow the satisficing model – that is, when
managers seek alternatives until they find one that is satisfactory, not optimal.

Example: A task is to sew a patch onto a pair of jeans. The best needle to do
the threading is a 4 inch long needle with a 3 millimeter eye. This needle is
hidden in a haystack along with 1,000 other needles varying in size from 1
inch to 6 inches. Satisficing claims that the first needle that can sew on the
patch is the one that should be used. Spending time searching for that one
specific needle in the haystack is a waste of energy and resources.

13. Intuition model, is making a choice without the use of conscious thought or
logical inference.

Example: Ben Hugh, 32, decided to buy I Can Has Cheezburger?, a blog
devoted to silly cat pictures paired with viewer-submitted quirky captions,
when it linked to his own pet blog and caused it to crash from a wave of new
visitors. Putting up $10,000 of his own money and acquiring additional
investor financing, he bought the site for $2 million from the Hawaiian
bloggers who started it. “It was a white-knuckle decision,” he said later. But
he expanded the Cheezburger blog into an empire that now includes 53 sites.
14. Decision tree, is a graph of decisions and their possible consequences. It is
used to create a plan to reach a goal.

Example:

15. Evidence-based management, is the translation of principles based on best

evidence into organizational practice, bringing rationality to the decision
making process.

Example: Google used evidence based analysis to find out what makes a better
boss. They found that what employees value most are even-keeled bosses who
take an interest in employees’ lives and careers, who make time for one-on-
one meetings, and who help people work through problems by asking
questions instead of dictating answers.

16. Implementation Principles – Treat your organization as an unfinished

prototype
To help companies that are committed to doing what it takes to profit from
evidence-based management, the first principle is to treat your organization as
an unfinished prototype. Leaders need to think and act as if their organization
is an unfinished prototype that won’t be ruined by dangerous new ideas or
impossible to change because of employee and management resistance.
 Example: Some Internet start-ups that find their original plan not working
have learned to master “the art of the pivot,” to fail gracefully by cutting their
losses and choosing a new direction—as did the founders of Fabulus, a review
site and social network that attracted no users, and so they launched a high-end
e-commerce site called Fab.com.

17. Implementation Principles – No brag, just facts

This slogan is an antidote for over-the-top assertions about forthcoming
products.

Example: Google used evidence-based analysis to find out what makes a better
boss. They found that what employeesvalue most are evenkeeled bosses who
take an interest in employees’ lives and careers, who make time for one-on-
one meetings, and who help people work through problems by asking
questions instead of dictating answers

18. Implementation Principles – See yourself and your organization as

outsiders do
Most managers are afflicted with “rampant optimism,” with inflated view of
their own talents and prospects for success, which cause them to downplay
risks and continue on a path despite evidence things are not working

Example: Intel’s Andy Grove called it “the revolving door” when discussing
strategy with then CEO Gordon Moore. Pretend we are outsiders coming new
to the job, ask ourselves what they would do, and then do it ourselves. It led
Intel to withdraw from the business of memory chips, and focus on
microprocessors. This resulted in more than a decade of 30 percent annual
growth in revenue and 40 percent increase in net income.

19. Implementation Principles – Evidence-based management is not just for

senior executives
The best organizations are those in which everyone, not just the top managers,
is guided by the responsibility to gather and act on qualitative data and share
results with others.

Example: Having a business meetings, gathering all of the supervisors of the

company to discuss topics that is related with the issues that is available at the
moment instead of discussing it with top managers could results a unique
results.

20. Implementation Principles – Like everything else, you still need to sell it
To sell an evidence-based approach, you may have to identify a preferred
practice based on solid if unexciting evidence, then use vivid stories to grab
management attention.

Example: The Old Spice campaign "The Man Your Man Could Smell Like"
that ran a few years ago. To keep the excitement going, Wieden+Kennedy
filmed more than 180 video responses to questions from fans and celebrities
and posted them on YouTube. The company's Twitter and Facebook
 followings soared, and sales jumped 125 percent. By the end of 2010, Old
Spice had become the No. 1 selling brand of body wash for men in the U.S.
The power of social media and advertising has the bigger portion of The Old
Spice’s success, consumers look to you for thoughtful and entertaining content
down the road.

21. Implementation Principles – If all else fails, slow the spread of bad
practice
Because many managers and employees face pressure to do things that are
known to be ineffective, it may be necessary for you to practice “evidence-
based misbehavior” – that is, ignore orders you know to be wrong or delay
their implementation.

