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DECISION MAKING

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When managers seek solutions that are 'good enough' they satisfice, rather than maximize ... which are simplified decisions to achieve satisficing solutions ... – PowerPoint PPT presentation

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Title: DECISION MAKING


1
CHAPTER 8
  • DECISION MAKING

2
Organizational Decision Types
  • Decision making is the most central activity of
    management, the essence of a managers job
  • Two classifications
  • Personal versus organizational
  • Programmed versus nonprogrammed

3
Personal v. Organizational Decision Making
  • Personal decision making making decisions that
    involve only ourselves
  • Organizational decision making involves
    decisions that pertain to the problems and
    practices of a given organization
  • The difference between personal and
    organizational decision making lies in the object
    of the process

4
Programmed v. Nonprogrammed Decision Making
  • Proposed by Herbert Simon
  • Programmed decisions well-structured
  • Nonprogrammed decisions poorly structured

5
Personal/Organizational Categorization
  • Personal programmed decisions involve simple,
    repetitive personal matters
  • Personal nonprogrammed decisions arise during
    rare but significant events in an individuals
    life

6
Personal/Organizational Categorization (cont.)
  • Organizational programmed decisions typically
    handled according to established guidelines,
    rules, or procedures, and are most often made by
    lower level employees

7
Personal/Organizational Categorization (cont.)
  • Organizational nonprogrammed decisions rare and
    unique situations that have potentially
    significant impact on the organization, and are
    usually handled by high-level personnel

8
Classical Decision Theory
  • Referred to as the Rational-Economic Model
  • Described as a series of steps that a decision
    maker should follow in order to enhance the
    probability of attaining a desired goal

9
Classical Decision Theory (cont.)
  • Does a good job of describing how a decision
    should be made, but it is largely inaccurate as a
    description of how managers actually do make
    decisions

10
Steps in Classical Decision Theory
  • Opportunity or problem of situation exists
  • It is recognized to exist very important
  • Opportunity/problem is defined
  • Alternatives are generated
  • Information is gathered
  • Alternatives are evaluated

11
Steps in Classical Decision Theory (cont.)
  • One alternative is selected
  • Alternative is implemented and evaluated in terms
    of effectiveness

12
Problems with the Model
  • It assumes that all alternatives will be
    considered
  • It assumes that the consequences of each
    alternative will be explored
  • It assumes that information is available at no
    cost

13
Problems with the Model (cont.)
  • It assumes that decision makers are totally
    rational
  • In reality, the above assumptions rarely exist

14
A Behavioral Theory of Decision Making
  • Acknowledges the real-world limitations on
    managers decision making
  • Managers in this model operate with bounded
    rationality in making decisions
  • Recognizes that
  • All possible alternatives and their associated
    consequences cannot be generated

15
A Behavioral Theory of Decision Making (cont.)
  • Both the available information and the definition
    of the situation are likely to be incomplete and
    inadequate to some degree
  • The final decision may be based on criteria other
    than simple optimization or outcome maximization
  • When managers seek solutions that are good
    enough they satisfice, rather than maximize

16
A Behavioral Theory of Decision Making (cont.)
  • Bounded discretion suggests that optimal
    solutions are sometimes not feasible courses of
    action because they are ethically improper
  • People often use rules of thumb, or heuristics,
    when making decisions which are simplified
    decisions to achieve satisficing solutions

17
Influence of Judgmental Strategies
  • Used when decision makers go beyond the
    information they are given when making inferences
  • Often lead to erroneous inferences
  • Two types of judgmental strategies
  • Availability heuristics
  • Representativeness heuristics

18
Types of Judgmental Strategies
  • Availability heuristics reflect the influence of
    the relative availability of objects or events,
    i.e., their accessibility via memory, perception,
    or imagination
  • Representativeness heuristic the application of
    ones sense of resemblance between objects or
    events

