CHAPTER 8 DECISION MAKING CONDITIONS

DECISION MAKING AND PROBLEM SOLVING 1. Condition of Certainty

I. THE NATURE OF DECISION MAKING - manager knows what the outcomes of each
1. Decision Making alternative of a given action will be and has
- process of choosing one alternative from enough information to estimate the
among several probabilities or various outcomes
2. Problem Solving 2. Condition of Risk
- involves finding the answer to a question - the decision maker cannot know with
- special form of decision making in which the certainty what the outcome of a given action
issue id unique; it often requires developing will be but has enough information to
and evaluating alternatives w/o the aid of a estimate the probabilities of various
decision rule outcomes
3. Elements of Decision Making 3. Condition of Uncertainty
- a decision maker’s actions are guided by a - the decision maker lacks enough information
goal to estimate the probability of possible
- each of several alternative courses of outcomes
action is linked with various outcomes Figure 8.2 (last page)
- Information is available on the alternatives, II. THE RATIONAL APPROACH TO
outcomes and on the value of each outcome DECISION MAKING
relative to the goal ➢ Rational Decision-Making Approach
- Decision maker chooses one alternative on - assumes that managers follow a systematic,
the basis of his evaluation of the information step-by-step process
FIGURE 8.1 (last page) - assumes that organization is dedicated to
TYPES OF DECISIONS making logical choices and doing what
1. Programmed Decision makes the most sense economically & it is
- a decision that recurs often enough for a managed by decision makers who are
decision rule to be developed entirely objective and have complete
- are highly structured; goals are clear and well information
known, decision making procedure is already STEPS IN RATIONAL DECISION MAKING
established and sources and channels of 1. State the Situational Goal – a goal for a
information are clearly defined particular situation
Decision Rule 2. Identify the Problem – to gather information
- a statement that tells a decision maker which that bears on the goal
alternative to choose based on the 3. Determine Decision Type – whether the
characteristics of the decision maker problem represent programmed or
- appropriate decision rule is used whenever nonprogrammed decision
the same situation is encountered 4. Generate Alternatives – decision makers may
2. Nonprogrammed Decision rely o education, experience & knowledge of the
- a decision that recurs infrequently and for situation to generate alternatives
which there is no previously established 5. Evaluate Alternatives – assessing all possible
decision rule alternatives in terms of predetermined decision
- requires problem solving criteria (Will this alternative bring us nearer to
- poorly structured as information is the goal?)
ambiguous, no clear procedure for decision 6. Choose an Alternative – most crucial step in
making and goals are often vague the decision-making process
TABLE 8.1 Characteristics of Programmed and Difficulties in choosing an alternative:
Nonprogrammed Decisions ➢ 2 or more alternatives have equal payoffs
Characteristics Programmed Nonprogrammed ➢ No single alternative will accomplish the
Type of Well Poorly structured objective
decision structured ➢ If no alternative or combination of
Frequency Repetitive & New & unusual alternatives will solve the problem
routine Important part of choice phase is the consideration
Goals Clear, Vague of:
specific Contingency Plans – alternative actions to take if
Information Readily Not available, the primary course of action is unexpectedly
available unclear channels disrupted or rendered inappropriate
Consequences Minor Major (It is part of the transition between choosing the
Organizational Lower levels Upper levels preferred alternative and implementing it.)
