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Decision Making: How Individuals and Groups

Arrive at Decisions

Copyright © 2008 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinOrganizational Behavior, Core Concepts

7Organizational Behavior

core concepts

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Learning Objectives

• Compare the rational model of decision making with Simon’s normative model.

• Discuss knowledge management and ways that companies increase knowledge sharing.

• Explain the model of decision-making styles and the stages of the creative process.

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Learning Objectives

• Summarize pros and cons of involving groups in the decision-making process.

• Explain how participative management affects performance.

• Describe techniques used to improve the quality of group decisions

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Models of Decision Making

• Decision making – identifying and choosing solutions that lead

to a desired result

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Models of Decision Making

• The Rational Model – logical four-step approach to decision

making.

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The Rational Model

1. Identifying the problem

2. Generating alternative solutions

3. Selecting a solution

4. Implementing and evaluating the solution

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Rational Model

• Identifying the Problem– Problem – exists when the actual situation

and the desired situation differ

• Generating Solutions– For routine decisions alternatives are readily

available through decision rules

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Rational Model

• Selecting a Solution– Want to maximize the expected utility of an

outcome– People vary in their preferences for safety or

risk– Ethics should be considered

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Rational Model

• Selecting a Solution– Evaluating alternatives assume they can be

judged according to some criteria– Assumes valid criteria exists– Each alternative can be compared to these

criteria– Decision maker actually uses the criteria

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Rational Model

• Implementing and Evaluating the Solution– After solution is implemented, the evaluation

phase is used to evaluate its effectiveness– Optimizing – choosing the best possible

solution

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Simon’s Normative Model

Decision making is characterized by:

1. Limited information processing

2. Use of judgmental heuristics

3. Satisficing

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Simon’s Normative Model

• Bounded rationality – constraints that restrict decision making

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Simon’s Normative Model

Limited Information Processing

• Tendency to acquire manageable rather than optimal amounts of information

• Difficult for managers to identify all possible alternative solutions

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Question?

What is a rule of thumb that people use to reduce information processing demands?

A. Decision maker

B. Judgmental heuristics

C. Judgmental verdict

D. Decision conclusion

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Simon’s Normative Model

• Judgmental heuristics – rules of thumb or shortcuts that people use

to reduce information processing demands.

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Simon’s Normative Model

• Availability heuristic – tendency to base decisions on information

readily available in memory.

• Representativeness heuristic– tendency to assess the likelihood of an

event occurring based on impressions about similar occurrences.

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Simon’s Normative Model

• Satisficing – choosing a solution that meets a minimum

standard

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Dynamics of Decision Making

• Knowledge management – implementing systems and practices that

increase the sharing of knowledge and information throughout an organization

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Forms of Knowledge

• Tacit knowledge – information gained through experience that

is difficult to express and formalize.

• Explicit knowledge

– information that can be easily put into words and shared with others.

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General Decision Making Styles

• Decision making styles – combination of how individuals perceive and

respond to information

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General Decision Making Styles

• Value orientation – reflects the extent to which an individual

focuses on either task and technical concerns or people and social concerns when making decisions

• Tolerance for ambiguity – extent to which a person has a high need for

structure or control in his life

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Decision Making Styles

Figure 7-1

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Escalation of Commitment

• Escalation of commitment– sticking to an

ineffective course of action too long

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Escalation of Commitment

Psychological and Social Determinants

1. Tend to bias facts so that they support previous decisions

2. Take more risks when a decision is stated in negative terms

3. Get too ego-involved with the project

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Escalation of Commitment

Organizational Determinants

• Breakdowns in communication

• Workplace politics

• Organizational inertia

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Escalation of Commitment

Project Characteristics

• Tendency to attribute setbacks to temporary causes that are correctable with additional expenditures

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Escalation of Commitment

Contextual determinants

• Culture of the decision makers

• Political climate of the escalation situation

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Recommendations To Reduce Escalation of Commitment• Set minimum targets for performance,

and have decision makers compare their performance with these targets.

• Have different individuals make the initial and subsequent decisions about a project.

• Encourage decision makers to become less ego-involved with a project.

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Recommendations To Reduce Escalation of Commitment• Provide more frequent feedback about

project completion and costs.

• Reduce the risk or penalties of failure.

• Make decision makers aware of the costs of persistence.

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Question?

What is the process of using imagination to develop a new process?

A. Originality

B. Innovation

C. Creativity

D. Resourcefulness

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Creativity

• Creativity – process of using intelligence, imagination,

and skill to develop a new or novel product, object, process, or thought

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Stages of the Creative Process

• Preparation

• Concentration

• Incubation

• Illumination

• Verification

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Group Involvement

• Minority dissent – extent to which group members feel

comfortable disagreeing with other group members, and the extent to which group members participate in decision making

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Advantages and Disadvantages of Group-Aided Decision Making

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Participative Management

• Participative Management – involving employees in various forms of

decision making• Setting goals• Making decisions• Solving problems• Making changes in the organization

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Group Problem Solving Techniques• Consensus

– presenting opinions and gaining agreement to support a decision

• Brainstorming – process to generate a quantity of ideas

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Rules for Brainstorming

1. Defer judgment

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

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Group Problem Solving Techniques• Nominal Group Technique

– process to generate ideas and evaluate solutions.

• Delphi technique – process to generate ideas from physically

dispersed experts

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Group Problem Solving Techniques• Computer-aided decision making

– reduces consensus roadblocks while collecting more information in a shorter period of time

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Computer-aided Decision Making

• Chauffeur-driven systems – ask participants to answer predetermined

questions on electronic keypads

• Group-driven meetings – conducted in special facilities equipped with

individual workstations that are networked to each other