Essentials of Contemporary Management 6Th Canadian Edition By Gareth R Jones

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Sample Test

Chapter 03

Managing Decision Making

True / False Questions

1. Decision making is done every time a manager plans, organizes, directs, or controls organizational activities.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-01 Differentiate between programmed and nonprogrammed decisions; and explain why nonprogrammed decision making is a complex; uncertain process.
Topic: 03-01 The Nature of Managerial Decision Making

2. Decision making involves analyzing options and making determinations about specific organizational goals and courses of action.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-01 Differentiate between programmed and nonprogrammed decisions; and explain why nonprogrammed decision making is a complex; uncertain process.
Topic: 03-01 The Nature of Managerial Decision Making

3. Decision making in response to opportunities occurs when managers search for ways to improve organizational performance to benefit customers, employees, and other stakeholder groups.
TRUE

4. Routine, virtually automatic decision making that follows established rules or guidelines is known as programmed decision making.
TRUE

5. Ordering basic office supplies by the office manager whenever the inventory on hand drops below a certain level, is an example of nonprogrammed decision making.
FALSE

6. The rational or classical model of decision making assumes that managers have all the information they need to make an optimal decision in the best interests of the organization.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-02 Compare the assumptions that underlie the classical and administrative models of decision making.
Topic: 03-04 The Classical Model

7. The administrative model of decision making recognizes that the assumptions underlying the rational model are realistic.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-02 Compare the assumptions that underlie the classical and administrative models of decision making.
Topic: 03-05 The Administrative Model

8. The administrative model of decision making recognizes that the assumptions underlying the rational model are rarely accurate.
TRUE

9. The premise of the classical or rational model is that once managers recognize the need to make a decision they should be able to generate a complete list of alternatives and consequences, from which they can make the best choice.
TRUE

10. The administrative model was developed by March and Simon.
TRUE

11. The administrative model is based on three important concepts: bounded rationality, complete information, and satisficing.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 03-02 Compare the assumptions that underlie the classical and administrative models of decision making.
Topic: 03-05 The Administrative Model

12. Bounded rationality refers to the inability of managers to be completely rational when processing information.
TRUE

13. Satisficing is when managers make lightning-quick calculations of costs and benefits that lead to optimal decisions.
FALSE

14. Satisficing is when managers fail to explore all the possible alternatives and choose one that only minimally solves the problem.
TRUE

15. When Ford Canada limits its search for new suppliers to an existing set of alternatives known to the purchasing manager, they are using a satisficing strategy.
TRUE

16. Uncertainty occurs when the outcomes of various actions can be reasonably predicted.
FALSE

17. The ability to make sound decisions based on one’s experience and immediate feelings about the information at hand is known as judgment.
FALSE

18. The first step in the decision-making process is to generate alternatives.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-07 Step 1: Recognize the Need for a Decision

19. When generating alternatives, managers must never generate a set of feasible alternative courses of action to take in response to the opportunity or threat.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-08 Step 2: Identify Decision Criteria

20. The last step in the decision-making process is to learn from feedback.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-13 Step 7: Evaluate and Learn from Feedback

21. One criterion for evaluating the pros and cons of alternative courses of action is “practicality”.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-08 Step 2: Identify Decision Criteria

22. Analyzing the costs and benefits of each alternative falls under ethical criteria.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-10 Step 4: Assess Alternatives

23. It is the responsibility of middle managers to implement the chosen alternative.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-12 Step 6: Implement the Chosen Alternative

24. Rules of thumb that simplify decision making are called heuristics.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-04 Explain how cognitive biases can affect decision making and lead managers to make poor decisions.
Topic: 03-14 Biases in Decision Making

25. The tendency of decision makers to overestimate their ability is known as representativeness bias.
FALSE

26. Prior hypothesis bias occurs when managers make decisions based on strong beliefs that they think apply to the situation even when they don’t.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-04 Explain how cognitive biases can affect decision making and lead managers to make poor decisions.
Topic: 03-14 Biases in Decision Making