Example: When your manager orders you to do something that is ineffective,

you can ignore it and start doing it in the effective way possible.

22. Implementation Principles – The best diagnostic question: What happens

when people fail?
Failure hurts, it is embarrassing, and we would rather live without it,” the
authors write. “Yet there is no learning without failure. If you look at how the
most effective systems in the world are managed, a hallmark is that when
something goes wrong, people face the hard facts, learn what happened and
why, and keep using those facts to make the system better .” The organization
must “forgive and remember” people who make mistakes, not be trapped by
preconceived notions, and confront the best evidence and hard facts.

Example: From the U.S. civil aviation system, which rigorously examines
airplane accidents, near misses, and equipment problems, to Home Depot
deciding to close 400 of its U.S. stores after declining sales, evidence-based
management makes the point that failure is a great teacher.

23. Business Analytics

Is the term used for sophisticated forms a business data analys.

Example: Portfolio analysis, in which an investment adviser evaluates the

risks of various stocks.

24. Use of Modeling

Predictive modeling is a data-mining technique used to predict future behavior
and anticipate the consequences of change.

Example: Companies such as Capital One look well beyond basic statistics,
using data mining and predictive modeling to identify potential and most
profitable customers. Thus, Capital One conducts more than 30,000
experiments a year, with different interest rates, incentives, direct-mail
packaging, and other variables to evaluate which customers are most apt to
sign up for credit cards and will pay back their debt.

25. Having Multiple Applications

 Analytics competitors don’t gain advantage from only one application, but
rather from multiple applications supporting many parts of the business.

Example: UPS (formerly United Parcel Service) applies analytics not only to
tracking the movement of packages but also to examining usage patterns to try
to identify potential customer defections so that salespeople can make contact
and solve problems. More recently, it began testing whether UPS could be in
the business of delivering direct mail, to serve as an alternative to marketing
mail delivered by the U.S. Post Service

26. Support from the Top

A companywide embrace of analytics impels changes in culture, processes,
behavior, and skills for many employees. And so, like any major transition, it
requires leadership from executives at the very top who have passion for the
quantitative approach.

Example: General manager guides the employees to impels the changes

27. Big Data analytics, is the process of examining large amounts od data of a
variety of types to uncover hidden patterns, unknown correlations, and other
useful information.

Example: While Big Data analytics can be used to tackle large-scale problems
such as how to make electricity grids and traffic flow more effective, it also
has specific, practical uses in business. HP Labs researchers, for instance, used
Twitter data to accurately predict box-office revenues of Hollywood
movies.90 Business is also interested in analyzing online behavior “to create
ads, products, or experiences that are most appealing to consumers—and thus
most lucrative to companies,” says one technology journalist. “There’s also
great potential to more accurately predict market fluctuations or react faster to
shifts in consumer sentiment or supply chain issues.”

28. Styles of Decision Making – The Directive style

People with a directive style have a low tolerance for ambiguity and are
oriented toward task and technical concerns in making decisions. They are
efficient, logical, practical, and systematic in their approach to solving
problem. People with this style are action oriented and decisive and like to
focus on facts

Example: John Dirt is the most senior vice-president at Hearts Development

firm. He prefers to make decisions using a directive style. John believes that a
shopping mall is the best type of development for the land. He is going to
present this decision to the CEO, based on the fact that he believes this is the
best solution. He has built malls in the past, and will not consider any other
options.

29. Styles of Decision Making – The Analytical style

Managers with an analytical style have much higher tolerance for ambiguity
and are characterized by the tendency to overanalyze a situation. People with
this style like to consider more information and alternatives than those
 following the directive style. Analytic individuals are careful decision makers
who take longer to make decisions but who also respond well to new or
uncertain situations.

Example: When the management is discussing about acquisition. They do not

make decision fast. They want to have more information before they make the
major acquisition. They have to find answers to many “what if” questions.

30. Styles of Decision Making – The Conceptual style

People with conceptual style have a high tolerance for ambiguity and tend to
focus on the people or social aspects of a work situation. They take a broad
perspective to problem solving and like to consider many options and future
possibilities. Conceptual types adopt a long-term perspective and rely on
intuition and discussions with others to acquire information. They also are
willing to take risks and are good at finding creative solutions to problem.
However, a conceptual style can foster an indecisive approach to decision
making.

