Making Decisions

Chapter Ten

Copyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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After reading the material in this chapter, you should be able to:

• Compare and contrast the rational model of decision making, Simon’s normative model, and the garbage can model

• Identify common decision-making biases.• Discuss knowledge management techniques used by

companies to increase knowledge sharing.• Describe the model of decision-making styles, the role of

intuition in decision-making and the stages of the creative process.

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

• Contrast brainstorming, the nominal group technique, the Delphi technique, and computer-aided decision making.

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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 - proposes that managers use a logical four-

step approach to decision making.

1.Identifying the problem2.Generating alternative solutions3.Selecting a solution4.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

Methods for Identifying Problems

1. Assume the recent past is the best estimate of the future

2. Use projections or scenarios3. Rely on the perceptions of others

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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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Question?

Gloria is never happy with "good enough" solutions. She is determined to find the best possible solution in solving her problems. What Gloria is doing is described as

A.OptimizingB.BrainstormingC.RationalizingD.Satisfying

Nonrational Models of Decision Making

• Nonrational models - decision models that explain how decisions

are actually made

1.Decision making is uncertain2.Decision makers do not possess complete

information3.Difficult for managers to make optimal

decisions

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Simon’s Normative Model

• Bounded rationality - constraints that restrict rational decision

making

• Satisficing - choosing a solution that meets a minimum

standard of acceptance

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Simon’s Normative Model

Most frequent causes of poor decision making

• Poorly defined processes and practices• Unclear company vision, mission, and goals• Unwillingness of leaders to take responsibility• Lack of reliable, timely information

Garbage Can Model

• Garbage Can Model - decision making is sloppy and haphazard- decisions result from complex interaction of

four streams of events: problems, solutions, participants and choice opportunities

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Implications of the Garbage Can Model

1. Many decisions are made by oversight2. Political motives frequently influence

decision makers3. Decision making process is difficult to

load4. Important decisions are more likely to be

solved

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Decision-Making Biases

• Judgmental heuristics - rules of thumb or shortcuts that people use to

reduce information processing demands.

Decision-Making Biases

• Availability heuristic• Representativeness heuristic• Confirmation bias• Anchoring bias• Overconfidence bias• Hindsight bias• Framing bias• Escalation bias

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Question?

From January to October, Jamie's work performance was at best mediocre. In November and December, he significantly picked up his performance and did an excellent job. His supervisor evaluated him as outstanding performer. This can be explained partially due to the

A.Escalation of commitment effect.B.Representativeness heuristicC.Nominal group effect.D.Availability heuristic.

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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

Read an article on

Knowledge Management

Knowledge Management

• 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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Question?

Mike has been a top salesman for 20+ years. He has developed a reputation as one who can close a deal, but has been unable to teach new trainees how to be as successful. This is called ________ knowledge.

A.ImplicitB.ExplicitC.TacitD.Unstated

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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

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Intuition in Decision Making

• Intuition - a capacity for attaining direct knowledge

without the apparent intrusion of rational thought or logical interference

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A Model of Intuition

• Holistic hunch - judgment that is based on a subconscious

integration of information stored in memory

• Automated experiences - choice based on a familiar situation and a

partially subconscious application of previously learned information related to that situation

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A Model of Intuition

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Figure 10-2

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Creativity

• Creativity - process of using intelligence, imagination, and

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

Question?

Dominick has a low tolerance for ambiguity and is generally oriented towards task and technical concerns when making decisions. Dominick can be described as having which decision-making style?

A.DirectiveB.AnalyticalC.ConceptualD.Behavioral

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Group Involvement

• Minority dissent - extent to which group members feel

comfortable disagreeing with other group members, and a group’s level of participation in decision making

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Advantages and Disadvantages of Group-Aided Decision Making

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Question?

Jeanie has many good ideas for her work group, but is unwilling to bring them up for group consideration. She is more concerned about conforming to group norms and not “rocking the boat”. This is due to ___________.

A. Different perspectivesB. Social pressureC. GroupthinkD. Increased acceptance

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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 judgment2. Build on the ideas of others3. Encourage wild ideas4. Go for quantity over quality5. Be visual6. Stay focused on the topic7. 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

Question?

Dana has project employees working in New York, South Carolina, Texas, and California. She wants to get them together as a group to discuss ways to improve the work process. She will probably use ___________.

A.Delphi techniqueB.Nominal group techniqueC.Garbage can techniqueD.Ostensible group technique

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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

Supplemental Slides

• Slides 40-45 contain extra non-text examples to integrate and enhance instructor lectures

- Slide 40-41: Making Tough Calls- Slide 42: Garbage Can Model of Organizational

Decision-Making- Slide 43: Decision Making Pitfalls- Slide 44-45: Video discussion slides

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Making Tough Calls

• Jim Collins – studied the inner workings of organizations to understand how they became great

• People decisions are most important- Making the right choices on who to can

adapt to a changing environment has more long term impact than decisions about strategy.

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Making Tough Calls

• Once good people are in place, how do you make good decisions?- Strive for conflict, challenging assumptions and

ways of thinking

• Consensus is not necessary- Once an issue has been debated the leader

needs to make the decision- Having the right people in place means they’ll

get behind a decision even if there is still some disagreement

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Garbage Can Model of Organizational Decision-Making

Problems

Solutions

Participants

Choice opportunities

Problems

Solutions

Participants

Choice opportunities

Problems

Solutions

Participants

Choice opportunities

A

B

Decision Making Pitfalls

• Pitfall: Analysis paralysis- Device: the 70% solution

• Pitfall: Sunk-cost syndrome- Device: Burn the boat

• Pitfall: Yes-man echoes- Device: Voice questions, not opinions

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Video: Leadership: Making Decisions During Hurricane Katrina

• What roadblocks to using a rational decision making model were placed before the Sister’s in this case? Could anything have been done to make their decisions easier?

• Identify how intuition and creativity helped the Sisters in the decisions they had to make.

• Without the ability to communicate or have the resources they normally had at their disposal, what did the Sister’s rely on in making the decisions they needed to make?

• Why was timely decision making so essential in this case?

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Video Case: Columbia Space Shuttle Disaster

• What has seemed to be the major problem facing NASA? Apply your knowledge of group dynamics to identify the problem.

• What must NASA accomplish to ensure the vitality of the space program? Has groupthink accounted for some of NASA’s problems? If so, what symptoms can you identify?

• What challenges has NASA faced in changing its culture? How can many different groups be brought together to work toward a common goal?

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