Individual and Group Decision Making

Individual and Group Decision Making
Chapter 9 Individual and Group Decision Making

Learning Objectives After studying this chapter, you should be able to: Explain the traditional model of decision making. Recognize and account for the limits of rationality in the decision process. Describe the role of risk and uncertainty in decision making. These learning objectives are expressed in the chapter and you may prefer to move directly to slide 4, if you are comfortable that students agree with the objectives. It should be noted at this point, that all slides that have been prepared for this and the other chapters, have been animated to assist in the presentation. The most important animations are not the bulleted text items (which are animated) but rather the animation of models and exhibits. Models and exhibits contain “sequenced” animations and attempt to portray in visual terms, what the text attempts to portray in words. Many of the models contained in the textbook are taken out of their “static” context and shown here as the “dynamic” constructs they are. A dynamic construct is one that shows how one variable or event is affected by another, and this implies change. Such concepts should be presented dynamically, which means the animation should reflect the change implied by the construct or model. It is a good idea to “play” through the slides before presenting the materials to be sure you understand how they work. Although these slides can be printed and displayed as “transparencies”, the dynamic nature of the concepts will be less obvious. The slides are best shown in the classroom with your computer connected to the overhead projector. To view the animated presentation, select “View Show” from the Slide Show pull-down menu, or press the F5 key at the top of the keyboard, or select “Slide Show” from the View pull-down menu. . The slides were prepared using Office 2000 to facilitate the likely lowest common denominator for software. However, they will also play under Office XP and newer software. ©2005 Prentice Hall

Learning Objectives After studying this chapter, you should be able to: List the conditions when decisions are best made individually and when they are best made collectively. Name the steps to facilitate group participation in decision making. Describe the barriers to effective decision making and ways to overcome them. ©2005 Prentice Hall

Decision Making Concepts
Decision Making Process Specifying the nature of a particular problem or opportunity and Selecting among available alternatives how to solve a problem or capture an opportunity ©2005 Prentice Hall

Two Phases of Decision Making
Formulation Solution Identifying a problem or opportunity Acquiring information Developing desired performance expectations Diagnosing causes and relationships among factors affecting the problem Generating alternatives Selecting the preferred solution Implementing the decided course of action Monitoring the situation to ensure successful implementation This slide distinguishes decision making as consisting of forming the decision problem and then solving the decision problem. It is probably useful to ask students to provide examples of decisions they have faced and how they dealt with the two phases of their decisions. For example, buying a car can be viewed this way, and forming the problem will focus on the need for transportation to work, school etc. Solving the problem will involve evaluating different makes and models, gas mileage, style, etc, and choosing between them. ©2005 Prentice Hall

Individual Decision Making
Rational/classic model Administrative, or bounded rationality model Retrospective decision‑making model ©2005 Prentice Hall

Rational (Classical) Decision-Making Model
Identify Decision Situations Step 1 Identify decision situations Problems Opportunities Role of perception The rational decision-making model is the most common explanation of how decisions should be made (in a world where information is perfect). The “rational” aspect of making decisions is stressed, and it is often instructive to ask students why emotions should or should not be included as part of their decisions. Choosing a college to attend is often a decision that should be made rationally, considering factors such as reputation, cost, accessibility, choices of majors and so on. However, emotional factors, such as having friends or parents who attended in the past, or family tradition, etc. are often more important than rational considerations. The model is presented in a series of seven slides, to permit you to explore each step in sequence. If you are using PowerPoint and a projector, rather than overhead slides, the slides will appear seamless (e.g. as one slide with lots of information). You should work your way slowly through the slides before class, so you learn where animation occurs automatically, and where it is activated by a mouse click or pressing on the spacebar. ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Identify Decision Situations Develop Objectives and Criteria Step 2 Develop objectives and criteria Specific criteria Relative weightings Criteria (what is important in the outcome) Continuing with the choice of college to attend works here. Have students identify their objectives and criteria that might be used to evaluate the choices is a good exercise. ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Identify Decision Situations Develop Objectives and Criteria Step 3 Generate Alternatives Generate alternatives Past solutions Creative new solutions ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Identify Decision Situations Develop Objectives and Criteria Step 4 Generate Alternatives Analyze Alternatives Minimally acceptable results Feasibility Best results Analyze Alternatives At this point in the model, if students previously established criteria and criteria weightings, it is a good exercise to ask them to actually analyze their alternatives using the pre-established criteria and criteria weightings. ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Identify Decision Situations Develop Objectives and Criteria Step 5 Generate Alternatives Select Alternative Subjectively expected utility Analyze Alternatives Select Alternative ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Identify Decision Situations Develop Objectives and Criteria Step 6 Generate Alternatives Implement Decision Sources and reasons for resistance Chronology and sequence of actions Required resources Delegation of tasks Analyze Alternatives Select Alternative Implement Decision ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Identify Decision Situations Develop Objectives and Criteria Step 7 Generate Alternatives Monitor and Evaluate Results Gather information Compare results to objectives and standards set at the beginning Analyze Alternatives Select Alternative Implement Decision Monitor and Evaluate Results ©2005 Prentice Hall Adapted from Exhibit 9.1: Classical Decision-Making Model

