Mgmt 300 - Ch. 7

Intuition Model

"Going with your gut" - making decisions based on feelings, hunches, or the subconscious

Electronic Brainstorming

(brainwriting) Members of a group come together over a computer network to generate ideas and alternatives

Nonrational Decision making

-Explains how managers actually make decision -Assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions -Models = bounded rationality, satisficing, incremental, intuition

Credibility

-How believable is the information about the situation? -Is your source of information trustworthy?

Heuristics

-Rule of thumb -Strategies that simplify the process of making decisions (can be bad)

7 Rules for Brainstorming

1. Defer judgement 2. Build on the ideas of others 3. Encourage wild ideas 4. Go for quantity over quality 5. Be visual 6. Stay focused on the topic 7. One conversation at a time

5 Reasons that diverse groups tend to make better decisions than those acting alone

1. Greater pool of knowledge - more data 2. Different perspectives - cross functional teams 3. Intellectual stimulation - brainstorming 4. Better understanding of decision rationale - Able to fully articulate the decisions to others 5. Deeper commitment to the decision - participant buy-in

2 configurations for the best decision-making outcomes

1. Members who are very familiar with one another and bring unique information 2. Members who don't know each other and bring information with lots of overlap

6 techniques to develop your intuition

1. Open up the closet - trust your feelings 2. Don't mix up you "I's" - instinct, insight, & intution are not synonyms 3. Elicit good feedback - seek feedback 4. Get a feel for your batting average - benchmark your intuition 5. Play devil's advocate - raise objections to your own ideas 6. Capture and validate your intuition - write down your thoughts before they are censored by rational analysis

7 Challenges of Implementing Evidence-Based Decision Making

1. There's too much evidence 2. There's not enough good evidence 3. The evidence doesn't quite apply 4. People are trying to mislead you 5. You are trying to mislead you 6. The side effects outweigh the cure 7. Stories that are not based on evidence can be more pursuasive

What managers need to know about groups and decision making

1. They are less efficient - groups take longer to make decisions 2. Their size affects decision quality - the larger the group, the lower the quality of the decision 3. They may be too confident - overconfidence can lead to groupthink 4. Knowledge counts - 2 configurations for the best decision-making outcomes

3 ways to apply your knowledge of decision-making styles

1. Understand yourself and facilitate your potential for self-improvement 2. Understand those you work with and facilitate your ability to influence them by appealing to their decision making style 3. Gives your awareness of how people can take the same information and yet arrive at different decisions

Holistic Hunch

A person's explicit and tacit knowledge about a person, situation, object, or opportunity

Alternative to the incremental model

Dedicate resources to achieving a long-term solution

Consensus Do's and Don'ts

Do: Involve as many people as possible Dig of facts Don't: Engage in horse trading (i'll support your project if you support mine) Make agreements simply to avoid conflict Put it to a vote too soon

Tacit Knowledge

Highly personal knowledge that is difficult to share

Importance

How high priority is this situation? -How extensive might prospective losses or damages be? -How beneficial might the possible gains be?

Opposite of Intuition

Making decisions based on conscious thought or logical inferences

Satisficing Model

Managers seek alternatives until they find one that is satisfactory, not optimal

Incremental Model

Managers take small, short-term steps to alleviate a problem

The curse of knowledge

People who design products can't imagine what its like to encounter the product for the first time, without any knowledge of how it works

Ethics Officer

Someone trained in workplace ethics, particularly int he area of resolving ethical dilemmas

Analytics (AKA business analytics)

Sophisticated forms of business data analysis TIPS: 1. Use modeling, beyond descriptive statistics 2. Having multiple applications 3. Ensure there is support from the top

4 Steps to Rational Decision Making

Stage 1: Identify the problem or opportunity Stage 2: Think up alternative solutions Stage 3: Evaluate alternatives & select a solution Stage 4: Implement & evaluate the solution

Representativeness or ignoring-randomness bias

The tendency to generalize from a small sample or a single event -people hear stories of others who have won the lottery and buy a ticket even if chances are bad

Anchoring and adjustment bias

The tendency to make decisions based on an initial figure (regardless if it is realistic for the market) -employees are given a raise based on last years salary, but the current market is not considered

Risk propensity

The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff

Step 2 to Rational Decision Making

Think Up Alternative solutions [Both obvious & creative] -The creativity of your employees is your companies most valuable resource -"Innovation is the physical expression of creativity"

Evidence Based Decision Making

Translating evidence into principles for organizational practice

2 Dimensions of Decision-making style

Value orientation - reflects the extent to which a person focuses on either task and technical concerns or people and social concerns when making decisions Tolerance Ambiguity - Extent to which a person has a high need to structure or control in his or her life