19
Obstacles to Effective Decision-Making
  • Four most common obstacles
  • Judgmental biases
  • Escalation of commitment
  • Groupthink
  • Willingness of groups to take risks

20
Judgmental Biases
  • Implicit favorite bias
  • Loss-aversion bias
  • Selective perception bias
  • Personal experience bias

21
Escalation of Commitment
  • Occurs when a decision maker is unwilling to
    change a course of action despite unequivocal
    evidence showing that the decision was incorrect
  • Possible reasons for escalation of commitment
  • Stick-to-it-iveness
  • Desire to be consistent

22
Escalation of Commitment (cont.)
  • Escalation of commitment is most likely to occur
    in certain predictable settings, e.g., when a
    person is making a decision for which she feels
    strong personal responsibility

23
Escalation of Commitment (cont.)
  • To counter escalation of commitment, Barry Straw
    recommends seeking counsel from trusted advisors
    who dont feel the personal responsibility, or
    alternatively, rotate responsibility across
    managers

24
Groupthink
  • Identified by Irving Janis in which groups are
    lead to commit serious errors in decision making

25
Groupthink (cont.)
  • Characteristics of a group suffering from
    groupthink
  • Group likely to be very cohesive
  • Group is more concerned with achieving consensus
    that it is with exploring alternative courses of
    action, and analyzing the situation

26
Main Symptoms of Groupthink
  • Illusion of invulnerability
  • Rationalization
  • Assumption of morality
  • Negative stereotyping

27
Main Symptoms of Groupthink (Cont.)
  • Pressure to Conform
  • Self-censorship
  • Illusion of unanimity
  • Mindguards

28
Preventing Groupthink
  • Encourage group members to voice their opinions,
    doubts, objectives
  • Assign several group members to teams that will
    investigate the advisability of alternative
    courses of action followed by a debate
  • Appoint a group member to serve as a devils
    advocate at each group meeting

29
Preventing Groupthink (cont.)
  • Hold last-change meetings at which members are
    encouraged to raise any nagging doubts or
    hesitations that they have
  • As a manager, set an example by being open to
    criticism yourself

30
Risk Taking
  • James Stoner investigated the differences between
    group and individual decision making
  • Findings
  • Individuals tend to take a less risky route,
    while groups favor riskier actions

31
Risk Taking (cont.)
  • When individuals are placed in a group, they
    endorsed a riskier position than they did as
    individual decision makers, called the risky
    shift
  • Risky shift When a group endorses a riskier
    position than would its individual members
  • Groups may diffuse responsibility, feel less
    personal responsibility for the consequences of
    their actions

32
Risk Taking (cont.)
  • Group decision making may be more conservative
    than individual decision making, called the
    cautious shift
  • Tendency of groups to move toward extremes has
    been termed group polarization

33
Techniques for Improving Decision Making
  • Research comparing group decisions with
    individual decisions has shown that groups will
    out perform individuals working in isolation
  • The groups decisions are usually of higher
    quality than the average of the individual
    decisions

34
Techniques for Improving Decision Making (cont.)
  • The best solitary worker may often out perform
    the group
  • Reasons for groups out performing individuals
    include
  • Groups pool information and abilities access is
    greater than individual
  • Being in a group tends to motivate and inspire
    group members

35
Techniques for Improving Decision Making (cont.)
  • Social rewards (e.g. praise, admiration) for
    making significant contributions
  • Groups may, at their discretion, exercise
    division of labor by breaking down task for
    subgroups to work on together

36
Problems Encountered with Group Decision Making
  • Groupthink
  • Groups may polarize toward extreme points of view
    if risk is involved
  • Groups may exert pressure on a manager that would
    allow escalation of commitment to occur

37
Problems Encountered with Group Decision Making
(cont.)
  • Tends to be much more costly
  • Group decisions tend to be influenced by the
    relative status of individual group members

38
Nominal Group Technique
  • Used to mitigate the potential problems
    associated with group decision making
  • Involves grouping seven to ten people
  • Members silently and independently record their
    ideas about how to tackle a problem

