1. Decision Making Concepts Decision Making –The process of specifying the nature of a particular problem or opportunity and selecting among available alternatives to solve the problem or capitalize on the opportunity One of the most important managerial activities Need to understand the factors that affect the quality of decisions and what you can do to improve them

2. SolutionFormulation Two Phases of Decision Making Decision Making Identifying a problem or opportunity Acquiring information Developing desired performance expectations Diagnosing factors affecting the problem Identifying a problem or opportunity Acquiring information Developing desired performance expectations Diagnosing factors affecting the problem Generating alternatives Selecting the preferred solution Implementing the decided course of action Generating alternatives Selecting the preferred solution Implementing the decided course of action

3. Individual Decision Making Models Rational/classic Administrative, or bounded rationality Retrospective decision ‑ making

4. Rational (Classical) Decision-Making Model Identify Decision Situations Develop Objectives and Criteria Generate Alternatives Analyze Alternatives Select Alternative Implement Decision Monitor and Evaluate Results

5. 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

6. Factors that Inhibit Accurate Problem Identification and Analysis Information BiasA reluctance to give or receive negative information Uncertainty Absorption A tendency for information to lose its uncertainty as it is passed along Selective Perception Tendency to ignore or avoid certain information StereotypingDeciding about an alternative on the basis of characteristics ascribed by others Cognitive Complexity Limits on the amount of information people can process at one time StressReduction of people’s ability to cope with informational demands

7. Bounded Rationality Model 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 Decision makers use heuristics –A rule that guides the search for alternatives into areas that have a high probability for yielding success Explicit criteria and weights not used to evaluate alternatives Satisficing Selection of a minimally acceptable solution Rather than being an optimizer, this model sees him or her as being a satisficer

8. Retrospective Decision Model Implicit favorite or preferred choice is identified early in decision process Perceptual distortion –Decision rules are adopted that favor the implicit favorite –Positive features of the implicit favorite highlighted over the alternatives Intuitive decision making –Outcomes tend to be very good

9. Types of Decisions Programmed Decision Simple/routine problem High levels of certainty Rules and procedures Standard operating procedures (SOP) Non-programmed Decision Poorly defined or novel problem No alternative is clearly correct Past decisions of little help Gresham’s law of planning Decisions

10. Decision-Maker Level and Type of Decision Non-programmed Decisions Programmed Decisions Middle Managers Lower-Level Managers Top Managers Top Managers Adapted from Exhibit 4.4

11. Influences on Effective Decision Making DECISION MAKER CHARACTERISTICS Knowledge Ability Motivation Effective Decisions Adapted from Exhibit 9.6: Influences on the Decision Process PROBLEM CHARACTERISTICS Unfamiliarity Ambiguity Complexity Instability DECISION ENVIRONMENT CHARACTERISTICS Irreversibility Significance Accountability Time and monetary constraints Adapted from Exhibit 4.6

12. Impact of Groups on Decision Making It is also important to understand group decision making within organizations Social interaction makes process more complex Groups have superior cumulative knowledge Groups arrive at decisions more slowly Group effect the stages of decision making Same decisions models described earlier

13. Assets and Liabilities of Group Decision Making Adapted from Exhibit 4.7 Assets + 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 Assets + 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

14. Assets and Liabilities of Group Decision Making Adapted from Exhibit 4.7 Liabilities - 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 Liabilities - 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

15. 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 Adapted from Exhibit 4.8

16. Guidelines for Overcoming Groupthink Adapted from Exhibit 4.9 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. Be impartial and refrain from stating your own views. 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.

17. Problems in Group Decision Making: Escalating Commitment Adapted from Exhibit 9.14: Contributing Factors to Escalation of Commitment to Decisions Escalation of Commitmen t to Decisions Norm for Consistency Probability of Future Outcomes Justification of Previous Decisions Positive Value of Expected Outcomes Prospective Rationality Adapted from Exhibit 4.10

18. 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 Evaluate the prospects of future outcomes and their expected positive value critically Use devil’s advocate to challenge the majority position

19. 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

20. Contingency Factors for Effective Participative Decision Making Do potential group members –Have sufficient content knowledge? –Have sufficient process knowledge? –Have a desire to participate? –Believe that their participation will result in changes? –Positively value the expected outcomes? –See participation as legitimate and congruent with other aspects of the organization? If the answer to any of the above questions is no, is it possible to change the conditions? Do potential group members –Have sufficient content knowledge? –Have sufficient process knowledge? –Have a desire to participate? –Believe that their participation will result in changes? –Positively value the expected outcomes? –See participation as legitimate and congruent with other aspects of the organization? If the answer to any of the above questions is no, is it possible to change the conditions? Adapted from Exhibit 4.12

21. Strategies for Improving Problem Formulation Devil’s Advocate Devil’s Advocate Group member is chosen to disagree In order to force the group to defend its position Group member is chosen to disagree In order to force the group to defend its position Structured Debate Techniques Multiple Advocacy Multiple Advocacy Similar to devil’s advocate except that more than one group member questions decisions Similar to devil’s advocate except that more than one group member questions decisions Dialectical Inquiry Dialectical Inquiry Individual questions the underlying assumptions of problem formulation Individual questions the underlying assumptions of problem formulation

22. Strategies for Improving the Problem- Solution Process Brainstorming Generating many creative solutions but not immediately evaluating their merit Generating many creative solutions but not immediately evaluating their merit Creative Stimulants Nominal Group Technique Nominal Group Technique Generate ideas individually first Individuals present ideas to group Ideas recorded and discussed as group Silently rank ideas and summarize outcome Generate ideas individually first Individuals present ideas to group Ideas recorded and discussed as group Silently rank ideas and summarize outcome Delphi Technique Delphi Technique Individuals never meet but generate ideas Ideas collected, then distributed to individuals Individuals asked for opinions or new ideas Individuals never meet but generate ideas Ideas collected, then distributed to individuals Individuals asked for opinions or new ideas

23. Strategies for Improving Decision Making: Role of Technology Increase decision makers’ capabilities on routine but complex tasks Improve decisions by group members in different locations Increase virtual group decision effectiveness (compared to face-to-face groups)