Level 7. Implement the Plan
Time for Short Relatively long - puts the decision into action
Solution - builds on the commitment and motivation of
Basis for Decision Judgement & those who participated in the decision-
Solution rules, set creativity making process
procedures
To succeed:
➢ Implementation requires the proper use of
resources and good management skills
8. Control: Measure and Adjust
- outcomes of the decision are measured and
compared with the desired goal
- if discrepancy remains, the decision maker
may restart the decision-making process by
setting a new goal
- decision maker, unsatisfied with the previous
decision, may modify the subsequent
decision-making process to avoid another
mistake
Strengths and Weaknesses of the Rational
Approach
Strengths:
✓ forces the decision maker to consider a
decision in a logical, sequential manner, and
in-depth analysis of alternatives enables the
decision maker to choose the basis of
information rather than emotion or social
pressure
Weaknesses:
 rigid assumptions of this approach often are
unrealistic
 amount of information available to managers
are usually limited by either time or cost
constraints,
 most decision makers have limited ability to
process information about the alternatives
 not all alternatives lend themselves to
quantification in terms that will allow for easy
comparison
 they cannot predict the future; it is unlikely
that decision makers will know all possible
outcomes of each alternative
EVIDENCE-BASED DECISION MAKING
Evidence-Based Management (EBM)
- the commitment to identify and utilize the
best theory and data available to make
decisions
Advocates of this approach encourage the use of 5
basic “principles”:
➢ Face the hard facts and build a culture in w/c
people are encouraged to tell the truth, even
if it’s unpleasant
➢ Be committed to “fact-based” decision
making – w/c means being committed to
getting the best evidence and using it to
guide actions
➢ Treat your organization as an unfinished
prototype- encourage experimentation and
learning by doing so
➢ Look for the risks and drawbacks in what
➢ people recommend
➢ Avoid basing decisions on untested but
strongly held beliefs, what you have done in
the past, or uncritical “benchmarking” pf what
winners do
III. THE BEHAVIORAL APPROACH TO
DECISION MAKING
➢ Herbert A. Simon
- one of the first experts to recognize that
decisions are not always made with
rationality and logic
➢ Administrative Model of Decision Making
- argues that managers use bounded
rationality, rules of thumb, suboptimizing and
satisficing in making decisions
THE ADMINISTRATIVE MODEL
Characterized by:
1. use of procedures and rules of thumb
2. suboptimizing
3. satisficing
➢ Bounded Rationality
- idea that decision makers cannot deal with
information about all the aspects and
alternatives pertaining to a problem and
therefore choose to tackle some meaningful
subset to it
➢ Suboptimizing
- knowingly accepting less than the best
possible outcome to avoid unintended
negative effects on other aspects of the
organization
➢ Satisficing
- examining alternatives only until a solution
that meets minimal requirements is found
OTHER BEHAVIORAL FORCES IN DECISION
MAKING
1. Political Forces in Decision Making
→ Coalition – an informal alliance of individuals
or groups formed to achieve a common goal
2. Intuition
→ an innate belief about something without
conscious consideration
3. Escalation of Commitment
→ occurs when a decision maker stays with a
decision even when it appears to be wrong
4. Risk Propensity and Decision Making
→ Risk Propensity – the extent to which a
decision maker is willing o gamble in making
a decision
5. Ethics and Decision Making
→ Ethics – a person’s beliefs about what
constitutes right and wrong behavior
6. Prospect Theory and Decision Making
→ Prospect Theory – argues that when people
make decisions under a condition of risk they
are more motivated to avoid losses that they
are to seek again
AN INTEGRATED APPROACH TO DECISION
MAKING
→ combination of rational and behavioral
approach
Figure 8.4 (last page)
IV. GROUP DECISION MAKING IN
ORGANIZATIONS
➢ Group Polarization
- the tendency for a group’s average post
discussion attitudes to be more extreme than
its average pre-discussion attitudes
➢ Groupthink
- a mode of thinking that occurs when
members of group are deeply involved in a
cohesive in-group and the desire for
unanimity offsets their motivation to appraise
alternative courses of action
Figure 8.5 (last page)
SYMPTOMS OF GROUPTHINK
1. An illusion of invulnerability, shared by most
or all members, that creates excessive
optimism and encourages extreme risk
taking
2. Collective efforts to rationalize or discount
warnings that might lead members to
reconsider assumptions before recommitting
themselves past policy decisions
3. An unquestioned belief in the group’s
inherent morality, inclining members to
ignore the ethical and moral consequences
of their decisions
4. Stereotyped views of ”enemy” leaders as too
evil to warrant genuine attempts to negotiate