Example: Susie Steel prefers to use the conceptual style of decision making in
her job. Susie gathered her team together and presented the issue of the
undeveloped land scenario. She gave the team all of the key information she
had acquired during her research. Susie and her team spent the day
brainstorming different alternatives for the plot of land and evaluated each
one. No idea was eliminated, and the team decided to choose a higher-risk
plan, which could result in a financial windfall for the company. On of Susie’s
coworker felt her idea was ridiculous, as there was not any data to support her
risky decision

31. Styles of Decision Making – The Behavioral style

The behavioral style is the most people oriented of the four styles. People with
this style work well with others and enjoy social interactions in which opinion
are openly exchanged. Although they like to hold meetings, people with this
style have a tendency to avoid conflict and to be concerned about others. This
can lead behavioral types to adopt a wishy-washy approach in decision
making and hard time saying no.

Example: The manager possesses behavioral style decision-making will

engage in team discussion. He is responsive to the mood of the team members.
He makes decision based on what feels right, and what will motivate the team
members to perform. The decision is communicated clearly and leaves no
room for doubt.

32. Four Ineffective Reaction – Relaxed avoidance

In relaxed avoidance, a manager decides to take no actions in the belief that
there will be no great negative consequences.

Example: Relaxed avoidance was vividly demonstrated in the months before

the subprime mortgage meltdown, when banks made cheap housing loans to a
lot of unqualified buyers, precipitating a huge financial crisis and drying up of
credit. During that time, a lot of smart people in denial said no to worry, that
 the mortgage mess would be ‘contained’. They included many bank presidents
and even Ben Bernanke, chairman of he Federal Reserve. One nationwide
online survey has also found that investor’s forecast of future returns go up
after the stock market has risen and go down after his fallen-complacency
indeed.

33. Four Ineffective Reaction - Relaxed change

A manager realizes that complete inaction will have negative consequences
but opt for the first available alternative that involves low risk.

Example: Perhaps people really don’t like a lot of choices. In one experiment,
40% of customers stopped by a large assortment of jam jars (24) and only 30%
by a small assortment (6) – but only 3% made a purchase in the first case
versus 30% in the second.

34. Four Ineffective Reaction – Defensive avoidance

A manager can’t find a good solution and follows by (a) procrastinating, (b)
passing the buck, (c) denying the risk of any negative consequences.

Example: Defensive avoidance often occurs in firms with high turnover.

Although some executives try to stop high performance from exiting by
offering raises or promotions, other react defensively, telling themselves that
the person leaving is not a big loss. “It’s psychologically threatening to those
who are staying to acknowledge there’s a reason some people are leaving.”
Says the CEO of a corporate-psychology consulting company, “so executives
often dismiss them as untalented or even deny that an exodus is occurring.” He
mentions one financial-services company whose executives insisted turnover
was low when in fact 50% of hundreds of new employees quit within a year.

35. Four Ineffective Reaction – Panic

Manager is so frantic to get rid of the problem that he or she can’t deal with
the situation realistically.

Example: Shoppers at a New Jersey Mall were asked to make decisions about
how the would spend money when facing emergencies expenses. When the
expenses were large, the cognitive performance of low-income shoppers fell
by 13 IQ points (equivalent to a lost night’s sleep), whereas the IQ levels of
middle-income shoppers remained the same. “When you don’t have enough
money, it occupies your mind to takes away bandwidth that you could use for
other things.”

36. Nine Common Decision Making Biases – The Availability Bias

The availability bias-managers use information readily from memory to make
judgments. The bias, of course, is that readily available information may not
present a complete picture of a situation. The availability bias may be stoked
by the news, media, which tends to favor news that is unusual or dramatic

Example: Because of the efforts of interest groups or celebrities, more news

coverage may be given to AIDS or breast cancer that to heart disease, leading
people to think the former are the bigger killers when in fact the latter is.
37. Nine Common Decision Making Biases – The Representativeness Bias
The representativeness bias is the tendency to generalize from a small sample
or a single event

Example: In 2014, when the Tennessee Powerball jackpot reached $259.8

million, the odds of winning it were put 1 in 175,223,510. Nevertheless,
millions of people buy lottery tickets because they read or hear about a
handful of fellow citizens who have been the fortunate recipients of enormous
winnings.

38. Nine Common Decision Making Biases – The Confirmation Bias

The confirmation bias is when people seek information to support their point
of view and discount data that do not.