27. A representative bias occurs when decision makers generalize from an isolated or individual case.
TRUE

28. When Walmart tried to use the same model that worked for them in the USA in the rest of the world, they were acting on a representative bias.
TRUE

29. The tendency to overestimate one’s own ability to control events is called escalating commitment.
FALSE

30. A manager decided to continue to purchase insurance from a company that charged high premiums, even though the manager knew that he or she could get the same coverage for less. This is an example of illusion of control.
FALSE

31. When a sales manager views the poor performance of his or her sales agents as resulting from their laziness rather than to the innovative product line of a competitor, this is a fundamental attribution error.
TRUE

32. The tendency to see patterns in data where none exist is known as a confirmation bias.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 03-04 Explain how cognitive biases can affect decision making and lead managers to make poor decisions.
Topic: 03-14 Biases in Decision Making

33. The error of considering the most recent data to have the most relevance to a problem is known as a confirmation bias.
FALSE

34. Decision-making styles vary in terms of a person’s way of thinking and on the tolerance for ambiguity.
TRUE

35. Managers with the analytic style are rational in their way of thinking and have a low tolerance for ambiguity.
FALSE

36. Managers who use a high degree of intuition and have a low tolerance for ambiguity have a behavioural decision-making style.
TRUE

37. Managers who use a high degree of intuition when making decisions and have a high degree of tolerance for ambiguity are conceptual decision makers.
TRUE

38. An ethical decision is a decision that reasonable or typical stakeholders would find acceptable because it aids shareholders, the organization, or society.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-05 Explain the role played by ethics; corporate social responsibility; and organizational learning in helping managers improve their decisions.
Topic: 03-16 Ethics, Social Responsibility, and Decision Making

39. Ethics help people determine moral responses to situations in which the best course of action is unclear.
TRUE

40. When a manager has trouble deciding what to do, they may be facing an ethical dilemma.
TRUE

41. Creativity is the ability of the decision maker to discover original ideas.
TRUE

42. Codes of ethics are formal standards and rules that managers use to make decisions in the best interests of their stakeholders.
TRUE

43. Canadian companies who locate in the Third world do not have to consider the host country’s societal ethics.
FALSE

44. Individual ethics are derived from family, peers, and upbringing, but not personality and experience.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-05 Explain the role played by ethics; corporate social responsibility; and organizational learning in helping managers improve their decisions.
Topic: 03-22 Individual Ethics

45. Creativity is at the heart of organizational learning.
TRUE

46. If a manager is not sure if a certain business practice is ethical, he or she should seek advice, if possible, from the company’s ethics ombudsperson.
TRUE

47. Being proactive in terms of social responsibility includes thinking beyond what the law requires.
TRUE

48. A company with an obstructionist approach to social responsibility has a high social responsibility.
FALSE

49. A company that takes a defensive approach to social responsibility will comply with the law but not go above and beyond its requirements.
TRUE

50. A sustainability strategy has three elements.
FALSE

51. Decisions that protect the environment, promote social responsibility, respect cultural differences, and provide an economic benefit are known as sustainability decisions.
TRUE

Multiple Choice Questions

52. An organization in which managers try to maximize the ability of individuals and groups to think and behave creatively and thus maximize the potential for organizational learning to take place is known as:
A.a learning organization
B. a groupthink organization
C. a privately held organization
D. a heuristic organization
E. an ergonomic organization

53. Showing disregard for social responsibility, and a willingness to engage in and cover up unethical and illegal behaviour is known as a(n):
A.Obstructionist approach
B. Defensive approach
C. Accommodative approach
D. Proactive approach
E. Distributive approach

54. Having a minimal commitment to social responsibility, and a willingness to do what the law requires and no more is known as what type of approach to social responsibility?
A.Obstruction approach
B. Defensive approach
C. Accommodative approach
D. Proactive approach
E. Distributive approach