39
Nominal Group Technique (cont.)
  • Each member presents one of his or her ideas to
    the group, and it is summarized and recorded on a
    chalkboard or wall chart without review of its
    merits
  • A discussion of all ideas is held and ideas are
    clarified and evaluated

40
Nominal Group Technique (cont.)
  • Individuals silently and independently vote on
    each idea, which may involve ranking or rating in
    some way

41
Nominal Group Technique (cont.)
  • Nominal group technique avoids some of the
    problems of traditional decision making
    decisions can be reached in a reasonable amount
    of time without being greatly influenced by the
    leaders preferred position

42
Delphi Technique
  • Similar to NGT, however, decision makers never
    meet
  • Group is selected based on expertise in given
    problem area
  • Experts are mailed questionnaires that survey
    their opinions

43
Delphi Technique (cont.)
  • Experts responses are analyzed and distilled
  • Summarized results are mailed to experts and
    responses are requested for another, new survey
    experts with dissenting opinions may be asked to
    rationalize their opinions, and the rationale may
    be sent to other experts for comment

44
Delphi Technique (cont.)
  • Process is to be repeated several times
    consensus is usually reached due to the multiple
    iterations

45
Pros/Cons of Delphi Technique
  • Pros
  • Avoids biases and obstacles associated with
    interacting groups
  • Generates fairly useful information and
    high-quality solutions
  • Cons
  • Time consuming. May take as little as several
    weeks or as much as several months
  • Highly structured format doesnt offer much
    flexibility if conditions change

46
Social Loafing
  • Refers to when an individual in a group slacks
    off because of being in the group
  • More problematic in larger groups because less
    notability and responsibility

47
Stepladder Technique
  • Stepladder technique may combat social loafing
  • Groups using the stepladder technique have been
    found to make higher-quality decisions than
    conventional groups

48
Creativity and Decision Making
  • Many problems require creative solutions,
    particularly those that are nonprogrammed and
    involve broad ranging ramifications

49
Characteristics of Creative Individuals
  • Most people reach creative peak between ages of
    30 and 40
  • Peak creative age varies by discipline
  • People can still make creative contributions at
    later ages, however the frequency of creative
    productivity decreases

50
Characteristics of Creative Individuals (cont.)
  • Creative people typically have a wide range of
    interests
  • Randsepps conclusions about the characteristics
    of creative people
  • Willing to give up immediate gain to reach
    long-range goals
  • Have lots of energy
  • Are irritated with the status quo

51
Characteristics of Creative Individuals (cont.)
  • Have a lot of perseverance
  • Pursue hobbies and specialized interests
  • Believe that fantasy and daydreaming are not a
    waste of time
  • Creative people are more likely to change jobs
    frequently

52
Measurement of Creativity
  • Ways to measure creativity include
  • Direct observation
  • Creativity tests

53
Steps in the Creative Process
  • Opportunity or problem recognition
  • Immersion
  • Incubation
  • Insight
  • Verification

54
Methods of Enhancing Creativity
  • Nominal Group Technique
  • Delphi Technique
  • Brainstorming
  • Grid analysis

55
DuBrins Suggestions for Enhancing Creativity
  • Dont be afraid to try and then fail
  • Let your playful side come out number of new
    ideas is what counts
  • Identify your creative time period use humor
  • Borrow ideas give rise to new ideas
  • Maintain an idea notebook record flashes of
    insight for future reference

56
Ethics in Decision Making
  • Ethical conduct may offer a strategic advantage
    relative to competitors
  • Some organizations provide ethics training for
    their managers
  • Ethics training consists of
  • Statements from top company officers emphasizing
    ethics in decision making

57
Ethics in Decision Making (cont.)
  • Discussion of corporate code of conduct
  • Procedures for reporting unethical conduct
  • Ethics training can be conducted through case
    discussion and exercises
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