Decision-Making Understand the main steps involved in rational decision-making Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions. Understand limits to rational decision-making How can group decisions and group decision-making techniques improve decision-making

Steps to Rational Decision-Making Step 1. Define the problem Step 2. Identify decision criteria Step 3. Weighting each of the criteria Step 4. Generate alternative courses of action Step 5. Compute the optimal decision

Define the Problem Existing state Desired state

Identify Decision Criteria The standards used to guide judgments and decisions.

Weight the Criteria Absolute comparisons – each criterion is compared with a standard or ranked on its own merits (e.g., using a 5-point scale). Relative comparisons – each criterion is compared directly with every other criterion. © 2015 Cengage Learning 5-4

Absolute Weighting of Decision Criteria for a Car Purchase: An Example

Relative Comparison of Home Characteristics

Generate Alternative Courses of Action After identifying and weighting the criteria that will guide the decision-making process, the next step is to identify possible courses of action that could solve the problem.

Evaluate Each Alternative The next step is to systematically evaluate each alternative against each criterion. The key is to use information to systematically evaluate each alternative against each criterion. Identify the optimal decision.

Criteria Ratings Used to Determine the Best Location for a New Office

Compute the Optimal Decision (rating for criterion A) x (weight for criterion A) + (rating for criterion B) x (weight for criterion B) + (rating for criterion C) x (weight for criterion C)...

Limits to Rational Decision-Making: Bounded Rationality In theory, fully rational decision makers maximize decision by choosing the optimal solution. In practice, limited resources make it nearly impossible to maximize decisions (bounded rationality). Choosing a “good-enough” alternative, not the best alternative (satisfice)

Advantages of Group Decision-Making Groups do a better job than individuals at: Defining the problem Generating alternative solutions

Pitfalls of Group Decision-Making Groupthink – occurs in highly cohesive groups when: – Members feel intense pressure to agree with each other. – The leader begins by expressing a strong preference. – The group has no established decision-making procedure. Takes considerable time Strong willed members

Structured Conflict C-type (cognitive) conflict – focuses on problem- and issue-related differences of opinion – willingness to examine, compare, reconcile differences to produce the best possible solution A-type (affective) conflict – emotional reaction that can occur when disagreements become personal – hostility, anger, resentment, distrust, cynicism, apathy

Creating C-Type Conflict Devil’s advocacy Dialectical Inquiry - Delphi Technique or Outside View Nominal Group Technique Brainstorming