Example: Imagine that a person holds a belief that left-handed people are more
creative than right-handed people. Whenever this person encounters a person
that is both left-handed and creative, they place greater importance on this
"evidence" that supports what they already believe. This individual might even
seek "proof" that further backs up this belief while discounting examples that
don't support the idea.

39. Nine Common Decision Making Biases – The Sunk-Cost Bias

The sunk-cost is when managers ad up all the money already spent on a
project and conclude it is too costly to simply abandon it.

Example: In the basketball game ticket example, the point is that the money is
already gone, so now you are better off doing what pleases you best. So,
unless you can sell the ticket, just forget about what you paid for it. You are
better off using it to help fuel the fireplace while you comfortably enjoy the
game on TV.

40. Nine Common Decision Making Biases – The Anchoring & Adjustment
Bias
The anchoring and adjustment bias is the tendency to make decisions based on
an initial figure

Example: Before the 2008 crash in real estate markets, many homeowners
might have been inclined a first to list their houses at an extremely high selling
price. These seller were then unwilling later to come down substantially to
match the kind of buying offers that reflected what the marketplace thought
the house was really worth.

41. Nine Common Decision Making Biases – The Overconfidence Bias

The overconfidence bias is the bias in which people’s subjective confidence in
their decision making is greater than their objective accuracy

Example: A person who thinks his sense of direction is much better than it
actually is. The person could show his overconfidence by going on a long trip
without a map and refusing to ask for directions if he gets lost along the way.
42. Nine Common Decision Making Biases – The Hindsight Bias
The hindsight bias is the tendency of people to view events as being more
predictable than they really are.

Example: When at the end of watching a game we decide the outcome was
obvious and predictable, even though in fact it was not.

43. Nine Common Decision Making Biases – The Framing Bias

The framing bias is the tendency of decision makers to be influenced by the
way a situation or problem is presented to them.
Example: Customers have been found to prefer meat that is framed as “85%
lean meat” instead of “15% fat,” although of course they are the same thing.

44. Nine Common Decision Making Biases – The Escalation of Commitment

Bias
Decision makers increase their commitment to a project despite negative
information about it.

Example: Presidents Lyndon Johnson in Vietnam and George W. Bush In Iraq

who escalated their commitment to an original decision in the face of
overwhelming evidence that it was producing detrimental consequences. A
website called Swoopo.com capitalized on this bias by offering a penny
auction in which, say $1,500 laptop is offered for bidding starting at a penny
and going up one cent at a time – but it costs bidders 60 cents to make a bid.

45. Knowledge Counts

Decision-making accuracy is higher when group membersknow a good deal
about the relevant issues. It is also higher when a group leader has the ability
to weight members’ opinions. Depending on whether group members know or
don’t know one another, the kind of knowledge also counts.

Example: People who are familiar with one another tend to make better
decisions when members have a lot of unique information. However, people
who aren’t familiar with one another tend to make better decisions when the
members have common knowledge.

46. Consensus
Occurs when members are able to express their opinions and reach agreement
to support the final decisions.

Example: In Indonesian cultures, family and regional disputes, from

playground fights to estate inheritance, are handled through a consensus-
building process in which parties mediate to find peace and avoid future
hostility and revenge. The resulting agreements are expected to be followed,
and range from advice and warnings to compensation and exile.

47. Group Problem-Solving Technique – Brainstorming

Brainstorming is a technique used to help groups generate multiple ideas and
alternatives for solving problems
 Example: A group of marketer discuss about how to launch a new product.

48. Group Problem-Solving Technique – Electronic Brainstorming

Members of the group come together over a computer network to generate
ideas and alternatives.

Example: A group of managers discuss on how to improve the company

performance via Skype.

49. Group Problem-Solving Technique – The Delphi Technique

The Delphi techniques is a group process that uses physically dispersed
experts who fill out questionnaires to anonymously generate ideas; the
judgments are combined and in effect averaged to achieve a consensus of
expert opinion

Example: Which of the following CLINICAL areas do you think are HIGH
PRIORITY for development of an improved evidence base relating to
minority ethnic groups and their health needs?

 
 

Thus questionnaire provides space for respondents to raise any other issues
relating to the topic. The first round of the questionnaire aims to categorize
opinions under common headings.

50. Group Problem-Solving Technique – Computer-Aided Decision Making

A decision support system is a computer-based information system that
provides a flexible tool for analysis and helps managers focus on the future.

Example: American Airlines developed a decision support system called the

yield management system that helps managers decide how much to overbook
and how to set prices for each seat so that a plane is filled and profits are
maximized.