or as too weak or stupid to counter whatever
risky attempts are made to defeat their
purposes
5. Direct pressure on a member who expresses
strong arguments against any of the group’s
stereotypes, illusions, or commitments,
making clear that such dissent is contrary to
what is expected of loyal members
6. Self-censorship of deviations from the
apparent group consensus, reflecting each
member’s inclination to minimize the
importance of his or her doubts and
counterparts
7. A shared illusion of unanimity, resulting partly
from self-censorship of deviations,
augmented by the false assumption that
silence means consent
8. The emergence of self-appointed
“mindguards, members who protect the
group from adverse information that might
shatter their shared complacency about the
effectiveness and morality of their decisions
3 Primary Conditions that Foster Development of
Groupthink:
❖ Cohesiveness
❖ Leader’s promotion of his/her preferred
solution
❖ Insulation of the group’s experts’ opinion
DECISION MAKING DEFECTS AND DECISION
QUALITY
- when groupthink dominates group
deliberations, the likelihood increases that
decision-making defects will occur
- the group is less likely to survey a full range
of alternatives and may focus on only a few
(1 or 2)
- group may not reexamine previously rejected
alternatives for nonobvious gains or some
means of reducing apparent costs even
when they receive new information
- group may reject expert opinions that run
counter to its own views and may choose to
consider only information that supports its
preferred solution
- defects in decision making do no always lead
to bad outcomes or defects
- decisions provided by defective processes
are less likely to succeed
PRESCRITIONS FOR PREVENTING
GROUPTHINK
A. Leader Prescriptions
1. Assign everyone the role of critical evaluator
2. Be impartial; do not state preferences
3. Assign the devil’s advocate role to at least
one group member
4. Use outside experts to challenge the group
5. Be open to dissenting points of view
B. Organizational Prescriptions
1. Set up several independent groups to study
the same issue
2. Train managers and group leaders in
groupthink prevention techniques
C. Individual Prescriptions
1. Be a critical thinker
2. Discuss group deliberations with a trusted
outsider; report back to the group
D. Process Prescriptions
1. Periodically break the group into subgroups
to discuss the issues
2. Take time to study external factors
3. Hold second0chance meetings to rethink
issues before making a commitment
PARTICIPATION
- A major issue on group decision making is
the degree to which employees should
participate in the process
- In tasks that require estimation (judgmental
tasks), groups typically are superior to
individuals simply because more people
contribute to the decision-making process
- An advantage of group decision making is
that it often creates greater interest in the
task.
- Heightened interest may increase the time
and effort given in the task; resulting in more
ideas, a more thorough search for solutions,
better evaluation of alternatives and
improved decision quality
- Participation in decision making is also
related to organizational structure
GROUP PROBLEM SOLVING
➢ Brainstorming
- a technique used in the idea-generation
phase of decision making that assists in
development of numerous alternative
courses of actions
➢ Nominal Group Technique
- group members follow a generate-discuss-
vote cycle until they reach a decision
➢ Delphi Technique
- a method of systematically gathering
judgements of experts for use in developing
forecasts
V. CREATIVITY, PROBLEM SOLVING,
AND DECISION MAKING
➢ Creativity
- a person’s ability to generate new ideas or to
conceive of new perspectives on existing
ideas
THE CREATIVE INDIVIDUAL
❖ Background Experiences and Creativity
- many creative individuals were raised in an
environment in which creativity was nurtured
❖ Personal Traits and Creativity
- traits shared by most creative people is
openness

❖ Cognitive Abilities and Creativity

- intelligence may be a precondition for
individual creativity but not all intelligent
people are creative
THE CREATIVE PROCESS
1. Preparation
- a period of education, formal-thinking and
on-the-job experience
2. Incubation
- a period of less intense conscious
concentration
- make knowledge acquired during
preparation mature and develop
3. Insight
- a spontaneous breakthrough to achieve a
new understanding
4. Verification
- a test of the validity or truthfulness of the
insight
ENHANCING CREATIVITY IN ORGANIZATION
1. To make it part of the organization’s culture,
often through explicit goals
- Creativity and innovation are valued
2. To reward creative successors, while being
careful to not punish creative failures
- many ideas that seem worthwhile on paper
fail to pan out in reality
- if the first person to come up with an idea
failed or gets fired, others in the organization
will become more cautious in their own work
resulting to fewer creative ideas to emerge