55. Managers who have a moderate commitment to social responsibility, and a willingness to do more than the law requires if asked is known as a(n):
A.Obstruction approach
B. Defensive approach
C. Accommodative approach
D. Proactive approach
E. Distributive justice

56. Managers who have a strong commitment to social responsibility, an eagerness to do more than the law requires and to use organizational resources to promote the interest of all organizational stakeholders is known as what type of approach to social responsibility?
A.Obstruction approach
B. Defensive approach
C. Accommodative approach
D. Proactive approach
E. Distributive justice

57. Arguments against being socially responsible include all but which of the following?
A.Social responsibility benefits some stakeholders and not others
B. Socially responsible businesses gain a reputation
C. Business should only use its resources to increase profits
D. Business should only use its resources to reward stockholders
E. Business should only be responsible to stockholders

58. When managers are making decisions where the outcomes of alternatives are not known, they are working under conditions of:
A.Risk
B. Uncertainty
C. Certainty
D. Satisficing
E. Bounded rationality

59. Which of the following is the second step in the decision-making process?
A.Assess alternatives
B. Identify decision criteria
C. Choose from alternatives
D. Recognize the need for a decision
E. Learn from feedback

60. A regional manager decided to increase production based on random data that were interpreted to show a pattern of increased sales. Which type of bias does this reflect?
A.Systematic errors
B. Representative bias
C. Clustering illusion
D. Illusion of control and overconfidence bias
E. Prior hypothesis bias

61. Errors that people make over and over and that result in poor decision making are known as:
A.systematic errors
B. representative bias
C. confirmation bias
D. illusion of control and overconfidence bias
E. recency effect

62. All of the following are examples of nonprogrammed decisions, except:
A.Changing the light bulbs when they burn out
B. Investing in new technology
C. Developing a new product
D. Launching a new promotional campaign
E. Entering a new market or expanding internationally

63. Decision making occurs in all of the following activities of managing, except:
A.Planning
B. Organizing
C. Directing
D. Controlling
E. Tasking

64. Managers who are rational in their way of thinking and have a low tolerance for ambiguity have which decision-making style?
A.Analytic
B. Conceptual
C. Directive
D. Behavioural
E. Disruptive

65. Managers who are rational in the way they process information but can handle more ambiguity and uncertainty have which decision-making style?
A.Analytic
B. Conceptual
C. Directive
D. Behavioural
E. Intuitive

66. Managers who use a high degree of intuition when making decisions and have a high degree of tolerance for ambiguity have which type of decision-making style?
A.Analytic
B. Conceptual
C. Directive
D. Behavioural
E. Intuitive

67. Managers who use a high degree of intuition and have a low tolerance for ambiguity have a(n) ___________ decision-making style.
A.analytic
B. conceptual
C. directive
D. behavioural
E. pragmatic

68. A cognitive bias resulting from the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong is known as:
A.systematic errors
B. representative bias
C. escalating commitment
D. illusion of control and overconfidence bias
E. prior hypothesis bias

69. A cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode is known as:
A.systematic errors
B. representative bias
C. escalating commitment
D. recency effect
E. prior hypothesis bias

70. A source of cognitive bias resulting from the tendency to overestimate one’s own ability to control activities and events is known as:
A.systematic errors
B. representative bias
C. escalating commitment
D. illusion of control and overconfidence bias
E. fundamental attribution error

71. A manager decided to continue to purchase insurance from a company that charged high premiums, even though the manager knew that he or she could get the same coverage for less. This is an example of what type of cognitive bias?
A.Systematic errors
B. Representative bias
C. Escalating commitment
D. Illusion of control and overconfidence bias
E. Prior hypothesis bias

72. According to the text, when Richard Branson launched the Pulse MP3 to compete with Apple’s iPod, this was an example of:
A.systematic errors
B. representative bias
C. escalating commitment
D. illusion of control and overconfidence bias
E. prior hypothesis bias