Escalation of commitment bias

When decision makers increase their commitment to a project despite negative information about it PROSPECT THEORY - actual loss is more painful that giving up the possibility of a gain -President Lyndon B. Johnson wouldn't withdraw from Vietnam because the pain of loss was already too great

Availability bias

When managers use only information that is readily available from memory to make judgements -only considering an employee was late 4 times this week rather than their entire record

Confirmation or prior hypothesis bias

When people seek information to support their point of view and discount data that do not -global warming debate

Intuition and rational decision making can be

complementary

Time-series forecast

predict future data based on patterns of historical data

Decision making

process of identifying and choosing alternative courses of action

Data Mining (big data)

using large data deposits to analyze

Urgency

-How quickly must I act on the information about the situation? -Will the window of opportunity be open for long? -Can the situation be addressed gradually?

Variations in decision-making style

-There is no 1 best decision making style that applies to all situations -Few people have only 1 dominant decision-making style, rather they show signs of 2 or 3 -Decision making styles vary with occupations, job level, and cultures

Panic

-get me outta here -This is so stressful, I've got to do something, anything, to get rid of the problem -Manager is frantic to get rid of the problem that he can't deal with the situation realistically

Defensive Avoidance

-resignation and denial -There is no reason for me to explore other solution alternatives -Manager can't find a good solution and follows by procrastinating, passing the buck, or denying the risk of any negative consequences

Relaxed Change

-satisficing -why not just take the easiest way out -manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk

Factors that facilitate participative management

-top management is continually involved -middle and supervisory managers are supportive -employees trust managers -employees are ready (properly trained/interested) -employees don't work in interdependent jobs -PM is implemented with TQM (total quality management)

4 Problems that can arise based on how members interact

1. A few people dominate or intimidate - a handful of people talk the longest or the loudest and others just give up 2. Groupthink - occurs when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situaiton 3. Satisficing - people just want to end the meeting so they stop caring 4. Goal displacement - occurs when the primary goal is subsumed by a secondary goal

Drawbacks of Intuition Model

1. Buy-in, it can be difficult to convince others that your hunch is correct 2. Intuition is subject to biases

Unrealistic assumptions of the rational model

1. Complete information with no uncertainty = you should obtain complete, error-free information about all alternative courses of action and the consequences that would follow from each choice 2. Logical, unemotional analysis = having no prejudices or emotional blind spots, you are able to logically evaluate the alternatives, ranking them from best to worst 3. Best decision for the organization = confident of the best future course of action, you coolly choose the alternative that you believe will most benefit the organization

4 Steps to Brainstorming

1. Have members of the group meet and review a problem 2. Individual members are asked to silently generate ideas 3. All ideas are collected and posted on a board (without identifying their contributor) 4. In a second session, the ideas are evaluated

8 hindrances to rational decision making described in bounded rationality

1. Information overload 2. Overwhelming complexity 3. limited cognitive capacity 4. imperfect information 5. limited time and money 6. priorities, values and habits 7. unconscious reflexes 8. conflicting goals

Benefits of Intuition Model

1. It can speed up decision making 2. It can be helpful to manager when information-gathering resources are limited

7 Implementation Principles of Evidence-Based Decision Making

1. Treat your organization as an unfinished prototype - Don't worry that your organization will be ruined by new ideas 2. No bragging, just facts - don't make assertions unless they correspond with the facts 3. See yourself and your organization as outsiders do - use beginner's mind or have a really blunt friend 4. Evidence-based management is not just for senior executives - the best organizations are those in which everyone is involved, not just the top managers 5. Like everything else, you still need to sell it - decision based on data can be boring, so you might have to use vivid examples to gain attention 6. If all else fails, slow the spread of bad practice - even when there is pressure to act, don't engage in practices are are ineffective 7. The best diagnostic question: What happens when people fail? - When something goes wrong, face the face, learn what happened and why, use this data for improvement

When a group can help in decision making

1. When it can increase quality (if additional information would increase the quality of the decision, managers should involve those people who can provide the needed information) 2. When it can increase acceptance (managers need to involve those individuals whose acceptance and commitment are important) 3. When it can increase development (if people can be developed through their participation, managers may want to involve those people whose development is important)

4 Steps of the delphi technique

1. facilitator sends out the question 2. facilitator compiles responses into an anonymous report 3. Distributes the report back to the participants 4. repeated until consensus is reached

Decision Tree

A graph of decisions and their possible consequences used to create a plan to reach a goal -road map to ethical decision making

Delphi Technique

A group process that uses physically dispersed experts who fill out questionnaires to anonymously generate ideas; the judgements are combined and in effect averaged to achieve a consensus of expert opinions

