1–1

• Decision Making, Learning,

Creativity and
Entrepreneurship
L E A R N I N G OBJECTIVES

• LO 1: Understand Decision and Decision Making

• LO 2: Types of Decisions

• LO 3: Bounded Rationality

• LO 4: Understand Decision Making Process

• LO 5: Understand Organizational Learning and Creativity

• LO 6: Identify the Need for Entrepreneurship

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Decision Making
• Decision
 Making a choice from two or more alternatives.

 It seems so simple but its actually not.

 So what is it that makes it more complicated?
 The manager is facing the main task of managing the
organizational environment.
 Forces in the external environment give rise to many
opportunities and threats for managers and their
organizations.

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Decision Making

• The Decision-Making Process

 A process of choosing the best alternatives for
reaching objectives.

 The process by which managers respond to

opportunities and threats by analyzing options and
making determinations about specific organizational
goals and courses of action.

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Decisions in the Management Functions

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WHAT TYPE OF DECISIONS MANAGERS MAKE?

• Decide about • Decide about • Setting daily or weekly

organization’s goals. setting production production schedule.
• Where to locate schedule. • Handling problems that
manufacturing • Allocating pay arise.
facilities? raises. • Deciding about
• What new markets to • Disciplining machines and
move into? employees. equipments
• What products/ maintenance
services to offer? schedules.

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Types of Decisions

1. PROGRAMMED DECISIONS

• A routine and repetitive type of decision.

• The problem is familiar, information about the problem is
clearly defined.
• A well structured problem.
• Standard decisions are made according to established
management guidelines.
• EXAMPLE:
• How to satisfy a customer incase the server spills a drink
on the customer’s coat.

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Types of Decisions

2. NON-PROGRAMMED DECISION:

• A unique, unusual kind of decision.

• Poorly structured problem.
• A non programmed decision is required here to have a
unique solution.
• EXAMPLE:
• Starting up business in a new geographical location,
launching a new product, or a campaign etc.

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Decision Making Models
CLASSICAL MODEL
• A prescriptive approach to decision making based on the
assumption that the decision maker can identify and
evaluate all possible alternatives and their consequences
and rationally choose the most appropriate course of
action.

•Optimum Decision Most appropriate decision in

light of what managers believe to be
the most desirable
consequences for the
organization.

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Decision Making Models
CLASSICAL MODEL

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DECISION MAKING MODELS
ADMINISTRATIVE MODEL
•An approach to decision making that explains why
decision making is inherently uncertain and risky
and why managers usually make satisfactory
rather than optimum decisions.

•But still the managerial decision making has to be

rational.

•Rational Decision making describes choices that

are value maximizing and consistent within
specified constraints.

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Decision Making Models
ADMINISTRATIVE MODEL
• Administrative Model is based on three important concepts:

 Bounded Rationality
 Incomplete Information
 Satisficing

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Decision Making Models
ADMINISTRATIVE MODEL
• Bounded Rationality Behavior that is
rational within the parameters of a simplified
decision making process, which is limited (or
bounded) by an individual’s ability to process
information.

• Since managers can’t possibly

analyze all alternatives,
managers Satisfice rather than
maximize.
 Acceptance of
solutions that are
good enough.

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Assumptions of Rationality

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Decision Making Models
ADMINISTRATIVE MODEL
• Incomplete Information

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Decision Making Models
• Risk and Uncertainty
 The degree of probability that the possible outcomes of a
particular course of action will occur.
 When uncertainty exists, the probabilities of alternative
outcomes cannot be determined and future outcomes are
unknown.
• Ambiguous Information
 Information that can be interpreted in multiple and often
conflicting ways.
• Time Constraints and Information Costs
• The third reason why information is incomplete is that managers
have neither the time nor the money to search for all individuals who
are responsible for making organization-wide decisions and
establishing plans and goals that affect the entire organization.

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Steps in Decision Making Process

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General Criteria for Evaluating Possible Courses of Action

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The Decision-Making Process
Common Decision-Making Errors and Biases

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Decision-Making Biases and Errors
• Heuristics
 Using “rules of thumb” to simplify decision making.

• Overconfidence Bias
 Holding unrealistically positive views of one’s self and
one’s performance.

• Immediate Gratification Bias

 Choosing alternatives that offer immediate rewards
and that to avoid immediate costs.

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Decision-Making Biases and Errors
(cont’d)
• Anchoring Effect
 Fixating on initial information and ignoring subsequent
information.
• Selective Perception Bias
 Selecting organizing and interpreting events based on
the decision maker’s biased perceptions.
• Confirmation Bias
 Seeking out information that reaffirms past choices
and discounting contradictory information.

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Decision-Making Biases and Errors
(cont’d)
• Framing Bias
 Selecting and highlighting certain aspects of a
situation while ignoring other aspects.
• Availability Bias
 Losing decision-making objectivity by focusing on the
most recent events.
• Representation Bias
 Drawing analogies and seeing identical situations
when none exist.
• Randomness Bias
 Creating unfounded meaning out of random events.
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Decision-Making Biases and Errors
(cont’d)
• Sunk Costs Errors
 Forgetting that current actions cannot influence past
events and relate only to future consequences.
• Self-Serving Bias
 Taking quick credit for successes and blaming outside
factors for failures.
• Hindsight Bias
 Mistakenly believing that an event could have been
predicted once the actual outcome is known (after-
the-fact).

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Organizational Learning and Creativity

•The process through which managers seek to

improve employees’ desire and ability to
understand and manage the organization and its
task environment.

•Creativity Ability to discover original and

novel ideas that lead to feasible
alternative courses of action.

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Organizational Learning and Creativity

• Promoting Individual Creativity

• Promoting Group Creativity
 Brainstorming
 Nominal Group Technique
 Delphi Technique

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Entrepreneurship and Creativity
ENTREPRENEURSHIP & INTRAPRENEUR
•Entrepreneur Who notices opportunities
and decides how to mobilize the
resources necessary to
produce new and improved goods and services.

•Intrapreneur Scientist, or researcher who

works inside an organization and
notices opportunities to
develop new or improved products and better ways
to make them.

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Entrepreneurship and Creativity
CHARACTERISTICS OF ENTREPRENEUR
• Openness to experience
• Internal Locus of Control
• High Level of Self-Esteem
• High Need for Achievement
• Stress Management

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Entrepreneurship and Creativity
ENTREPRENEURSHIP AND MANAGEMENT
• Entrepreneurship is NOT the same as Management.

• Management encompasses all the decisions involved in

planning, organizing, leading, and controlling resources.

• Entrepreneurship is noticing an opportunity to satisfy a

customer need and then deciding how to find and use
resources to make a product that satisfies that need.

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