Chapter Seven Individual Group Decision Making Decision Making

Chapter Seven Individual & Group Decision Making

Decision Making Defined v Decision: is a choice made from among available alternatives. v Decision Making: is the process of identifying and choosing alternative courses of action. Types of Decisions v Programmed Decisions: are repetitive and routine. v Nonprogrammed Decisions: are those that occur under nonroutine, unfamiliar circumstances. Decision Making Style: reflects the combination of how an individual perceives and responds to information. Rational Decisions Rational Model of Decision Making: also called the classical model explains how managers should make decisions; it assumes managers will make logical decisions that will be optimum in furthering the organization’s best interests. The Rational Model is based on unrealistic assumptions: v Complete information, no uncertainty v Logical, unemotional analysis, v Best Decision for the organization Nonrational Decision Making Nonrational models of decision making: explain how managers do make decisions; they assume the decision making is nearly always uncertain and risky, making it difficult for managers to make the optimum decisions. v Nonrational Models are: v Satisficing v Incremental Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Tolerance for ambiguity Decision Making Styles Analytical Conceptual Directive Behavioral Task & technical concerns People & social concerns High Low Value Orientation Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Four Steps in Rational Decision Making Stage 1 Stage 2 Stage 3 Stage 4 Identify the problem or opportunity Think up alternative solutions Evaluate alternatives & select a solution Implement & evaluate the solution chosen Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved.

Making Better Decisions Through Knowledge Management v Explicit Knowledge: information that can be easily put into words. v Tacit knowledge: individual based, intuitive, acquired through considerable experience, and hard to express and to share. Advantages & Disadvantages of Group Decision Making Advantages Disadvantages Greater pool of knowledge A few people dominate or intimidate Different perspectives Groupthink Intellectual stimulation Satisficing Better understanding of decision rationale Deeper commitment to the decision Mc. Graw-Hill/Irwin Goal displacement © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Ethical Decision Tree Yes Do it. Is it ethical? Yes No Does it maximize shareholder value? Is the proposed action legal? No No Don’t do it. Yes Don’t do it. Would it be ethical not to take action? No Mc. Graw-Hill/Irwin Don’t do it. Do it. © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved.

What Managers Need to know about Groups & Decision Making 1) They are less efficient 2) Their size affects decision quality 3) They may be too confident 4) Knowledge counts. When a Group Can Help in Decision Making 5) When it can increase quality 6) When it can increase acceptance 7) When it can increase development Participative Management v Participative Management: the process of involving employees in setting goals, making decisions, solving problems, and making changes in the organization. Factors that Can Help Participative Management Work v Top management is continually involved v Middle and supervisory managers are supportive v Employees trust managers v Employees are ready v Employees don’t work in interdependent jobs v PM is implemented with TQM More Group Problem Solving Techniques v Interacting group v Nominal group v Delphi group v Computer aided decision making

How Do Individuals Respond to a Decision Situation? v Effective Responses: v Importance v Credibility v Urgency Ineffective Responses: v Relaxed avoidance v Relaxed change v Defensive avoidance v Panic Decision Making Biases v Availability bias v Representativeness bias v Anchoring and adjustment bias