Decision Making Concepts

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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

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Two Phases of Decision Making
Decision Making

• Generating alternatives
• Selecting the preferred solution
• Implementing the decided course of action

• Identifying a problem or opportunity
• Acquiring information
• Developing desired performance expectations
• Diagnosing factors affecting the problem

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Individual Decision Making Models

• Rational/classic
• Administrative, or bounded rationality
• Retrospective decision-making

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

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Factors that Inhibit Accurate Problem
Identification and Analysis
Information Bias
A 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
Stereotyping
Deciding 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
Stress
Reduction of peoples ability to cope with
informational demands
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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

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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

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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
• Greshams law of planning

Decisions
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Decision-Maker Level and Type of Decision
Top Managers
Middle Managers
Lower-Level Managers
Non-programmed Decisions
Programmed Decisions
Adapted from Exhibit 4.4
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Influences on Effective Decision Making
DECISION MAKER CHARACTERISTICS Knowledge Ability
Motivation
PROBLEM CHARACTERISTICS Unfamiliarity Ambiguity C
omplexity Instability
Effective Decisions
DECISION ENVIRONMENT CHARACTERISTICS Irreversibil
ity Significance Accountability Time and monetary
constraints
Adapted from Exhibit 4.6
Adapted from Exhibit 9.6 Influences on the
Decision Process
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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

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Assets and Liabilities of Group Decision Making

• 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

Adapted from Exhibit 4.7
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Assets and Liabilities of Group Decision Making

• 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 managements ability to act quickly and
  decisively when necessary

Adapted from Exhibit 4.7
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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
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Guidelines for Overcoming Groupthink
Adapted from Exhibit 4.9
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Problems in Group Decision MakingEscalating
Commitment
Adapted from Exhibit 4.10
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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 devils advocate to challenge the majority
  position

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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

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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?

Adapted from Exhibit 4.12
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Strategies for Improving Problem Formulation
Structured Debate Techniques
Devils Advocate
Group member is chosen to disagree In order to
force the group to defend its position
Multiple Advocacy
Similar to devils advocate except that more than
one group member questions decisions
Dialectical Inquiry
Individual questions the underlying assumptions
of problem formulation
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Strategies for Improving the Problem-Solution
Process
Creative Stimulants
Brainstorming
Generating many creative solutions but not
immediately evaluating their merit
Nominal Group Technique

• Generate ideas individually first
• Individuals present ideas to group
• Ideas recorded and discussed as group
• Silently rank ideas and summarize outcome

Delphi Technique

• Individuals never meet but generate ideas
• Ideas collected, then distributed to individuals
• Individuals asked for opinions or new ideas

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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)