1. Problem Analysis and Decision Making

2. Chapter Outcomes and Learning Objectives
7-1. List the seven steps in the decision-making process Describe expected value analysis Explain the four types of decision styles Identify and explain the common decision-making errors.
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3. Chapter Outcomes and Learning Objectives
7-5. Describe the two types of decision problems and the two types of decisions that are used to solve them Compare and contrast group decision making and individual decision making List and describe three techniques for improving group decision making Explain three different ethical viewpoints.
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4. The Decision-Making Process
Decision-making process - A seven-step process that provides a rational and analytical way of looking at decisions:
Identify the problem
Collect relevant information
Develop alternatives
Evaluate each alternative
The decision-making process is a seven-step process that provides a rational and analytical way of looking at decisions. The steps include identification of the problem, collection of relevant information, development of alternatives, evaluation of alternatives, selection of the best alternative, implementation of the decision, and follow-up and evaluation.
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5. The Decision-Making Process continued…
Select the best alternative
Implement the decision
Follow up and evaluate
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6. Exhibit 7-1, The decision-making process
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7. Identifying the Problem
Problem - A discrepancy between an existing and a desired state of affairs
Step one in the decision-making process begins with identifying the existence of a problem or, more specifically, a discrepancy between an existing and a desired state of affairs.
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8. Exhibit 7-2, Evaluating alternatives
After collecting relevant information, it’s now time to identify all possible alternatives. At this step in the decision process, you demonstrate your creativity by considering which alternatives exist beyond the obvious or those that may have been used previously.
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9. Conditions of Decision Making
Certainty - Certainty exists when the outcome and every alternative are known; as you might expect, most supervisory decisions aren’t this clear-cut
Supervisors may face three conditions as they make a decision: certainty, risk, and uncertainty. Supervisors facing decisions in which certainty abounds are in the best possible situation. Certainty exists when the outcome and every alternative are known. For example, suppose a supervisor is deciding what transportation company to use to ship goods. The supervisor knows the exact weight of the item to be shipped and the cost incurred if it’s shipped by UPS, FedEx, or DHL. The supervisor is also certain about the outcomes of each alternative—delivery will be made. As you might expect, most supervisory decisions aren’t as clear-cut as this.
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10. Conditions of Decision Making continued…
Risk – A far more common situation supervisors face is one of risk, in which they must estimate the likelihood of certain outcomes
To assign probabilities to outcomes, supervisors can rely on personal experiences, secondary information, or historical data
A far more common situation supervisors face is one of risk, in which they must estimate the likelihood of certain outcomes. To assign probabilities to outcomes, supervisors can rely on personal experiences, secondary information, or historical data.
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11. Conditions of Decision Making continued…
Uncertainty - Supervisors who are not certain about the outcomes and can’t even make a reasonable probability estimate are said to be making a decision under a condition of uncertainty
Supervisors who are not certain about the outcomes and can’t even make a reasonable probability estimate are said to be making a decision under a condition of uncertainty. In this case, the choice of alternatives is influenced by the limited information available and by one’s view of the problem.
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12. Expected Value Analysis
Expected value analysis - A procedure that permits decision makers to place a monetary value on various consequences likely to result from the selection of a particular course of action
Expected value analysis permits decision makers to place a monetary value on the various consequences likely to result from the selection of a particular course of action.
The procedure is to calculate the expected value of a particular alternative by weighting its possible outcomes by the probability (0 to 1, with 1 representing absolute certainty) of achieving the alternative, and then summing up the totals derived from the weighting process.
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13. Exhibit 7-3, Payoff table for ski jacket decision
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Decision Trees
Decision tree - A diagram that analyzes hiring, marketing, investment, equipment purchases, pricing, and similar decisions that involve a progression of decisions
Decision trees assign probabilities to each possible outcome and calculate payoffs for each decision path
Decision trees are a useful way to analyze hiring, marketing, investment, equipment purchase, pricing, and similar decisions that involve a progression of decisions. They’re called decision trees because, when diagrammed, they look a lot like a tree with branches. Typical decision trees encompass expected value analysis by assigning probabilities to each possible outcome and calculating payoffs for each decision path.
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Exhibit 7-4, Decision tree and expected values for renting a large or small retail space
Exhibit 7-4 illustrates a decision facing Mike Flynn, the site-selection supervisor for the Barnes & Noble bookstore chain. Mike supervises a small group of specialists who analyze potential locations and make store site recommendations to the Midwestern region’s director. The lease on the company’s store in Cleveland, Ohio, is expiring, and the landlord has decided not to renew it. Mike and his group have to make a relocation recommendation to the regional director.