Assumptions of Classical Model
Problems are clear Objectives are clear People agree on criteria and weights All alternatives are known All consequences can be anticipated Decision makers are rational ©2005 Prentice Hall

Applying Criteria in Analyzing Alternatives
Candidate Criteria Rating X Weight = Score Martha Motivation 8 x .30 = 2.40 Interpersonal 6 x .25 = Sales Knowledge 7 x .25 = 1.75 Product Knowledge 6 x .20 = 1.20 Total Score = 6.85 Candidate Criteria Rating X Weight = Score Jane Motivation 9 x .30 = 2.70 Interpersonal 8 x .25 = Sales Knowledge 6 x .25 = 1.50 Product Knowledge 5 x .20 = 1.00 Total Score = 7.20 This example comes directly from the textbook. We can explain to students that in large corporations, processes such as this may have great utility for selecting employees for positions where the tasks are routine and where the number of applicants are great. But how does this work in selecting executives? What are the advantages and disadvantages in using such an approach? ©2005 Prentice Hall Adapted from Exhibit 9.2: Applying Criteria in Analyzing Alternatives

Factors that Inhibit Accurate Problem Identification and Analysis
Factor Description Illustration Information Bias A reluctance to give or receive negative information You favor Jane as the candidate; dismiss information about performance problem on her last job Uncertainty Absorption A tendency for information to lose its uncertainty as it is passed along Not clear how well Martha did in previous job. When feedback gets to you, she is described as a poor performer ©2005 Prentice Hall Adapted from Exhibit 9.3: Factors that Inhibit Accurate Problem Identification and Analysis

Factor Description Illustration Selective Perception A tendency to ignore or avoid certain (especially ambiguous) information Jane may have several employment alternatives and may even be considering going back to school, but you ignore all this in making her the offer Stereotyping Deciding about an alternative on the basis of characteristics ascribed by others Not clear how well Martha did in Jane graduated from a private high school and went to a highly rated college on a partial scholarship, so you figure she must be a great hire ©2005 Prentice Hall Adapted from Exhibit 9.3: Factors that Inhibit Accurate Problem Identification and Analysis

Factor Description Illustration Cognitive Complexity A Limits on the amount of information people can process at one time You initially have 200 applicants for the position but decide to eliminate anyone with less than three years sales experience Stress Reduction of people’s ability to cope with informational demands Your company’s market share is slipping because you don’t have enough sales people in the field, so you feel you just can’t look at every bit of information on every candidate ©2005 Prentice Hall Adapted from Exhibit 9.3: Factors that Inhibit Accurate Problem Identification and Analysis

Bounded Rationality Model
First Mechanism Possible solutions examined one at a time If alternative is unworkable it is discarded When acceptable (not necessarily best) solution is found, it is likely to be accepted Thus search and analysis effort is likely to stop at first acceptable solution Presentation of the bounded rationality model is a good point to ask students how they typically deal with decision problems. Their discussion will often include limiting factors that are listed in this and the next slides. ©2005 Prentice Hall

Second Mechanism Explicit criteria and weights not used to evaluate alternatives Decision makers use heuristics A rule that guides the search for alternatives into areas that have a high probability for yielding success You might return to the discussion of choosing colleges here to see how we often ignore or avoid using explicit criteria and weights. Why do we do this? Sometimes it is because it is difficult to reasonably establish all criteria and weights. And sometimes it is because we are lazy. ©2005 Prentice Hall