73. Which of the following is NOT one of the criteria used by managers to evaluate the pros and cons of alternative courses of action?
A.Prior hypothesis bias
B. Legal
C. Ethical
D. Economical
E. Practical

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-10 Step 4: Assess Alternatives

74. The administrative model of decision making was developed by:
A.Mary Parker Follet
B. Kahneman and Tversky
C. Fredrick Taylor
D. March and Simon
E. Peter Senge

75. When Walmart tried to use the same model that worked for them in the USA in the rest of the world, they were acting on which type of cognitive bias?
A.Systematic errors
B. Representative bias
C. Fundamental attribution error
D. Illusion of control and overconfidence bias
E. Prior hypothesis bias

76. The ability to make sound decisions based on one’s experience and immediate feelings about the information at hand is called:
A.Judgment
B. Bounded rationality
C. Heuristics
D. Satisficing
E. Intuition

77. The ability to develop a sound opinion based on one’s evaluation of the importance of the information at hand is known as:
A.Judgment
B. Bounded rationality
C. Heuristics
D. Satisficing
E. Intuition

78. Rules of thumb that simplify decision making are known as:
A.systematic errors
B. representative bias
C. heuristics
D. illusion of control and overconfidence bias
E. prior hypothesis bias

79. A decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action is known as:
A.groupthink
B. creativity
C. illusion of control
D. brainstorming
E. intuition

80. When Ford Canada limits its search for new suppliers to an existing set of alternatives known to the purchasing manager, they are using which decision-making strategy?
A.Bounded rationality
B. Satisficing
C. Incomplete information
D. Uncertainty
E. Groupthink

81. An organization’s code of ethics is derived from which of the following?
A.Societal ethics
B. Professional ethics
C. Individual ethics
D. Professional and individual ethics
E. Societal, professional, and individual ethics

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-05 Explain the role played by ethics; corporate social responsibility; and organizational learning in helping managers improve their decisions.
Topic: 03-19 Codes of Ethics
Topic: 03-20 Societal Ethics
Topic: 03-21 Professional Ethics
Topic: 03-22 Individual Ethics

82. The classical or rational model is ________, which means that it specifies how decisions should be made.
A.heuristic
B. prescriptive
C. intuitive
D. satisficing
E. legal

83. Decision making has all but which of the following characteristics?
A.It is a process that only managers embark upon
B. It is a process to respond to opportunities and threats
C. It is a process of analyzing options
D. It is a process of making determinations about courses of action
E. It is a process of making determinations about organizational goals

84. A sustainability strategy has all of the following characteristics, except:
A.It must protect the environment
B. It must promote social responsibility
C. It must respect cultural differences
D. It must have an economic benefit
E. It relies on programmed decision making

85. Which of the following is not a step in the decision-making process?
A.Generating alternatives
B. Assessing alternatives
C. Learning from feedback
D. Choosing among alternatives
E. Seek feedback from competitors

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-06 Steps in the Decision-Making Process

86. When a manager must decide whether he/she has the capabilities and resources required to implement the alternate causes of action, upon which criteria for decision making is this manager focusing?
A.Practicality
B. Economic feasibility
C. Legality
D. Ethnicity
E. Urgency

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-10 Step 4: Assess Alternatives

87. When a manager performs a cost benefit analysis of the various alternatives he/she is considering, on which criteria for decision making is this manager focusing?
A.Practicality
B. Economic feasibility
C. Legality
D. Ethnicity
E. Urgency

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-10 Step 4: Assess Alternatives

88. The process through which managers seek to improve employees’ desire and ability to understand and manage the organization and its task environment is known as:
A.creativity
B. brainstorming
C. organizational learning
D. production blocking
E. intuition

89. ________ argued that “rules of thumb” simplify decision making.
A.March and Simon
B. Kahneman and Tversky
C. Peter Senge
D. Mary Parker Follet
E. Fredrick Taylor

