Chapter 9

Decision Making Process Step 6

Step 6: Evaluation and Feedback In the evaluation stage of the decision process, decision makers gather information that tells them how well the decision was implemented and whether it was effective in achieving its goals.

The tendency to continue investing in a failing project in the hope of turning it around.

Sunk cost effect

Management decisions typically fall into one of two categories, What are they?

programmed and nonprogrammed

Which decision making model is Based on rational economic assumptions and manager beliefs about what ideal decision making should be.

The Classical Model Also known as The Ideal, Rational Model This model has arisen within the management literature because managers are expected to make decisions that are economically sensible and in the organization's best economic interests.

Which Decision making model is this? Nonprogrammed decisions when conditions are uncertain, information is limited, and there is manager conflict about goals to pursue or action to take

The Political Model

Why managers make bad decisions: Justifying past decisions

Many managers fall into the trap of making choices that justify their past decisions, even if those decisions no longer seem valid. Sunk Cost Effect: One common example is when a manager continues to pour money into a failing project, hoping to turn things around. Managers often stick with a decision because they've invested a lot of resources in it, even though they'd be better off cutting their losses and moving on.

Why managers make bad decisions: Being overconfident

Most people overestimate their ability to predict uncertain outcomes.

The four assumptions of the administrative model:

Goals are often vague; managers may be unaware of problem(s) Rational procedures are not always used Managers' searches for alternatives are limited Most managers settle for satisficing

All the information the decision maker needs is fully available

Certainty Low possibility of Failure Programmed Decision

Which Innovative Decision making technique is this? Is a person who is assigned the role of challenging the assumptions and assertions made by the group. This person's statements and questions can prevent premature consensus.

A devil's advocate

Which Innovative Decision making technique is this? refers to avoiding the tendency of people in groups to suppress contrary opinions in a desire for harmony.

Avoid Groupthink

Which decision style is this? Often the style adopted by managers having a deep concern for others as individuals. Managers using this style like to talk to people one on one, understand their feelings about the problem, and consider the effect of a given decision on them.

Behavioral Style People with a behavioral style usually are concerned with the personal development of others and may make decisions that help others achieve their goals.

The tendency to put too much value on evidence that is consistent with a favored belief or viewpoint and too little on evidence that contradicts it

Confirmation bias

Which decision style is this? Used by people who prefer simple, clear-cut solutions to problems. Managers who use this style often make decisions quickly because they do not like to deal with a lot of information and may consider only one or two alternatives.

Directive Style People who prefer the directive style generally are efficient and rational and prefer to rely on existing rules or procedures for making decisions.

Which Aspect of Administrative Decision Making is this? A quick apprehension of a decision situation based on past experience but without conscious thought

Intuition Intuitive decision making is not arbitrary or irrational because it is based on years of practice and hands-on experience. When people have a depth of experience and knowledge in a particular area, the right decision often comes quickly and effortlessly as a recognition of information that has been largely forgotten by the conscious mind.

Why managers make bad decisions: Perpetuating the status quo

Managers may base decisions on what has worked in the past and may fail to explore new options, dig for additional information, or investigate new technologies.

Innovative Decision Making

Most decisions within organizations are made as part of a group, and whereas managers can't always see their own biases, they can build in mechanisms to prevent bias from influencing major decisions at the organizational level.

Why managers make bad decisions: Seeing what you want to see.

People frequently look for information that supports their existing instinct or point of view. This can lead to: Confirmation bias: occurs when a manager puts too much value on evidence that is consistent with a favored belief or viewpoint and discounts evidence that contradicts it.

Which Innovative Decision making technique is this? A group decision-making technique that breaks people into subgroups and assigns them to express competing points of view regarding the decision

Point-Counterpoint. Engaging in rigorous debate

Why managers make bad decisions: Being influenced by initial impressions.

When considering decisions, the mind often gives disproportionate weight to the first information it receives. This leads to: Anchoring Bias - occurs when we allow initial impressions, statistics, and estimates to act as anchors to our subsequent thoughts and judgments. For example, in business, managers frequently look at the previous year's sales when estimating sales for the coming year. Giving too much weight to the past can lead to poor forecasts and misguided decisions.