Third Mechanism Satisficing Selection of a minimally acceptable solution Rather than being an optimizer, this model sees him or her as being a satisficer It is important to point out that the term “satisficing” is different than the term “satisfying.” I wonder why the dictionary doesn’t contain the word satisficing, it always shows up in spell checker. But it is a term that has been used for a long time and that describes a very important decision principle. Buying a new car is often done in a “satisficing” manner. There are simply too many choices out there and we often stop early in the search process, as we find a model that meets our acceptability level. And then the next day, of course, we may experience a little remorse as we see someone else in a different new car that we really envy. ©2005 Prentice Hall

Retrospective Decision Model
Implicit favorite is identified early in decision process Perceptual distortion of information occurs Decision rules are adopted that favor the implicit favorite Positive features of the implicit favorite highlighted over the alternative ©2005 Prentice Hall

Non-programmed Decision
Types of Decisions Programmed Decision Non-programmed Decision Decisions Simple/routine problem High levels of certainty Rules and procedures Standard operating procedures (SOP) Poorly defined or novel problem No alternative is clearly correct Past decisions of little help Gresham’s law of planning Soliciting examples from student experiences of decisions that are relatively programmed for them is a useful activity. They may think of programmed decisions as ones that are computerized, but most programmed decisions are in fact the result of in-the-head rules, procedures and standard operating procedures. Other decisions are not so programmed and it is useful to ask them to explain the differences in these decisions. ©2005 Prentice Hall

Decision-Maker Level and Type of Decision
Top Managers Middle Managers Lower-Level Managers This discussion can be informative, especially if students are subscribers to journals such as Business Week or Fortune. Can they cite some examples of decisions made by top managers and some of the decisions likely made by lower-level managers? What are the differences? Non-programmed Decisions Programmed Decisions ©2005 Prentice Hall Adapted from Exhibit 9.4: Decision-Maker Level and Type of Decision

Gresham’s Law and Decisions
Many important decisions are here Non-programmed Decisions Programmed Decisions Urgent Not Urgent ©2005 Prentice Hall Adapted from Exhibit 9.5: Gresham’s Law and Decisions

Influences on Effective Decision Making
Decision Maker Characteristics Knowledge Ability Motivation ? Problem Characteristics Unfamiliarity Ambiguity Complexity Instability Decision Environment Characteristics Irreversibility Significance Accountability Time and monetary constraints Why is it important to distinguish between these three sets of characteristics? I think it helps students to understand that not all of the things that affect decisions are controllable, and that others can be manipulated as they make decisions. It also points us to examine a wider variety of factors when we examine decision factors. Each particular combination of these influences will cause us to approach the problem somewhat differently. ©2005 Prentice Hall Adapted from Exhibit 9.6: Influences on the Decision Process

Making Better Decisions
Analyze the situation Scan the environment Think through the process Be creative Know the right timing Increase your knowledge Be flexible ©2005 Prentice Hall

Decision-Maker Characteristics 1. Do you have an implicit favorite solution? 2. Do you have a tendency to satisfice and go with the first workable solution? 3. Do you feel overwhelmed by the amount of information you are having to process? 4. Do you feel a lack of knowledge about the problem? 5. Are you particularly unfamiliar or familiar with the problem? This material builds on the discussion that began with slide 27. However, this discussion is a bit more basic, and asks common questions that any decision maker should think about as a decision is approached. Questions such as “do you have an implicit favorite solution?” make it easy to see that the rational decision process is hard to apply. A good example of a decision problem affected by this question might be choosing between alternative job offers. Almost always, a student will have an implicit favorite, but struggles to give the other alternatives a fair shake. ©2005 Prentice Hall Adapted from Exhibit 9.7

Decision Environment Characteristics 1. Are you under significant time pressures to make the decision? 2. Do you face substantial resource limitations (e.g., people, money, equipment, etc.) relative to the problem and its solution? 3. Is the decision irreversible? 4. Are the problem and your decision of substantial importance? ©2005 Prentice Hall Adapted from Exhibit 9.7

Impact of Groups on Decision Making
Establishing Objectives Identifying Alternatives Evaluating Alternatives Choosing Alternatives Implementing the Choice Group term projects in class are often a sore point for students. Using this as an example of group decision making processes can be helpful in explaining the process. It also anticipates discussion contained in slides that follow. ©2005 Prentice Hall