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Marginal Analysis
Marginal analysis - A method that helps decision makers optimize returns or minimize costs by dealing with the additional cost in a particular decision, rather than the average cost
Marginal, or incremental, analysis helps decision makers optimize returns or minimize costs. Marginal analysis deals with the additional cost in a particular decision, rather than the average cost. For example, suppose the operations supervisor for a large commercial dry cleaner wonders whether she should take on a new customer. She should consider what additional revenue and costs would be generated by this particular order. If the incremental revenues exceed the incremental costs, total profits would be increased by accepting the order.
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17. Decision-Making Styles
Directive Style - People using the directive style have low tolerance for ambiguity and seek rationality
Analytic Style - Analytic types have a greater tolerance for ambiguity than directive managers do
People using the directive style have low tolerance for ambiguity and seek rationality. Efficient and logical, their efficiency concerns may result in their making decisions with minimal information and only after assessing few alternatives. Directive types make decisions quickly and focus on the short run.
Analytic Style types have a greater tolerance for ambiguity than directive managers do. They desire more information, and will consider more alternatives than directive types. Analytic supervisors are characterized as careful decision makers.
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18. Decision-Making Styles continued…
Conceptual Style - Individuals with a conceptual style have a broad outlook and consider many alternatives
Behavioral Style - Decision makers with the behavioral style work well with others and are concerned with the achievement of their employees
Individuals with a conceptual style have a broad outlook and consider many alternatives. Their focus is long range, and they are good at finding creative solutions to problems.
Decision makers with the behavioral style work well with others and are concerned with the achievement of their employees. Receptive to suggestions from
others and relying on meetings for communication, this type of decision maker tries to avoid conflict and seek acceptance.
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19. Exhibit 7-5, Decision-making style model
The basic foundation for a decision-making style model is the recognition that people differ along two dimensions. The first is their way of thinking. Some people are logical and rational. They process information serially. In contrast, some people are intuitive and creative. They perceive things as a whole. The other dimension addresses tolerance for ambiguity. Some people have a need to structure information to minimize ambiguity, whereas others process many thoughts simultaneously. When these two dimensions are diagrammed, they form four styles of decision making (see Exhibit 7-5): directive, analytic, conceptual, and behavioral.
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20. Common Errors in the Decision-Making Process
Availability heuristic - The tendency for people to base their judgments on information that is readily available to them
Representative Heuristic – The representative heuristic causes individuals to match the likelihood of an occurrence with something that they are familiar with
Availability heuristic is the tendency for supervisors to base their judgments on readily available information. Events that evoke strong emotions, are vivid to the imagination, or have recently occurred create a strong impression on them. As a result, supervisors are likely to overestimate the frequency of the occurrence of unlikely events.
Millions of recreational-league players dream of becoming professional football players someday. These dreams are examples of what we call representative heuristic. Representative heuristic causes individuals to match the likelihood of an occurrence with something that they are familiar with.
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21. Common Errors in the Decision-Making Process continued…
Escalation of commitment – The decision maker increases commitment to a previous decision despite negative information
A popular strategy in playing blackjack is to “guarantee” you can’t lose. When you lose a hand, double your next bet. This strategy, or decision rule, may appear innocent enough, but if you start with a $5 bet and lose six hands in a row (not uncommon for many of us), you will be wagering $320 on your seventh hand merely to recoup your losses and win $5.
The blackjack strategy illustrates a phenomenon called escalation of commitment. Specifically, it is defined as an increased commitment to a previous decision despite negative information. That is, the escalation of commitment represents the tendency to “stay the course,” despite negative data that suggest one should do otherwise.
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22. Problems Versus Decisions
Ringisei - In Japanese organizations, consensus-forming decision-making groups
Well-structured problems - Straightforward, familiar, easily defined problems
Decision making in Japan is much more group oriented than in the United States. The Japanese value conformity and cooperation. Before making decisions, Japanese supervisors collect a large amount of information, which is then used in consensus-forming group decisions called ringisei. Because employees in Japanese organizations have high job security, supervisory decisions take a long-term perspective rather than focusing on short-term profits, as is often the practice in the United States.
Some problems are straightforward. The goal of the decision maker is clear, the problem familiar, and information about the problem easily defined and complete. Examples might include a supplier’s being late with an important delivery or a customer wanting to return a mail-order purchase. Such situations are called well-structured problems.
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23. Problems Versus Decisions continued…
Ill-structured problems - New problems about which information is ambiguous or incomplete
Programmed decision - A repetitive decision that can be handled by a routine approach
Nonprogrammed decision - A decision that must be custom-made to solve a unique and nonrecurring problem
Some situations faced by supervisors, however, are ill-structured problems. They are new or unusual. Information about such problems is ambiguous or incomplete. The decision on whether to restructure the department or to invest in and implement new, unproven technology are examples of ill-structured problems.
