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Decision Making in Organizations


Decision Making in Organizations * When are Individuals Superior to Groups? On poorly structured, creative tasks, individuals perform better than groups. – PowerPoint PPT presentation

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Title: Decision Making in Organizations

Decision Making in Organizations
Learning Objectives
  1. Identify the steps in the analytical model of
    decision making and distinguish between the
    various types of decisions people make.
  2. Describe different individual decision styles and
    the various organizational and cultural factors
    that influence the decision-making process.
  3. Distinguish among three approaches to how
    decisions are made the rational-economic model,
    the administrative model, and image theory.
  4. Identify the various factors that lead people to
    make imperfect decisions.
  5. Compare the conditions under which groups make
    more superior decisions than individuals and when
    individuals make more superior decisions than
  6. Describe various traditional techniques and
    high-tech techniques that can be used to enhance
    the quality of individual decisions and group

Decision Making
  • The process of making choices from among several
  • Analytical Model of the Decision-Making Process
    An eight-step approach to organizational decision
    making that focuses on both the formulation of
    problems and the implementation of solutions.
  • Formulation The process of understanding a
    problem and making a decision about it.
  • Implementation The process of carrying out a

The Decision-Making Process
The Decision-Making Process
  • Herbert Simons ?? ??? ?? ?????

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Organizational Decisions
  • Programmed vs. Nonprogrammed
  • Certain vs. Uncertain
  • Top-down vs. Empowered

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Programmed vs. Nonprogrammed
  • Programmed Highly routine decisions made by
    lower-level personnel following preestablished
    organizational routines and procedures.
  • Nonprogrammed Decisions made about a highly
    novel problem for which there is no prespecified
    course of action.
  • Strategic Nonprogrammed decisions typically
    made by high-level executives regarding the
    direction their organization should take to
    achieve its mission.

Programmed vs. Nonprogrammed
Certain vs. Uncertain
  • Usually expressed as statements of risk.
  • What makes an outcome risky is the probability of
    obtaining the desired outcome.
  • Objective probabilities are based on concrete,
    verifiable data.
  • Subjective probabilities are based on personal
    beliefs or hunches.
  • To make the best possible decisions in
    organizations, people seek to manage the risks
    they take.
  • Efforts to reduce uncertainty include
  • Establishing linkages with other organizations
  • Increasing access to information
  • Relying on past experience and expertise

Top-Down vs. Empowered
  • Top-Down Decision Making The practice of
    vesting decision-making power in the hands of
    superiors as opposed to lower-level employees.
  • Empowered Decision Making The practice of
    vesting power for making decisions in the hands
    of employees themselves.

Factors Affecting Decisions
  • Individual differences
  • Group influences
  • Organizational barriers
  • Cultural differences
  • Time pressure

Individual Differences
  • Decision Style Differences between people with
    respect to their orientations toward decisions.
  • Decision Style Model The conceptualization
    according to which people use one of four
    predominant decision styles
  • Directive
  • Analytical
  • Conceptual
  • Behavioral

Decision-Style Model
Group Decision Making
  • Potential Benefits
  • Pooling of resources
  • Specialization of labor
  • Greater acceptance
  • Potential Problems
  • Wasted time
  • Disruptive conflict
  • Intimidation by group leaders
  • Groupthink The tendency for members of highly
    cohesive groups to so strongly conform to group
    pressures regarding a certain decision that they
    fail to think critically, rejecting the
    potentially correcting influences of outsiders.

Cultural Differences
  • Whether situations are perceived as problems
    requiring a decision be made.
  • What type of decision-making unit (individual or
    group) is employed.
  • Who is expected to make the decision (i.e., at
    what level is the decision made).
  • How much time should be taken to make the

Time Pressure
  • Inexperienced individuals generally take longer
    to make decisions than experts do.
  • Expert decision makers rely on their gut
    instinct by drawing on a wealth of accumulated
  • To increase decision-making effectiveness under
    time constraints
  • Recognize your prime objectives
  • Rely on outside experts
  • Anticipate crises
  • Learn from mistakes

Decision-Making Approaches
  • The Rational-Economic Model
  • The Administrative Model
  • Image Theory

The Rational-Economic Model
  • Rational Decisions Decisions that maximize the
    chance of attaining an individuals, groups, or
    organizations goals.
  • Rational-Economic Model The model of decision
    making according to which decision makers
    consider all possible alternatives to problems
    before selecting the optimal solution.

The Administrative Model
  • A model of decision making that recognizes the
    bounded rationality that limits the making of
    optimally rational-economic decisions
  • Bounded Rationality The major assumption of the
    administrative model that organizational, social,
    and human limitations lead to the making of
    satisficing rather than optimal decisions.
  • Satisficing Decisions Decisions made by
    selecting the first minimally acceptable
    alternative as it becomes available.
  • Bounded Discretion The tendency to restrict
    decision alternatives to those that fall within
    prevailing ethical standards.

Image Theory
  • Recognizes that decisions are made in an
    automatic, intuitive fashion based on actions
    that best fit their individual principles,
    current goals, and plans for the future.