Assets and Liabilities of Group Decision Making
Groups can accumulate more knowledge. Groups have a broader perspective and consider more alternatives. Individuals who participate in group decisions are more satisfied with the decision and are more likely to support it. Group decision processes serve an important communication function, as well as a useful political function. Discussion of class group term projects often focuses on the “liabilities” side. Can they identify some of the assets by examining this slide? ©2005 Prentice Hall Adapted from Exhibit 9.8: Assets and Liabilities of Group Decision Making

Assets and Liabilities of Group Decision Making
Groups often work more slowly than individuals. Group decisions involve considerable compromise that may lead to less than optimal decisions. Groups are often dominated by one individual or a small clique, thereby negating many of the virtues of group processes. Over-reliance on group decision making can inhibit management’s ability to act quickly and decisively when necessary. ©2005 Prentice Hall Adapted from Exhibit 9.8: Assets and Liabilities of Group Decision Making

Participative Decision Makers
Individuals who participate in decisions believe: They have relevant content knowledge Their participation will help bring about change The resulting change will produce outcomes they value or prefer Their participation is valued by the organization and fits with its goals and objectives. ©2005 Prentice Hall

Degree of Involvement and the Decision Process
Identify Decision Situations Develop Objectives and Criteria Generate Alternatives Analyze Alternatives Decision Process Select Alternatives This model is animated to present each step in the decision process in order. Basically it identifies how much group involvement is typical in the decision process. Where groups excel is in the formulation stage, and less so in the solution phase. Implement Decision Monitor and Evaluate Results Low High Degree of Involvement ©2005 Prentice Hall Adapted from Exhibit 9.9: Sample Configuration of Degree of Involvement and Decision Process

Contingency Factors for Effective Participative Decision Making
1. Do potential group members have sufficient content knowledge? 2. Do potential members have sufficient process knowledge? 3. Do members have a desire to participate? 4. Do members believe that their participation will result in changes? 5. Do members positively value the expected outcomes? 6. Do members see participation as legitimate and congruent with other aspects of the organization? 7. If the answer to any of the above questions is no, is it possible to change the conditions? The Vroom-Yetton normative decision theory tree which identifies appropriate leadership styles (in terms of how much and what kind of subordinate participation) can be very intimidating for undergraduate students, and at least challenging for graduate students. The approach used here is to present the questions that are asked in determining the participative approach, without the decision branching seen in the model itself. You might wish to point out that each question deals with a different aspect of the contingency factors considered by managers as they explore the issue of subordinate participation. Typical considerations include Quality requirement Commitment requirement Leader’s information Problem structure Commitment probability Goal congruence Subordinate conflict Subordinate information. Source: N. Margulies and J. Stuart Black, “Perspectives on the Implementation of Participative Approaches.” Human Resource Management 26, no. 3 (1987), pp. 385–412. ©2005 Prentice Hall Adapted from Exhibit 9.10: Contingency Factors for Effective Participative Decision Making

Factors of Fast Decision Making
1. Real-time information.Fast decision makers must have access to and be able to process real-time information. 2. Multiple simultaneous alternatives. Fast decision makers examine several possible alternative courses of action simultaneously, not sequentially.This adds complexity and richness to the analysis and reduces the time involved in information processing. 3. Two-tiered advice process. Fast decision makers make use of a two-tiered advisory system, whereby all team members are allowed input but greater weight is given to the more experienced coworkers. 4. Consensus with qualification. Fast decision makers attempt to gain widespread consensus on the decision as it is being made, not after. 5. Decision integration. Fast decision makers integrate tactical planning and issues of implementation within the decision process itself. ©2005 Prentice Hall Adapted from Exhibit 9.11: Factors of Fast Decision Making

Problems in Group Decision Making:
Groupthink When groups are... • Highly cohesive • Insulated from outside input • Dominated by leader ...leading to decisions characterized by... • Limited search for information • Limited analysis of alternatives • Rejection of expert opinions • Few, if any, contingency plans ...they often experience... • Illusion of invulnerability • Illusion of morality • Illusion of unanimity • Self-censorship • Peer pressure for conformity • Stereotyping of opponents • Rationalization • Mindguards ...that result in... • Decisions of poor quality • Poor group performance • Wasted resources • Lost opportunities Typical examples of groupthink are given in the textbook. It might be useful to include this as one of the problems faced by students assigned to semester project teams and explore that in a class discussion. ©2005 Prentice Hall Adapted from Exhibit 9.12: The Groupthink Process

Symptoms of Groupthink
Illusion of invulnerability Illusion of morality Stereotyping Illusion of unanimity Mindguards ©2005 Prentice Hall

