Seven Approaches to Management Decision-making Wayne Smith, Ph.D. Department of Management CSU Northridge

Management Approaches to Decision-making (“Philosophical”) Benefits Cautionary Messages Intuition (relying on one’s gut and experience) Easy to do and requires little-to-no data The subconscious can be effective at weighing options Typically the least accurate of decision approaches Decision-makers can be easily swayed by context

Management Approaches to Decision-making (“Sociocratic”) Benefits Cautionary Messages Small-Group Processes (using just a few, knowledgeable people) Clear responsibilities can be assigned Multiple alternatives can be examined Watch for emotional responses Everyone needs to be “on board” with the process more concentrated Type of Knowledge more diffused Approach Benefits Cautionary Messages Wisdom of Crowds (using various methods to collect data from large groups of people) Those closest to the issue likely know the truth well Crowd-based decisions can be very accurate Members of the crowd must not influence one another Ongoing participation can be difficult to maintain

Management Approaches to Decision-making (“Technocratic”) Benefits Cautionary Messages Analytics (using numeric data and quantitative analysis) Scientific method adds analytical rigor Decisions are more likely to be correct (reject falsity) Getting representative data may be difficult Correct assumptions are critical more non-programmed Type of Activity more programmed Approach Benefits Cautionary Messages Automation (using decision rules and digital algorithms) Gains in speed and accuracy Criteria for decisions are clear Difficult to develop and maintain initially Decision criteria may change over time

Management Approaches to Decision-making (“Scientific”) Benefits Cautionary Messages Neuroscience (incorporating modern brain research about decision-making) Know when to use the “emotional brain” Trains the “rational brain” to perform more effectively Individual decision-making may be overvalued The brain is still poorly understood more physical Root Mechanism more psychological Approach Benefits Cautionary Messages Behavioral Economics (balancing economic thinking with psychological thinking) Illuminates biases and areas of irrationality Can nudge decisions in a particular direction Findings in this new field are still incomplete Context and wording can inadvertently manipulate decisions

References This material was excerpted and adapted from: Davenport, T. (2009), “Make Better Decisions”, Harvard Business Review, Nov. 87(11), p. 117-123.