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

SolutionFormulation

Two Phases of Decision Making

DecisionMaking

• 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

Individual Decision Making Models

• Rational/classic

• Administrative, or bounded rationality

• Retrospective decision‑making

Rational (Classical) Decision-Making Model

Identify Decision SituationsIdentify Decision Situations

Develop Objectives and Criteria

Develop Objectives and Criteria

Generate AlternativesGenerate Alternatives

Analyze AlternativesAnalyze Alternatives

Select AlternativeSelect Alternative

Implement DecisionImplement Decision

Monitor and Evaluate ResultsMonitor and Evaluate Results

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

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 people’s ability to cope with informational demands

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

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

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

DecisionsDecisions

Decision-Maker Level and Type of Decision

Non-programmed DecisionsNon-programmed Decisions

Programmed DecisionsProgrammed Decisions

Middle Managers

Middle Managers

Lower-Level Managers

Lower-Level Managers

Top Managers

Top Managers

Adapted from Exhibit 4.4

Influences on Effective Decision Making

DECISION MAKER CHARACTERISTIC

S

KnowledgeAbility

Motivation

EffectiveDecisions

Adapted from Exhibit 9.6: Influences on the Decision Process

PROBLEM CHARACTERISTICS

UnfamiliarityAmbiguityComplexityInstability

DECISION ENVIRONMENT CHARACTERISTICS

IrreversibilitySignificance

AccountabilityTime and monetary

constraintsAdapted from Exhibit 4.6

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

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

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

Problems in Group Decision Making: Groupthink

When groups are...• Highly cohesive• Insulated from outside

input• Dominated by leader

...leading to decisionscharacterized 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

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.

Problems in Group Decision Making:Escalating Commitment

Adapted from Exhibit 9.14: Contributing Factors to Escalation of Commitment to Decisions

Escalation of

Commitment to

Decisions

Norm forConsistency

Probability of Future Outcomes

Justification of Previous Decisions

Positive Value of Expected Outcomes

Prospective Rationality

Adapted from Exhibit 4.10

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

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

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

Strategies for Improving Problem Formulation

Devil’sAdvocateDevil’sAdvocate

Group member is chosen to disagree In order to force the group to defend its positionGroup member is chosen to disagree In order to force the group to defend its position

Structured Debate Techniques

MultipleAdvocacyMultipleAdvocacy

Similar to devil’s advocate except that morethan one group member questions decisionsSimilar to devil’s advocate except that morethan one group member questions decisions

DialecticalInquiryDialecticalInquiry

Individual questions the underlying assumptions of problem formulation Individual questions the underlying assumptions of problem formulation

Strategies for Improving the Problem-Solution Process

BrainstormingBrainstorming Generating many creative solutions but not immediately evaluating their merit Generating many creative solutions but not immediately evaluating their merit

Creative Stimulants

NominalGroupTechnique

NominalGroupTechnique

• 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

DelphiTechniqueDelphiTechnique

• 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

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)