Chapter 8: DECISION MAKING AND PROBLEM SOLVING

Decision making - The process of choosing from among several alternatives

Problem solving - Finding the answer to a question

Types of Decisions

1. Programmed Decision
- A decision that recurs often enough for a decision rule to be developed
2. Nonprogrammed decision
- A decision that recurs infrequently and for which there is no previously established
decision rule

Decision Rule - A statement that tells a decision maker which alternative to choose based on the
characteristics of the decision situation

Decision-Making Conditions

1. Condition Of Certainty
- Manager knows what the outcomes of each alternative of a given action will be and has
enough information to estimate the probabilities of various outcomes
2. Condition Of Risk
- The decision maker cannot know with certainty what the outcome of a given action will
be but has enough information to estimate the probabilities of various outcomes
3. Condition Of Uncertainty
- The decision maker lacks enough information to estimate the probability of possible
outcomes

Rational Decision-Making Approach

- A systematic, step-by step process for making decisions

Steps in Rational Decision Making

1. State the Situational Goal 5. Evaluate Alternatives

2. Identify the Problem 6. Choose an Alternative
3. Determine the Decision Type 7. Implement the Plan
4. Generate Alternatives 8. Control: Measure and Adjust

Contingency Plans

- Alternative actions to take if the primary course of action is unexpectedly disrupted or

rendered inappropriate
Post-Decision Dissonance

- Doubt about a choice that has already been made

Strengths and Weaknesses of the Rational Approach

Strengths

- Forces decision in a logical, sequential manner

- In-depth analysis enables the decision maker to choose on the basis of information rather
than emotion or social pressure

Weaknesses

- Rigid underlying assumptions often unrealistic

- Information limited by time or cost constraints, manager’s ability to process information
- Not all alternatives easily quantified
- Outcomes unknown due to unpredictability of future

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 five basic “principles”:
1. Facing the hard facts and building a culture in which people are encouraged to tell the
truth, even if it’s unpleasant
2. Being committed to “fact-based” decision making—getting the best evidence and using
it to guide actions
3. Treating your organization as an unfinished prototype—encouraging experimentation
and learning by doing
4. Looking for the risks and drawbacks in what people recommend (even the best
medicine has side effects)
5. Avoiding basing decisions on untested beliefs, what was done in the past, or uncritical
“benchmarking” of what winners do

Administrative Model

- Describes how decisions often actually are made

Administrative Model of Decision Making

- Argues that managers use bounded rationality, rules of thumb, suboptimizing, and
satisficing in making decisions
 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
of 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

Political Forces in Decision Making

1. 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
- The extent to which a decision maker is willing to gamble in making a decision
5. Ethics
- A person’s beliefs about what constitutes right and wrong behavior

Prospect Theory

- Argues that when people make decisions under a condition of risk, they are more motivated
to avoid losses than they are to seek gains

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 a group are deeply involved in a cohesive
in-group, and the desire for unanimity offsets their motivation to appraise alternative
courses of action
 Symptoms of groupthink

- Illusion of vulnerability
- Rationalizing or discounting warnings
- Unquestioned belief in the group’s morality and ethics
- Stereotyped views of “the enemy”
- Pressure against alternative opinions
- Shared illusion of unanimity due to self-censorship
- Self-censorship of deviations from the apparent group
- Self-appointed “mind guards”

Participation

- To what degree should employees be involved in the decision-making process?

- Better solutions in “judgmental tasks”
- Produces more and better solutions in complex problem-solving tasks
- Creates a greater interest in the task
- Higher risk of polarization and groupthink
- Also related to organizational structure

Group Problem Solving

1. Brainstorming
- technique used in the idea-generation phase of decision making that assist in development
of numerous alternative courses of action
2. Nominal group technique
- members generate many ideas, discuss them, and then vote—repeating the cycle until they
reach a decision
3. Delphi technique
- a method of systematically gathering judgments of experts for use in developing forecasts

Creativity

- A person’s ability to generate new ideas or to conceive of new perspectives on existing

ideas

Creative individuals share three traits

1. Background Experiences and Creativity

- creativity was nurtured
2. Personal Traits and Creativity
- Certain personal traits have also been linked to creativity in individuals.
3. Cognitive Abilities and Creativity
- an individual’s power to think intelligently and to analyze situations and data effectively

The Creative Process

1. Preparation
- Usually, the first stage in the creative process, includes education and formal training
2. Incubation
- The stage of less-intense conscious concentration during which a creative person lets the
knowledge and ideas acquired during preparation mature and develop
3. Insight
- The stage in the creative process in which all the scattered thoughts and ideas that were
maturing during incubation come together to produce a breakthrough
4. Verification
- The final stage of the creative process, the validity or truthfulness of the insight is
determined