90. Which of the following is one of the criteria used by managers to evaluate the pros and cons of alternative courses of action, EXCEPT?
A.Legal
B. Ethical
C. Practical
D. Economical
E. Stakeholder

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-10 Step 4: Assess Alternatives

91. The cognitive limitations that constrain one’s ability to interpret, process, and act on information is known as:
A.Bounded rationality
B. Satisficing
C. Prior hypothesis bias
D. Groupthink
E. Dialectic inquiry

92. Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision, is known as:
A.Bounded rationality
B. Satisficing
C. Prior hypothesis bias
D. Groupthink
E. Dialectic inquiry

93. Decision makers who seek and use information that is consistent with their prior beliefs and ignore information that contradicts those beliefs are suffering from:
A.Clustering bias
B. Representative bias
C. Prior hypothesis bias
D. Illusion of control and overconfidence bias
E. Systemic errors

94. A manager’s duty or obligation to make decisions that promotes the welfare and well-being of stakeholders and society, as a whole is known as:
A.Social responsibility
B. Ethical behaviour
C. Procedural justice
D. Proactive approach
E. Social audit

95. Nonroutine decision making that occurs in response to unusual, unpredictable opportunities, and threats is known as:
A.Heuristic decision making
B. Nonprogrammed decision making
C. Programmed decision making
D. Groupthink decision making
E. Creative decision making

96. Routine, virtually automatic decision making that follows established rules or guidelines are known as:
A.Heuristic decisions
B. Nonprogrammed decisions
C. Programmed decisions
D. Groupthink decisions
E. Creative decisions

97. Nonprogrammed decision making occurs when:
A.The decision question is routine
B. The decision can be made automatically
C. Rules and policies can be used to make the decision
D. The outcomes of the alternatives can be known
E. There are no ready-made decision rules that managers can apply to a situation.

98. The process by which managers respond to opportunities and threats that confront their organization by analyzing options and taking actions is known as:
A.Decision making
B. Bounded rationality
C. Systematic error
D. Intuition
E. Heuristics

99. The rational or classical model of decision making assumes:
A.that managers have all the information they need to make an optimal decision
B. that managers often do not act in the best interests of the organization
C. that a manager’s ability to be rational is limited or bounded
D. that managers tend to satisfice
E. that managers often make decisions under conditions of uncertainty

100. The administrative model recognizes that decision makers act under the following circumstances, EXCEPT:
A. with incomplete information
B. with bounded rationality
C. with a tendency to satisfice
D. with time constraints
E. with the best interests of the organization in mind

Short Answer Questions

101. Differentiate between programmed and nonprogrammed decisions and include two examples of each type of decision.

Programmed decision making is routine, automatic. It arises in situations that an organization has faced many times before, and for which it can develop rules and guidelines to be applied. Non-programmed decision making is non-routine. It arises in situations that are new, ambiguous, and/or complex. No ready-made rules for decision making have been set down. Examples will vary. Programmed: changing burnt out light bulbs, ordering new inventory when stock is low. Non-programmed decisions: investing in a new product line, going international, diversifying, etc.

102. March and Simon developed three important concepts in their administrative model of decision making. Discuss these three concepts and explain how they would apply to a realistic business-decision situation of your choosing.

The three concepts in this model are bounded rationality, incomplete information, and satisficing decisions. James March and Herbert Simon proposed that managers in the real world do not have access to all the information they need, nor the mental capacity to process it all correctly. They developed the administrative model of decision making to explain why decision making is always inherently risky and uncertain. Thus, managers can rarely make decisions by the rational model. The administrative model is based on the following three concepts. Human decision-making capabilities are bounded by people’s cognitive limitations. Bounded rationality describes the situation in which the number of alternatives and the amount of information are so great that it is difficult for the manager to evaluate it all before making a decision. Information is incomplete because the full range of decision-making alternatives is unknowable in most situations and consequences are uncertain. Under uncertainty, the probabilities of alternative outcomes cannot be determined, and future outcomes are unknown. Much of the information that managers have at their disposal is ambiguous information, information that can be interpreted in multiple and often conflicting ways. Faced with these limitations, managers do not attempt to discover every alternative. They use a strategy known as satisficing, exploring a limited sample of all potential alternatives. They search for and choose acceptable or satisfactory ways to respond to problems rather than making the optimum decision. March and Simon believed that managers do not have the mental ability to absorb and evaluate all of the possible relevant information for a complex decision. Student answers will vary in their examples.