Imperfections in Individual Decisions
  • Framing Effects
  • Reliance on Heuristics
  • Bias toward Implicit Favorites
  • Hindsight Bias
  • Person Sensitivity Bias
  • Escalation of Commitment Bias

Framing Effects
  • The tendency for people to make different
    decisions based on how the problem is presented
    to them.
  • Risky Choice Framing Effect The tendency for
    people to avoid risks when situations are
    presented in a way that emphasizes positive gains
    and to take risks when situations are presented
    in a way that emphasizes potential losses that
    may be suffered.
  • Attribute Framing Effect The tendency for
    people to evaluate a characteristic more
    positively when it is presented in positive terms
    than when it is presented in negative terms.
  • Goal Framing Effect The tendency for people to
    be more strongly persuaded by information that is
    framed in negative terms than information that is
    framed in positive terms.

Framing Effects
  • Simple decision rules used to make quick
    decisions about complex problems.
  • Availability Heuristic The tendency for people
    to base their judgments on information that is
    readily available to them although it may be
    potentially inaccurate, thereby adversely
    affecting decision quality.
  • Representativeness Heuristic The tendency to
    perceive others in stereotypical ways if they
    appear to be typical representatives of the
    category to which they belong.

Hindsight Bias
  • The tendency for people to perceive outcomes as
    more inevitable after they have occurred (i.e.,
    in hindsight) than they did before they occurred
    (i.e., in foresight).

Person Sensitivity Bias
  • The tendency for people to give others too
    little credit when things are going poorly and
    too much credit when things are going well.

Escalation of Commitment
  • The tendency for individuals to continue to
    support previously unsuccessful courses of action.

When are Groups Superior to Individuals?
  • Complex Decision Tasks
  • For groups to be superior to individuals, they
    must be composed of a heterogeneous collection of
    experts with complementary skills who can freely
    and openly contribute to their groups product.
  • Simple Decision Tasks
  • On simple tasks, two heads may be better than one
    if at least one of those heads has in it enough
    of what it takes to succeed.

Group vs. Individual Decision Making
When are Individuals Superior to Groups?
  • On poorly structured, creative tasks, individuals
    perform better than groups.
  • Brainstorming A technique designed to foster
    group productivity by encouraging interacting
    group members to express their ideas in a
    noncritical fashion.
  • Four main rules
  • Avoid criticizing each others ideas
  • Share even far-out suggestions
  • Offer as many comments as possible
  • Build on others ideas to create your own

Improving Decision Making
  • Individual Techniques
  • Training individuals to improve group performance
  • Making ethical decisions
  • Group Techniques
  • The Delphi technique
  • Nominal group technique
  • Stepladder technique

Training Errors to Avoid
  • Hypervigilance
  • Unconflicted Adherence
  • Unconflicted Change
  • Defensive Avoidance

  • Problem
  • The state in which an individual frantically
    searches for quick solutions to problems and goes
    from one idea to another out of a sense of
    desperation that one idea isnt working and that
    another needs to be considered before time runs
  • Solution
  • Keep in mind that its best to stick with one
    suggestion and work it out thoroughly.
  • Reassure decision makers that their level of
    skill and education is adequate to solve the

Unconflicted Adherence
  • Problem
  • The tendency for decision makers to stick to the
    first idea that comes to their minds without more
    deeply evaluating the consequences.
  • Solution
  • Think about the difficulties associated with your
  • Force yourself to consider different ideas.
  • Consider the special and unique characteristics
    of the problem you are facing, and avoid carrying
    over assumptions from previous problems.

Unconflicted Change
  • Problem
  • The tendency for people to quickly change their
    minds and to adopt the first new idea to come
  • Solution
  • Ask yourself about
  • The risks and problems of adopting the solution.
  • The good points of the first idea.
  • The relative strengths and weaknesses of both

Defensive Avoidance
  • Problem
  • The tendency for decision makers to fail to
    solve problems because they go out of their way
    to avoid working on the problem at hand.
  • Solution
  • Avoid procrastination.
  • Avoid disowning responsibility.
  • Dont ignore potentially corrective information.

Delphi Technique
  • A method of improving group decisions using the
    opinions of experts, which are solicited by mail
    and then compiled. The expert consensus is used
    to make a decision.

Nominal Group Technique
  • A technique for improving group decisions in
    which small groups of individuals systematically
    present and discuss their ideas before privately
    voting on their preferred solution. The most
    preferred solution is accepted as the groups

Stepladder Technique
  • A technique for improving the quality of group
    decisions that minimizes the tendency for group
    members to be unwilling to present their ideas by
    adding new members to a group one at a time and
    requiring each to present his or her ideas
    independently to a group that already has
    discussed the problem at hand.

Computer-Based Approaches
  • Electronic Meetings The practice of bringing
    individuals from different locations together for
    a meeting via telephone or satellite
    transmissions, either on television monitors or
    via shared space on a computer screen.
  • Computer-Assisted Communication The sharing of
    information, such as text messages and data
    relevant to the decision, over computer networks.
  • Group Decision Support Systems (GDSS)
    Interactive computer-based systems that combine
    communication, computer, and decision
    technologies to improve the effectiveness of
    group problem-solving meetings.