Chapter 16: Decision Making Creating Effective Organizations

Problems in Decision Making Satisficing versus maximizing (bounded rationality) Satisficing versus maximizing (bounded rationality) Sunk Cost Bias/Escalation of Commitment Sunk Cost Bias/Escalation of Commitment Psychological Limits Psychological Limits Personality Limits (e.g. overconfidence) Personality Limits (e.g. overconfidence)

The Decision Making Process Establish goals and objectives Evaluate and control Implement the decision Choose an alternative Evaluate the alternatives Develop alternative solutions Identify the problem R e c y c l e

Assets and Liabilities of Groups in Making Decisions Assets of Groups: Assets of Groups: 1.Greater knowledge of information 2.Greater variety of approaches to a problem 3.Increased acceptance of the decision 4.Reduced communication problems

Assets and Liabilities of Groups in Making Decisions Liabilities of Groups Liabilities of Groups 1.Social pressures to conform 2.Loss of valuable time of group members 3.Hasty convergence on a solution 4.Possibility of control by a dominant individual 5.Distraction by hidden agenda and secondary goals 6.Insufficient time to reach a decision 7.Problems with disagreement and interpersonal conflicts 8.Possibility of final decision being an irrational compromise

Victor Vroom: Decision Making/Leadership Model Victor Vroom Commenting on Participative Decision Making: “It would be naïve to think that group decision making is always more “effective” than autocratic decision making, or vice versa; The critics and proponents of participative management would do well to direct their efforts toward identifying the properties of situations in which different decision making approaches are effective rather than wholesale condemnation or deification of one approach.” --Vroom, 1974

Types of Management Decision Styles AI. You solve the problem or make the decision yourself, using information available to you at that time. AII. You obtain the necessary information from your subordinate(s), then decide on the solution to the problem yourself. You may or may not tell your subordinates what the problem is in getting the information from them. The role played by your subordinates in making the decision is clearly one of providing the necessary information to you, rather than generating or evaluating alternatives solutions. CI. You share the problem with relevant subordinates individually, getting their ideas and suggestions without bringing them together as a group. Then you make the decision, which may or may not reflect your subordinates’ influence. CII. You share the problem with your subordinates as a group, collectively obtaining their ideas and suggestions. Then you make the decision, which may or may not reflect your subordinates’ influence. GII. You share the problem with your subordinates as a group. Together you generate and evaluate alternatives and attempt to reach agreement (consensus) on a solution. Your role is much like that of chairperson. You do not try to influence the group to adopt “your” solution and you are willing to accept and implement any solution which has the support of the entire group.

Table 1: Decision Model ABDEFGH Is there a quality requirement such that one solution is likely to be more rational than another? Do I have sufficient information to make a high quality decision? Is the problem structured? Is acceptance of decision by subordinates critical to implementation? If you were to make the decision by yourself, is it reasonably certain that it would be accepted by your subordinates? Do subordinates share the organizational goals to be obtained in solving this problem? Is conflict among subordinates likely in preferred solution? YES NO YES YES YES YES YES YES YES YES YES YES NO NO NO NO NO NO NO NO NO NO YES YES YES NO NO NO 7-CII 8-CI 6-GII 12-GII 9-AII 13-CII 11-CII 5-AI 3-GII 14-CII 10-AII 4-AI 1-AI 2-AI

Cases in Decision Making Rearranging Work Assignments Rearranging Work Assignments –Sharply decreasing profits for the firm has resulted in a directive from top management that makes it impossible to take on any new personnel even to replace those who leave. Shortly after this directive is issued, one of your five subordinates resigns to take a job with another firm. Your problem is to rearrange the work assignments among the remaining four subordinates without reducing the total productivity of the group. Choosing a Replacement Choosing a Replacement –You have been chosen by your firm to attend a nine-week senior executive program at a famous university. Your problem is to choose one of your subordinates to take your place during your absence. The Behind-Schedule Project The Behind-Schedule Project –You have two main projects under your direction with three subordinates assigned to each. One of these projects is three months behind schedule with only six months remaining before the work must be completed. Your problem is to get the project back on schedule to meet the completion date.

Ways to encourage creativity in decision making Brainstorming (everyone participates in sharing ideas/opinions) Brainstorming (everyone participates in sharing ideas/opinions) Nominal Group Technique (all group members present ideas before discussion) Nominal Group Technique (all group members present ideas before discussion) Delphi Technique (expert opinions are gathered before decision making takes place) Delphi Technique (expert opinions are gathered before decision making takes place)

Key Learnings about Decision- Making Programmed decisions should follow the steps outlined in the decision-making model Programmed decisions should follow the steps outlined in the decision-making model Non-programmed decisions require brainstorming or other creative decision-making techniques Non-programmed decisions require brainstorming or other creative decision-making techniques We should be aware of the conceptual blocks and biases in decision making, both in individuals and groups We should be aware of the conceptual blocks and biases in decision making, both in individuals and groups We should know when to make a decision by ourselves and when include others We should know when to make a decision by ourselves and when include others