Consequences of Groupthink
Limited search for alternatives Failure to reexamine chosen actions Failure to consider nonobvious advantages to alternative courses of action. Limited attempts to seek experts' advice either inside or outside their own organization. Pursue facts that support their preferred alternative (disregard negative facts) Ignore possible roadblocks to preferred alternative. ©2005 Prentice Hall

Guidelines for Overcoming Groupthink
For the company • Establish several independent groups to examine the same problem. • Train managers in groupthink prevention techniques. For the leader • Assign everyone the role of critical evaluator. • Use outside experts to challenge the group. • Assign a devil’s advocate role to one member of the group. • Try to be impartial and refrain from stating your own views. ©2005 Prentice Hall Adapted from Exhibit 9.13: Guidelines for Overcoming Groupthink

Guidelines for Overcoming Groupthink
For group members • Try to retain your objectivity and be a critical thinker. • Discuss group deliberations with a trusted outsider and report back to the group. For the deliberation process • At times, break the group into subgroups to discuss the problem. • Take time to study what other companies or groups have done in similar situations. • Schedule second-chance meeting to provide an opportunity to rethink the issues before making a final decision. ©2005 Prentice Hall Adapted from Exhibit 9.13: Guidelines for Overcoming Groupthink

Escalating Commitment to a Decision
Why decision makers adhere to a course of action after they know it is incorrect Individual limitations in information processing Breakdown in rationality because of group dynamics Associated with a course of action rather than an isolated choice Escalating commitment, examined in this and following slides, is often seen in common activities as well as large-scale decisions, such as Sony’s decision many years ago to pursue Beta video recording process rather than the more popular VHS format. What kinds of decisions evoke and escalating commitment response? Is our choice of college one of these? Is that why alumni support is so strong at some schools? ©2005 Prentice Hall

Problems in Group Decision Making:
Escalating Commitment Justification of Previous Decisions Positive Value of Expected Outcomes Escalation of Commitment to Decisions Prospective Rationality This model is animated and should be previewed before presenting to class. The items “Positive value of expected outcomes” and “probability of future outcomes” are presented together (automatic animation) because they combine to create the phenomenon called “prospective rationality.” Norm for Consistency Probability of Future Outcomes ©2005 Prentice Hall Adapted from Exhibit 9.14: Contributing Factors to Escalation of Commitment to Decisions

Overcoming Escalation of Commitment
Stress that investments made in the past are sunk costs, which should be ignored Create atmosphere in which consistency does not dominate Match current decisions to current and expected future environments rather than to past decisions Evaluate the prospects of future outcomes and their expected positive value critically Invite experts from outside the group to challenge members’ future expectations. Use devil’s advocate to challenge the majority position ©2005 Prentice Hall

Cultural Dimensions of Decision Making
Individualism versus collectivism Power distance Tolerance of uncertainty and risk Perceptions of acceptability and/or desirability of outcomes ©2005 Prentice Hall

Strategies for Improving Decision Making:
Problem Formulation Structured Debate (Problem Formulation) Devil’s advocate Multiple advocacy Dialectical Inquiry The strategies for improving decision making can be very focused (limited to what is in the text or on the slides) or it can be expanded to include ideas that students have. It is probably useful to focus on the distinction between problem formulation and problem solution, as that is how the chapter began. When we break decision making down in this manner, it is easier to identify strategies that deal with the issues. Again, the model is animated over two slides that appear seamless when presented using PowerPoint and a projector. ©2005 Prentice Hall Adapted from Exhibit 9.15: Techniques for Improving Decision Making

Problem Solution Structured Debate (Problem Formulation) Devil’s advocate Multiple advocacy Dialectical Inquiry Creativity Stimulants (Problem Solution) Brainstorming Nominal group technique Delphi technique ©2005 Prentice Hall Adapted from Exhibit 9.15: Techniques for Improving Decision Making

Role of Technology Increase decision makers’ capabilities on routine but complex tasks Process large amounts of information Process at high speeds Scheduling services Dealing with raw materials Scheduling material component flow ©2005 Prentice Hall

Role of Technology Improve decisions by group members in different locations View a common document Make real-time changes Save travel costs Increase virtual group decision effectiveness (compared to face-to-face groups) May decrease group effectiveness, May increase time required to complete tasks May decrease member satisfaction ©2005 Prentice Hall

Individual and Group Decision Making

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