103. Discuss the assumptions that underlie the classical or rational model of decision making.

The assumptions that underlie the classical model of decision making are that (1) managers can generate a complete list of all alternatives and their consequences; (2) they have access to all the information they need to make the optimum decision; (3) they can identify and describe their own preferences and values; and (4) on the basis of this, they can rank alternatives and choose the optimal solution.

104. Researchers have identified a seven-step model that can be used by managers who are faced with an important decision. Discuss these steps as they would apply to an important and realistic business situation of your choosing.

The seven steps are:

(1) Recognize the need for a decision; The first step is to recognize the need for a decision. Decisions arise both internally and as a consequence of external environmental change. Once the need is recognized, one must diagnose the issue to determine all underlying factors. (2) Identify decision criteria. Determine which variables are important to the decision. (3) Generate alternatives; A manager must generate a set of feasible alternative courses of action to take in response to the opportunity or threat. Failure to properly generate and consider different alternatives is one reason why managers make bad decisions. (4) Assess alternatives; Once managers have generated a set of alternatives, they must evaluate the advantages and disadvantages of each one. The key is to define the opportunity or threat exactly and then specify the criteria that should influence the selection of alternatives. One reason for bad decisions is that managers often fail to specify the criteria that are important in reaching a decision. Successful managers use four criteria to evaluate the pros and cons of alternative courses of action. Practicality: Managers must decide whether they have the capabilities and resources required to implement the alternative. Economic feasibility: Manager must decide whether the alternatives can be accomplished, given the organization’s performance goals. Typically, a cost-benefit analysis is performed. Ethicalness: Managers must ensure that a possible course of action is ethical and will not unnecessarily harm any stakeholder group. Legality: Managers must ensure that a possible course of action is legal. (5) Choose among alternatives; The next step is to rank the various alternatives using the criteria and make a decision. Managers must be sure that all the information that is available is used. Identifying all relevant information for a decision does not mean that the manager has complete information. (6) Implement the chosen alternative; Once a decision has been made, the alternative must be implemented. Thousands of subsequent decisions are necessary to implement it. Many managers make a decision and then fail to act on it. To ensure that a decision is implemented, top managers must:

a. Let middle managers participate in decisions, then give them the responsibility to make the follow-up decisions.
b. Give middle managers sufficient resources to achieve the goal.
c. Hold middle managers accountable for their performance.
d. If they succeed, then reward them.

(7) Learn from feedback. Effective managers evaluate the results of their decisions to learn from experience and not repeat the same mistakes. Managers must establish a procedure with which they can learn from the results of past decisions.

a. Compare what actually happened to what was expected to happen as a result of the decision.
b. Explore why any expectations for the decision were not met.
c. Develop guidelines that will help in future decision making.

Managers who always strive to learn from past mistakes and successes are likely to continuously improve the decisions they make. Student answers will vary with respect to their choice of examples.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 03-03 Describe the seven steps managers should take to make sound decisions.
Topic: 03-06 Steps in the Decision-Making Process

105. Managers sometimes make poor decisions because of cognitive biases in their decision-making process. Discuss four of the sources of bias that can adversely affect the ability of managers to make a good decision, and illustrate each of them with a realistic business decision-making situation.

