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Chapter Objectives Specify at least five sources of decision complexity for modern managers. Explain what a condition of risk is and what managers can do to cope with it. Define and discuss the three decision traps: framing, escalation of commitment, and overconfidence. Discuss why programmed and nonprogrammed decisions require different decision-making procedures and distinguish between the two types of knowledge in knowledge management. Explain the need for a contingency approach to group-aided decision making. Identify and describe five of the ten “mental locks” that can inhibit creativity. List and explain the four basic steps in the creative problem-solving process. Describe how causes of problems can be tracked down with fishbone diagrams. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

Challenges for Decision Makers Decision Making The process of identifying and choosing alternative courses of action to meet the demands of a situation. Alternative courses of action must be identified, weighed, and weeded out. Trends in Decision Making The complexity of decision-making has accelerated. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

Challenges for Decision Makers (cont’d) Dealing with Complex Streams of Decisions Multiple criteria to be satisfied by a decision Intangibles that often determine decision alternatives Risk and uncertainty about decision alternatives Long-term implications of the effects of the choice of a particular alternative Interdisciplinary input, which increases the number of persons to be consulted before a decision is made Pooled decision making increases the number of persons playing a part in the decision process. Value judgments by differing participants in the process create disagreement over whether a decision is right or wrong, good or bad, and ethical or unethical. Unintended consequences occur because the results of purposeful actions cannot always be predicted. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

Coping with Uncertainty Types (Conditions) of Uncertainty Certainty: Exists when a solid factual basis allows prediction of a decision’s outcome Risk: Exists when a decision is made on the basis of incomplete but reliable information Objective probabilities are based on reliable data. Subjective probabilities are based on judgment. Uncertainty: Exists when no reliable data exist on which to base a decision © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

Information Processing Styles Thinking Style Being deliberative, logical, precise, and objective when making a decision Suited to routine tasks requiring attention to detail and systematic implementation Intuitive Style Being creative, following hunches and visions in decision making Best for rapidly changing situations requiring creativity and intuition © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

Avoiding Perceptual and Behavioral Decision Traps Framing Error The way in which information is presented influences one’s interpretation of it, which, in turn, may alter a decision based on the information. Escalation of Commitment Continuing on a course of action can lock a person into a losing position (“throwing good money after bad”). Overconfidence Believing too much in one’s own capabilities is a trap. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

A General Decision-Making Model Rational (Logical) Decision Model Steps Scan the situation; identify a signal that a decision should be made. Receipt of authoritative communications from superiors Cases referred for decision by subordinates Cases originating from the manager Classify the decision. If it is routine, apply the appropriate decision rule; if it is not, generate a nonprogrammed decision through problem solving. Monitor and follow-up as necessary. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

A General Decision-Making Model (cont’d) Knowledge Management Developing a system to improve the creation and sharing of knowledge critical for decision making Tacit knowledge: Personal, intuitive, and undocumented private information Explicit knowledge: Readily sharable public information in verbal, textual, visual, or numerical form © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

Figure 8.5: Key Dimensions of Knowledge Management (KM) © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

A General Decision-Making Model (cont’d) Improving the Flow of Knowledge The flow of constructive tacit knowledge between coworkers is a priority. KM software is proving very useful and cost-effective in large organizations for sharing both tacit and explicit knowledge Knowing what you know, what you don’t know, and how to find what you know yields better and more timely decisions. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

A General Decision-Making Model (cont’d) Improving the Flow of Knowledge © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12 Participative management Virtual teams Transformational leadership Mentoring Organization cultures Training Communication Empowerment

Group-Aided Decision Making: A Contingency Perspective Collaborative Computing Teaming up to make decisions via a computer network programmed with groupware Group Involvement in Decisions Analyzing the problem Identifying components of the situation Estimating components of the situation Designing alternatives Choosing an alternative © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

Group-Aided Decision Making: A Contingency Perspective (cont’d) The Problem of Dispersed Accountability Group-aided decision making: The group does everything except make the decision. Group decision making: The group actually makes the final decision collectively. Results in loss of personal/individual accountability Individual accountability is required when: The decision will have significant organizational impact. The decision has legal ramifications. A competitive reward is tied to the decision. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

A Contingency Approach Is Necessary Individuals Versus Groups Groups do better quantitatively and qualitatively than the average individual. Exceptional individuals tend to outperform the group. Group decision-making performance does not always exceed individual performance, making a contingency approach to decision making advisable. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

Figure 8.6: The Problem- Solving Process © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

Managerial Creativity What Is Creativity? The reorganization of experience into new configurations Creativity is a function of knowledge, imagination, and evaluation. Three domains of creativity: Art Discovery Humor Myth: Creative people are typically nonconformists © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

Creative Problem Solving Problem solving is the conscious process of bringing the actual situation closer to the desired situation. Steps in Creative Problem Solving Identifying the problem Generating alternative solutions Selecting a solution Implementing and evaluating the solution © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

Summary Decision making is a fundamental part of management because it requires choosing among alternative courses of action. Managers must learn to assess the degree of certainty in a situation—whether conditions are certain, risky, or uncertain. Researchers have identified three perceptual and behavioral decision traps that can undermine the quality of decisions: framing error, escalation of commitment, and overconfidence. Decisions, generally, are either programmed or non-programmed. Managers may choose to bring other people into virtually every aspect of the decision- making process. Creativity requires the proper combination of knowledge, imagination, and evaluation to reorganize experience into new configurations. The creative problem-solving process consists of four steps: (1) identifying the problem, (2) generating alternative solutions, (3) selecting a solution, and (4) implementing and evaluating the solution. A clear and concise statement of the problem forms the “head” of the fishbone skeleton. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

Terms to Understand Decision making Law of unintended consequences Condition of certainty Condition of risk Objective probabilities Subjective probabilities Condition of uncertainty Framing error Escalation of commitment Programmed decisions Decision rule Knowledge management Tacit knowledge Explicit knowledge Collaborative computing Creativity Problem solving Problem Causes Satisfice Optimize Idealize © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20