Chapter 4 : Decision Making

What is Groupthink?

• An agreement-at-any-cost mentality that results in ineffective group decision making. • It occurs when groups:- - Are highly cohesive - Have directive leaders - No clear way - Little hope for better solution

Rational-Economic Model

• A prescriptive framework of how a decision should be made that assumes managers have completely accurate information. • Concentrates on how decisions should be made, not on how they actually are made

Models of Decision Making

Rational-Economic Model Behavioral Decision Model

Seven Steps in the Decision-Making Process

Step 1: Identifying Opportunities and Diagnosing Problems • The clear identification of opportunities or the diagnosis of problems that require a decision. • An assessment of opportunities and problems will only be as accurate as the information on which it is based. Step 2: Identifying Objectives • Objectives reflect the results the organization wants to attain. Also called targets, standards or ends. - The quantity and quality of the desired results should be specified, for these aspects will ultimately guide the decision maker in selecting the appropriate course of action. - Objectives can be measured on a variety of dimensions (monetary units, output per hour, % of defects, etc.) and whether the objectives are long-term versus short-term. Step 3: Generating Alternatives • Once an opportunity has been identified or a problem diagnosed correctly, a manager develops various ways to solve the problem and achieve objectives. • The alternatives can be standard and obvious as well as innovative and unique. Step 4: Evaluating Alternatives • Determining the value or adequacy of the alternatives generated. • Predetermined decision criteria may be used in the evaluation process. - Quality desired - Anticipated costs - Benefits - Uncertainties - Risks Step 5: Reaching Decisions • Decision making is commonly associated with making a final choice. • Although choosing an alternative would seem to be a straightforward proposition, in reality the choice is rarely clear-cut. Step 6: Choosing Implementation Strategies • The bridge between reaching a decision and evaluating the results. • The keys to effective implementation are: - Sensitivity to those who will be affected by the decision. - Proper planning and consideration of the resources necessary to carry out the decision. Step 7: Monitoring and Evaluating • No decision-making process is complete until the impact of the decision has been evaluated. • Managers must observe the impact of the decision as objectively as possible and take further corrective action if it becomes necessary.

Implications for Leaders

• Be able to recognize quickly problems and opportunities that call for a decision. • Be able to recognize the different time frames and scopes of strategic decisions versus operational decisions. • Be equipped with all the tools and techniques that can aid in making strategic decisions. • Be familiar with the framework for operational decision making as well as the structural components for displaying operational decisions. • Be able to recognize the different decision-making environments in which their operational decisions will be made. • Have an awareness and understanding of the various quantitative tools that can aid in making operational decisions.

Concepts Important to the Decision Model

• Bounded Rationality - Recognizes that people are limited by organizational constraints such as time, information, resources, and their own mental capabilities. • Intuition - An unconscious analysis based on past experience. Concepts Important to the Decision Model • Satisficing - The search and acceptance of something that is satisfactory rather than perfect or optimal. • Escalation of Commitment - The tendency to increase commitment to a previously selected course of action beyond the level that would be expected if the manager followed an effective decision-making process.

Making Decisions: The Rational Model

• Certainty - The implication that the outcome of every possible alternative is known. • Uncertainty - A condition under which there is not full knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined. • Risk - The probability that a particular outcome will result from a given decision.

Sources of Organizational and Entrepreneurial Decisions

• Decision making - The process through which managers and leaders identify and resolve problems and capitalize on opportunities. • Problem - A condition that occurs when some aspect of organizational performance is less than desirable. • Opportunity - Any situation that has the potential to provide additional beneficial outcomes.

Group Considerations in Decision Making

• Group decision making is becoming more common as organizations focus on improving customer service and push decision making to lower levels. Techniques for Quality in Group Decision Making • Brainstorming • Nominal Group Technique • Delphi Technique Brainstorming • Brainstorming - A technique to enhance creativity by encouraging group members to generate as many novel ideas as possible on a given topic without evaluating them. • Rules of Brainstorming - Freewheeling is encouraged. - Ideas are not criticized as they are being generated. - Quality is encouraged. - The wilder the ideas, the better. - Piggyback on previously stated ideas. - Ideas are evaluated after alternatives are generated. Other Decision-Making Techniques • Nominal Group Technique (NGT) - A structured process designed to stimulate creative group decision making where agreement is lacking or the members have incomplete knowledge concerning the nature of the problem. • Delphi Technique - Uses experts to make predictions and forecasts about future events without meeting face-to-face.

Drawbacks of the Rational-Economic Model

• In practice, the model may not always be a realistic depiction of decision environments and managerial behavior. - Leaders rarely have access to perfect information. - Even if perfect information was available, decision makers are limited in their ability to comprehend and process vast amounts of information. - Decision makers seldom have adequate knowledge about future consequences of alternatives. - Personal factors such as fatigue, emotions, attitudes, motives of behaviors intervene to prevent a decision maker from always acting in a completely rational manner. - Individual culture and ethical values will influence the decision process.

Assumptions of Rational-Economic Model

• Managers have "perfect information." • Managers attempt to accomplish objectives that are known and agreed upon and have an extensive list of alternatives to choose from. • Managers are rational, systematic, and logical in assessing alternatives and their associated probabilities. • Managers work in the best interests of their organizations. • Ethical decisions do not arise in the decision-making process.

Types of Decision Making

• Programmed decision - A decision made in response to a situation that is routine or recurring. - Example: leave application • Nonprogrammed decision - A decision made in response to a situation that is unique, unstructured, or poorly defined. - Example: SAR MH370

Behavioral Decision Model

• Unlike the rational-economic model, the behavioral decision-making model acknowledges human limitations that make rational decisions difficult to achieve. • The behavioral decision model suggests that a person's cognitive ability to process information is limited. • The model suggests that managers usually attempt to behave rationally within their limited perception of a situation. • However, most organizational situations are so complex that managers are forced to view problems within sharply restricted bounds. • Thus, the manager's behavior can be considered rational, but only in terms of their simplified view of the problem.