Herbert A. Simon. Simon proposed two concepts that were instrumental in shaping the administrative model, What are they?

bounded rationality and satisficing.

choice made from available alternatives

A Decision

Every decision situation can be organized on a scale according to the availability of information and the possibility of failure. The four positions on the scale are What?

-Certainty -Risk -Uncertainty -Ambiguity Whereas programmed decisions can be made in situations involving certainty, many situations that managers deal with every day involve at least some degree of uncertainty and require nonprogrammed decision making.

Why managers make bad decisions

1. Being influenced by initial impressions 2. Justifying past decisions 3. Seeing what you want to see 4. Perpetuating the status quo 5. Being influenced by emotions 6. Overconfidence

What are the six steps of the Decision-Making Process?

1. Recognition of Decision Requirement 2. Diagnosis and Analysis of Causes 3. Development of Alternatives 4. Selection of Desired Alternative 5. Implementation of Chosen Alternative 6. Evaluation and Feedback

Why managers make bad decisions: Being influenced by emotions

A recent study of traders in London investment banks found that effective regulation of emotions was a characteristic of higher-performing traders.

Which decision making model describes how managers actually make decisions in complex situations rather than dictating how they should make decisions according to a theoretical ideal.

Administrative model The administrative model recognizes the human and environmental limitations that affect the degree to which managers can pursue a rational decision-making process. In difficult situations, such as those characterized by nonprogrammed decisions, uncertainty, and ambiguity, managers are typically unable to make economically rational decisions even if they want to.

Which Innovative Decision making technique is this? Disciplined procedure whereby managers review the results of decisions to evaluate what worked, what didn't, and how to do things better.

After-action review

The goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable.

Ambiguity Ambiguity is what students would feel if an instructor created student groups and told each group to complete a project but gave the groups no topic, direction, or guidelines whatsoever. Nonprogrammed decision This can create a wicked decision problem

Which decision style is this? Managers with this style like to consider complex solutions based on as much data as they can gather.

Analytical Style These individuals carefully consider alternatives and often base their decisions on objective, rational data from management control systems and other sources. They search for the best possible decision based on the information available.

Occurs when we allow initial impressions, statistics, and estimates to act as anchors to our subsequent thoughts and judgments.

Anchoring bias

What are decision styles and what are the four main decision styles?

Differences among people with respect to how they perceive problems and make choices. Directive Analytical Conceptual Behavioral Most experienced managers use a variety of styles depending on the decision situation.

Means that people have limits, or boundaries, on how rational they can be.

Bounded rationality Organizations are incredibly complex, and managers have the time and ability to process only a limited amount of information with which to make decisions.

Which Innovative Decision making technique is this? Technique that uses a face-to-face group to spontaneously suggest a broad range of alternatives for making a decision.

Brainstorming

Political Model: What must manager engage in?

Coalition building An informal alliance among managers who support a specific goal or solution.

Which decision style is this? Like to consider a broad amount of information. However, they are more socially oriented than those with an analytical style and like to talk to others about the problem and possible alternatives for solving it.

Conceptual Style Managers using a conceptual style consider many broad alternatives, rely on information from both people and systems, and like to solve problems creatively.

the process of identifying problems and opportunities and then resolving them.

Decision making Decision making involves effort both before and after the actual choice.

Which Innovative Decision making technique is this? Brings people together in an interactive group over a computer network rather than meeting face to face.

Electronic brainstorming

Which Innovative Decision making technique is this? refers to knowing when to stop continuing to invest time and money in a decision despite evidence that it is failing.

Escalating Commitment -Knowing when to bail

Which Innovative Decision making technique is this? Is founded on a commitment to examining potential biases, seeking and examining evidence with rigor, and making informed and intelligent decisions based on the best available facts and evidence.