Managers can create bias in their decision making by reverting to several errors outlined in figure 3.8. Four that could be discussed are prior hypothesis bias, representativeness bias, the illusion of control, and escalating commitment. Prior hypothesis bias is a cognitive bias resulting from the tendency to base decision on strong prior beliefs even when those beliefs are wrong. Decision makers tend to seek and use information that is consistent with their prior beliefs and to ignore information that contradicts those beliefs. Representative bias is a cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode. The illusion of control is the tendency of decision makers to overestimate their ability to control activities and events. Top-level managers tend to be overconfident about their ability to succeed and to control events. Some managers commit more resources to the project even if they receive feedback that the project is failing. Feelings of personal responsibility for a project bias the analysis of decision makers and lead to escalating commitment. Student answers will vary with respect to the realistic business decision making situations they use to illustrate the biases.

106. Describe what is meant by the recency effect and provide an example to illustrate this bias.

The recency effect refers to the error of considering the most recent data to have the most relevance to a problem. This shows the importance of managers to collect long-term data to determine trends, rather than relying on short-term ups and downs that may distort the overall trend. A sales manager decides to pull a product line off the shelf because of poor sales in the last month. The longer-term data show that the downturn in sales of this product is cyclical.

107. Describe what is meant by the “clustering illusion” and provide an example to illustrate this bias.

Clustering illusion refers to the tendency to see patterns in data where none exist. A regional manager decides to increase production based on random data that are interpreted to show a pattern of increased sales.

108. Compare an analytic decision-making style with a behavioural decision-making style.

Managers with an analytic style are also rational in the way they process information but can handle more ambiguity and uncertainty. They tend to consider more alternatives than directive-style decision makers and are good at solving complex problems.
Managers who use a high degree of intuition and have a low tolerance for ambiguity have a behavioural decision-making style. They tend to be consultative and consensus seeking, ensuring that the people around them feel included and valued.

109. While ethical beliefs lead to the development of laws and regulations to prevent certain behaviours or encourage others, laws themselves can and do change or even disappear as ethical beliefs change. Explain, using an example, what this statement means.

Two examples are provided in this chapter to explain this concept. The is the legalization of marijuana in Canada and the other is criminal behaviour in Britain. In 1830, for example, there were over 350 different crimes for which a person could be executed, including sheep stealing. Today there are none; capital punishment and the death penalty are no longer legal in Britain.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 03-05 Explain the role played by ethics; corporate social responsibility; and organizational learning in helping managers improve their decisions.
Topic: 03-18 Making Ethical Decisions

110. Discuss how managers can improve their decision-making abilities by adopting a sustainability strategy.

A sustainability strategy is a way to meet the needs of the current generation without sacrificing the future generation’s quality of environment. It must have four elements: the strategy must protect the environment, promote social responsibility, respect different cultures and have an economic benefit. Top management must support the initiative however, all employees must also buy into the strategy- either by embarking on their own personal goals and decision making on and off the job. Sustainability concerns are particularly important when making decisions on inputs. Finding suppliers who use sustainable practices will be a challenge for businesses wanting to improve decision making in this manner. Becoming sustainable also means being transparent and forthcoming about issues and problems they face. Adopting a sustainability strategy in decision making will ensure better environmental quality, socially responsible practices, cultural diversity and profitability.

111. Explain the role that organizational learning and creativity play in helping managers to improve their decisions.

Managers should foster an atmosphere that promotes innovative responses to opportunities and threats in the task environment of the organization. Organizational learning increases organizational performance by motivating employees to understand and make nonprogrammed decisions that affect their ability to compete through innovation and discovering original ideas that lead to feasible alternative courses of action. Fostering creativity is at the heart of a learning organization. Managers promote individual creativity by creating a culture that fosters risk taking and where mistakes are learned from. Intrapreneurs, insiders who work to develop new or improved products are encouraged by managers, who then have to implement the creative ideas. This is known as innovation. Managing teams of creative people who can ‘out know’ other groups is crucial to the success of the organization. Organizations such as Apple computers and Cirque du Soleil promote creativity and create learning organizations to make better decisions and get higher organizational performance.

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Essentials of Contemporary Management 6Th Canadian Edition By Gareth R Jones – Test Bank

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