Participative Management (PM)

A process of involving employees in... a. setting goals b. making decisions c. solving problems d. making changes in the organization

Directive Decision Making Style

Action-oriented decision makers who focus on facts PRO: efficient, logical, practical, systematic CON: autocratic, use power & control, short run view Tolerance Ambiguity - low value orientation = task and technical concerns

Sunk cost bias

Adding up all the money already spent on a project and concluding it is too costly to simply abandon it -if you drive to a movie theatre, buy a ticket, and lose it, you will likely buy another ticket

Chauffeur-driven systems

Ask participants to answer predetermined questions on electronic keypads or dials and the results are tabulated instantly (clickers)

Analytical Decision Making Style

Careful decision makers who like lots of facts and choices PRO: respond well to new or uncertain situations CON: Take long, tend to overanalyze the situation Tolerance Ambiguity - high value orientation = task and technical concerns

Decision

Choice made from among available alternatives

Rational Decision Making

Classical model of decision making -explains how managers should make decisions -Assumes managers will make logical decisions that will be optimum in furthering the organization's interest

Predictive Modeling

Data-mining technique used to predict future behaviors and anticipate the consequences of change

Conceptual Decision Making Style

Decision makers who rely on intuition and have a long-term perspective PRO: willing to take risks, can find creative solutions CON: can be indecisive Tolerance Ambiguity - high value orientation = people & social concerns

Alternative to satisficing

Delay making a decision until all relevant information is collected & considered

4 decision making styles

Directive, analytical, conceptual, behavioral

Step 3 to Rational Decision Making

Evaluate Alternatives & Select a Solution What will it cost? What quality of outcome can you expect? Is it ethical? Is it feasible? Will it be effective?

Step 1 to Rational Decision Making

Identify the Problem or Opportunity (distinguishing actual vs. desirable) PROBLEMS = difficulties that inhibit goal achievement (customer complaints, supplier breakdowns, staff turnover, sales shortfalls, competitors) OPPORTUNITIES = situations that present possibilities for exceeding existing goals (your competitor's top sales person unexpectedly quits, you could hire him away for your rival) DIAGNOSIS = Analyzing the underlying causes of emergent problems or opportunities

Step 4 to Rational Decision Making

Implement & Evaluate the Solution Chosen IMPLEMENTATION = put your solution into action - plan carefully and be sensitive to those affected EVALUATION = be aware of unintended consequences = give it more time try another alternative, change it slightly, start over

3 effective reactions: deciding to decide

Importance, credibility, urgency

Portfolio analysis

Investment advisers evaluate the risks of various stocks

Group-driven systems

Involves a meeting within a room of participants who express their ideas anonymously on a computer network. Input is projected on a screen at the front of the room (Scale-up classrooms)

Warning with computer-aided decision making

Not likely to yield advantages for small groups between 4 and 6 people

Consensus

Occurs when members are able to express their opinions and reach agreement to support the final decision -You can reach consensus even if some members aren't completely on-board so long as they feel they had a fair opportunity to try and convince others of their opinion, regardless if it was successful -The final decision is an outcome that everyone can support, not that everyone agrees

Overconfidence bias

People's subjective confidence in their decision making is greater than their objective accuracy -students often predict that they will get a better grade in a course than they actually do

Other Types of Analytics

Predictive modeling, portfolio analysis, time-series forecast, data mining ("big data")

Bounded Rationality

Suggests that the ability of decision makers to be rational is limited by numerous constraints

Brainstorming

Technique used to help groups generate many ideas and alternative for solving problems

Automated Experiences

The involuntary emotional response (or feelings) related to a persona, situation, object, or opportunity

Behavioral Decision Making Style

The most people-oriented decision makers PRO: supportive, receptive to suggestions, warm CON: avoid conflict, have a hard time saying no Tolerance Ambiguity - low value orientation = people & social concerns

Framing bias

The tendency of people to be influenced by the way a situation or problem is presented to them -Consumers prefer meat that is labeled 85% lean rather than 15% fat

20-20 Hindsight bias

The tendency of people to view events as being more predictable than they really are -if you watch your team win, you might conclude that the outcome was obvious from the beginning

Explicit Knowledge

Well documented knowledge that is easy to share

relaxed avoidance

complacency -There is no point in doing anything, nothing bad is going to happen -Manager decides to take no action in the belief there will be no great negative consequences

Warning with Participation Management

doesn't work in all situations and takes time before improvements will be seen

Decision-making style

reflects the combination of how an individual perceives and responds to information

Ineffective responses to a decision situation

relaxed avoidance (complacency) relaxed change (satisficing) Defensive avoidance (resignation & denial) Panic (get me outta here)