Evidence-based decision making

What decision category does this fall into? Decisions to develop a new product or service, acquire a company, create a new division, build a new factory, enter a new geographical market, or relocate headquarters to another city

Nonprogrammed decisions Are made in response to situations that are unique, are poorly defined and largely unstructured, and have important consequences for the organization.

What are the four assumptions of the Classical Model?

Operates to accomplish established goals, problem is defined Decision maker strives for certainty, gathering complete information and, alternatives evaluated Criteria for evaluating alternatives is known; select alternative that maximizes economic return Decision maker is rationale and uses logic that maximizes the attainment of organizational goals

Assumptions of the Political Model

Organizations are made up of groups with diverse interests, goals, and values Information is ambiguous and incomplete Lack of time, resources, or mental capacity to process all information regarding a problem Decisions are the result of bargaining and discussion among coalition members

What decision category does this fall into? The decision to reorder paper and other office supplies when inventories drop to a certain level

Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future. Footnote Programmed decisions are made in response to recurring organizational problems

Which Aspect of Administrative Decision Making is this? Combining intuitive and analytical thought.

Quasirationality Managers need to take a balanced approach by considering both rationality and intuition as important components of effective decision making

Decision has clear-cut goals and that good information is available, but the future outcomes associated with each alternative are subject to some chance of loss or failure. However, enough information is available to estimate the probability of a successful outcome versus failure.

Risk

Administrative Model: Because managers do not have the time or cognitive ability to process complete information about complex decisions, they must ________

Satisficing Refers to choosing the first alternative that satisfies minimal decision criteria, regardless of whether better solutions are presumed to exist.

Innovative Decision Making Techniques

Start with brainstorming -Brainstorming -Electronic brainstorming Use hard evidence -Evidence-based decision making Engage in rigorous debate -Point-counterpoint Avoid groupthink -Groupthink Know when to bail -Escalating commitment Do a postmortem -After-action review

Decision Making Process Step 1

Step 1: Recognition of Decision Requirement Managers confront a decision requirement in the form of either a problem or an opportunity. -Problem A situation in which organizational accomplishments have failed to meet established goals. -Opportunity A situation in which managers see potential organizational accomplishments that exceed current goals.

Decision Making Process Step 2

Step 2: Diagnosis and Analysis of Causes Once a problem or opportunity comes to a manager's attention, the understanding of the situation should be refined. Diagnosis is the step in the decision-making process in which managers analyze underlying causal factors associated with the decision situation. By looking at a situation from different angles, managers can identify the true problem.

Decision Making Process Step 3

Step 3: Development of Alternatives The next stage is to generate possible alternative solutions that will respond to the needs of the situation and correct the underlying causes.

Decision Making Process Step 4

Step 4: Selection of the Desired Alternative Once feasible alternatives are developed, one must be selected. In this stage, managers try to select the most promising of several alternative courses of action. The best alternative solution is the one that best fits the overall goals and values of the organization and achieves the desired results using the fewest resources. Risk propensity The willingness to undertake risk with the opportunity of gaining an increased payoff.

Decision Making Process Step 5

Step 5: Implementation of the Chosen Alternative The implementation stage involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out.

The classical model of decision making is considered to be __________, which means that it defines how a decision maker should make decisions.

The classical model of decision making is considered to be *normative*, which means that it defines how a decision maker should make decisions It does not describe how managers actually make decisions so much as it provides guidelines on how to reach an ideal outcome for the organization. The ideal, rational approach of the classical model is often unattainable by real people in real organizations, but the model has value because it helps decision makers be more rational and not rely entirely on personal preference in making decisions. The classical model is most useful when applied to programmed decisions and to decisions characterized by certainty or risk because relevant information is available and probabilities can be calculated.

Managers know which goals they wish to achieve, but information about alternatives and future events is incomplete.

Uncertainty Managers face uncertainty every day. Many problems have no clear-cut solution, but managers rely on creativity, judgment, intuition, and experience to craft a response.

Conflicts over goals and decision alternatives, rapidly changing circumstances, fuzzy information, unclear links among decision elements, and the inability to evaluate whether a proposed solution will work.

Wicked decision problem. the most difficult decision situation managers face.