Programmed decisions are programmed to the extent that they are repetitive and routine, and to the extent that a definite approach has been worked out for handling them. Because the problem is well structured, the supervisor does not have to go to the trouble and expense of working up an involved decision process.
Nonprogrammed decisions, on the other hand, are decisions that are unique and nonrecurring. When a supervisor confronts an ill-structured problem, there is no cut-and-dry solution. A custom-made, non-programmed response is required.
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Group Decision Making
Advantages of Group Decisions
Provides more complete information
Generates more alternatives
Increases acceptance of a solution
Increases legitimacy
Individual and group decisions each have their own set of strengths. Neither is ideal for all situations. Let’s review the advantages that group decision making has over individual decision making.
Provides more complete information - A group brings a diversity of experience and perspective to the decision process that an individual, acting alone, cannot.
Generates more alternatives - Because groups have a greater quantity and diversity of information, they can identify more alternatives than an individual can.
Increases acceptance of a solution - If the people who will be affected by a certain solution and who will help implement it get to participate in the decision making itself, they will be more likely to accept the decision and to encourage others to accept it.
Increases legitimacy - The group decision-making process is consistent with democratic ideals and may be perceived as more legitimate than decisions made by a single person
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25. Group Decision Making continued…
Disadvantages to Group Decision Making
Time-consuming
Minority domination
Pressure to conform
Ambiguous responsibility
Groups are good, but group decisions are not without their drawbacks. The major disadvantages of group decision making are as follows:
Time-consuming - It takes time to assemble a group and the group interaction is frequently inefficient. The result is that groups almost always take more time to
reach a solution than an individual making the decision alone.
Minority domination - Members of a group are never equal; often differing in terms of rank in the organization, experience, knowledge about the problem, influence with other members, verbal skills, assertiveness, and the like. This creates the opportunity for members to use their advantages to dominate others in the group and impose undue influence on the final decision.
Pressure to conform - There are social pressures in groups. The desire of members to be accepted and considered assets can squash any overt disagreement and encourage conformity among viewpoints. The withholding of different views to appear in agreement is called groupthink.
Ambiguous responsibility - Group members share responsibility, but who is actually responsible for the final outcome? In an individual decision, it is clear who
is responsible, but in a group decision the responsibility of any single member is watered down.
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Groupthink
Groupthink - Withholding of differing views by group members to appear to be in agreement
Symptoms of Groupthink
Feelings of invulnerability where danger is ignored and excessive risks are taken
Rationalizing anything contrary to group assumptions
Overriding belief in the morality of the group regardless of ethical outcomes
Stereotyping opposition as weak and ineffectual
Groupthink is a style of thinking often seen in cohesive groups. Irving Janis described it as a form of conformity in which group members withhold deviant,
minority, or unpopular views to give the appearance of agreement. These groups attempt to reduce their conflict and reach agreement without thoroughly evaluating alternative actions. Eight symptoms often seen in groups experiencing groupthink are the following:
■ Feelings of invulnerability where danger is ignored and excessive risks are taken
■ Rationalizing anything contrary to group assumptions
■ Overriding belief in the morality of the group regardless of ethical outcomes
■ Stereotyping opposition as weak and ineffectual
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27. Improving Group Decision Making
Brainstorming - A technique for overcoming pressures for conformity that retards the development of creative alternatives
An idea-generating process that specifically encourages alternatives while withholding criticism of those alternatives
Brainstorming is a relatively simple technique for overcoming pressures for conformity that retard the development of creative alternatives. It does
this by using an idea-generating process that specifically encourages any and all alternatives while withholding any criticism of those alternatives. In a typical brainstorming session, a half-dozen to a dozen people sit around a table. Of course, technology is changing where that “table” is. The group leader states the problem in a clear manner that is understood by all participants. Members then shout out, offer up, fire off, and “freewheel” as many alternatives as they can in a given time. No criticism is allowed, and all the alternatives are recorded for later discussion and analysis.
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28. Improving Group Decision Making continued…
Nominal group technique - A technique that restricts discussion during the decision-making process
The nominal group technique helps groups arrive at a preferred solution by restricting discussion during the decision making process. Group members must be present, as in a traditional committee meeting, but they’re required to operate independently. They secretly write a list of general problem areas or potential solutions to a problem. The chief advantage of this technique is that it permits the group to meet formally, but does not restrict independent thinking or lead to groupthink, as can often happen in a traditional interacting group.
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Chapter Summary
7-1. List the seven steps in the decision-making process Describe expected value analysis Explain the four types of decision styles Identify and explain the common decision-making errors.
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30. Chapter Summary continued…
7-5. Describe the two types of decision problems and the two types of decisions that are used to solve them Compare and contrast group decision making and individual decision making List and describe three techniques for improving group decision making Explain three different ethical viewpoints.
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