Chapter 14 Decision Making

Learning Objectives Contrast programmed with non-programmed decisions Identify the steps in the decision-making process Discuss priority setting Describe the conditions governing alternative-outcome relationships Explain how behavior influences decision-making Compare individual and group decision-making Identify techniques for stimulating creativity

Introduction Decision making The process of choosing a particular action that deals with a problem or opportunity Just one or two exceptionally good or poor decisions can have significant effects On a manager’s career or an organization’s success Poor decisions have cost companies billions of dollars Increasingly, important decisions are being made by non-managers

Types of Decisions Programmed Non-Programmed Repetitive and routine There is a definite procedure for handling them Novel and unstructured No established procedure for handling the problem or situation

Nonprogrammed Decisions Types of Decisions Programmed Decisions Nonprogrammed Decisions Problem Frequent, repetitive, routine. Much certainty regarding cause and effect relationships Novel, unstructured. Much uncertainty regarding cause and effect relationships Procedure Dependence on policies, rules, and definite procedures Necessity for creativity, intuition, tolerance for ambiguity, creative problem solving Business Example Periodic reorders of inventory Diversification into new products and markets Government Example Merit system for promotion of state employees Reorganization of state government agencies

Types of Decisions The main concern of top management should be non-programmed decisions First-level management should be concerned with programmed decisions The nature, frequency, and degree of certainty surrounding a problem Dictates the management level at which the decision should be made Problems arise if top management spends too much time and effort on programmed decisions

The Rational Decision-Making Process Decisions are an organizational response to a problem Every decision is the outcome of a dynamic process influenced by a multitude of forces The diagram on the next slide shows a rational decision-making process If a policy is established to handle problems, this process may not be necessary

The Rational Decision-Making Process

The Rational Decision-Making Process Factors that lead to difficulty in identifying exactly what a problem is Perceptual problems Defining problems in terms of solutions Identifying symptoms as problems Problems are of three types Opportunity Crisis Routine

Alternatives to Rational Decision-Making Intuitive Decision Making Administrative Decision Making

Administrative Decision Making Impacts on the Decision Making Process Time Pressures Incomplete information Limited human resources Managers with limitations and restrictions often take a bounded rationality approach

Assumptions of Bounded Rationality Managers rarely have all the info they need or want Managers are not aware of all possible alternatives and cannot predict consequences Early alternatives and solutions are quickly adopted because of constraints and limitations Organizational goals constrain decision making Conflicting goals can force compromise solutions

Intuitive Decision Making An intuitive decision maker Uses experience, self-confidence, and self-motivation To process information, data, and the environment To address a problem or opportunity

Intuitive Decision Making Intuitive decision making occurs because of… High levels of uncertainty about a problem, the goals, and the decision criteria No history or past experience to draw upon Intense time pressures An excessive number of alternatives

Behavioral Influence on Decision Making

Values Guidelines a person uses when confronted with a situation in which a choice must be made

Decision-making elements affected by values Establishment of objectives Development of alternatives Choosing an alternative Implementing a decision Evaluation and control One’s willingness to make ethical or unethical decisions is influenced by values

Most cited reasons for making unethical choices Values Most cited reasons for making unethical choices Pressure to perform exceptionally well “Keeping up with the Joneses” A secretive and non-revealing culture Failure to take responsibility for problems Focusing on cost before safety

Questions for Decision Makers If published in the newspaper, would readers consider the decision ethical? Is it right? Can it meet the “sunshine” test? What is fair? Is it legal?

Decision makers vary greatly in their propensity for taking risks Propensity for Risk Decision makers vary greatly in their propensity for taking risks Many people are bolder, more innovative, and advocate greater risk taking when in groups Risk propensity is also affected by whether potential outcomes are losses or gains When the choice is between two losses, there is greater propensity to take risks

Potential for Dissonance A lack of consistency or harmony among an individual’s various cognitions after a decision has been made Anxiety is greater if any of these conditions exist The decision is psychologically or financially important There are a number of foregone alternatives Foregone alternatives have many favorable features

Potential for Dissonance People try to reduce dissonance by… Seeking information that supports the wisdom of the decision Selectively perceiving (distorting) information in a way that supports their decision Adopting a less favorable view of foregone alternatives Minimizing the negative aspects of the decision and exaggerating the positive aspects

Potential for Dissonance Propensity to take risks Perceptions Personality, particularly one’s self-confidence and ability to be persuaded Value system The potential for dissonance is influenced heavily by…

Escalation of Commitment Increasing commitment to a previous decision when a rational decision maker would withdraw Those likely to escalate decision making Are unclear of their goals Have a fear of failure Are feeling pressure Work in a culture of low trust

Making Decisions in Diverse Cultures As organizations transcend national boundaries, cultural differences and influences become increasingly significant

Decisions about non-programmed problems are usually made by groups Group Decision Making Decisions about non-programmed problems are usually made by groups The increased complexity requires specialized knowledge not usually possessed by one person Plus, the decision must be accepted throughout the organization Especially true for non-programmed programs

Individual Versus Group Decision Making Groups take more time to reach decisions Brings interaction and better decision making Open discussion is negatively influenced by Pressure to conform A dominant personality type in the group Status incongruity Perceived expertise Framing

Non-programmed group decisions are better when it comes to… Group Decision Making Non-programmed group decisions are better when it comes to… Establishing goals and objectives Identifying causes Developing alternative solutions Evaluating alternative solutions Solution selection Implementation and follow-up

Relationship Between Quality of Group Decision and Method Utilized

Creativity in Group Decision Making A process by which an individual, group, or team produces novel and useful ideas Characteristics of creative people Perseverance Risk-taking propensity Openness Tolerance of ambiguity Groups have more creative potential than do individuals

Techniques for Stimulating Creativity Brainstorming Nominal Group Technique Delphi Technique

Brainstorming The generation of ideas in a group through non-critical discussion, with strict rules No idea is too ridiculous Ideas belong to the group, not the person stating it No idea can be criticized

To increase performance Brainstorming Brainstorming effectiveness decreased by Social loafing Conformity Idea production blocking Downward norm setting To increase performance Set specific goals for teams to achieve Provide meaningful incentives Have a skilled facilitator

The Delphi Technique Solicitation and comparison of anonymous judgments on a topic of interest Sequential questionnaires Interspersed with summarized information and feedback from earlier responses Retains the advantage of several judges Removes the biasing effects that might occur in face-to-face interaction

The Nominal Group Technique A method of decision making that occurs in a highly structured meeting Group decision is the mathematically pooled outcome of individual votes No verbal communication or discussion

Four-Step Nominal Group Technique Individual members independently record ideas, problems to be solved, or opportunities Each member records an idea, problem, or opportunity with no comments or discussion Each recorded statement is discussed, narrowing them down to the best set Members vote/rank from best to worst the winnowed set of ideas, problems, opportunities Initiate Step 1 with different idea, problem, or opportunity Step 2 Step 3 Step 4

Differences Between Delphi and NGT Delphi Technique NGT Participants are anonymous, physically distant, never meet Communication is by written questionnaires, with feedback from the monitoring staff Participants become acquainted, meet face-to-face around a table Communication is direct between participants

Key Points Decision making A common responsibility shared by all executives, regardless of functional area or management level Shapes the future of both the organization and the decision makers The quality of a manager’s decisions is the yardstick of his/her effectiveness