Chapter Ten Making Decisions Mc GrawHillIrwin Copyright 2010

Chapter Ten Making Decisions Mc. Graw-Hill/Irwin Copyright © 2010 The Mc. Graw-Hill Companies, Inc. All rights reserved.

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. 10 -2

Models of Decision Making • Decision making - identifying and choosing solutions that lead to a desired result 10 -3

Models of Decision Making • The Rational Model - proposes that managers use a logical fourstep approach to decision making. 1. Identifying the problem 2. Generating alternative solutions 3. Selecting a solution 4. Implementing and evaluating the solution 10 -4

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 10 -5

Methods for Identifying Problems 1. Assume the recent past is the best estimate of the future 2. Use projections or scenarios 3. Rely on the perceptions of others 10 -6

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 10 -7

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 10 -8

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 10 -9

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. B. C. D. Optimizing Brainstorming Rationalizing Satisfying 10 -10

Nonrational Models of Decision Making • Nonrational models - decision models that explain how decisions are actually made 1. Decision making is uncertain 2. Decision makers do not possess complete information 3. Difficult for managers to make optimal decisions 10 -11

Simon’s Normative Model • Bounded rationality - constraints that restrict rational decision making • Satisficing - choosing a solution that meets a minimum standard of acceptance 10 -12

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 10 -13

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 10 -14

Implications of the Garbage Can Model 1. Many decisions are made by oversight 2. Political motives frequently influence decision makers 3. Decision making process is difficult to load 4. Important decisions are more likely to be solved 10 -15

Decision-Making Biases • Judgmental heuristics - rules of thumb or shortcuts that people use to reduce information processing demands. 10 -16

Decision-Making Biases • Availability heuristic • Representativeness heuristic • Confirmation bias • Anchoring bias • Overconfidence bias • Hindsight bias • Framing bias • Escalation bias 10 -17

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. B. C. D. Escalation of commitment effect. Representativeness heuristic Nominal group effect. Availability heuristic. 10 -18

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 10 -19

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. 10 -20

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. Implicit B. Explicit C. Tacit D. Unstated 10 -21

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 10 -22

Decision Making Styles Figure 10 -1 10 -23

Intuition in Decision Making • Intuition - a capacity for attaining direct knowledge without the apparent intrusion of rational thought or logical interference 10 -24

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 10 -25

A Model of Intuition Figure 10 -26

Creativity • Creativity - process of using intelligence, imagination, and skill to develop a new or novel product, object, process, or thought 10 -27

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. B. C. D. Directive Analytical Conceptual Behavioral 10 -28

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 10 -29

Advantages and Disadvantages of Group-Aided Decision Making 10 -30

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. B. C. D. Different perspectives Social pressure Groupthink Increased acceptance 10 -31

Group Problem Solving Techniques • Consensus - presenting opinions and gaining agreement to support a decision • Brainstorming - process to generate a quantity of ideas 10 -32

Rules for Brainstorming 1. 2. 3. 4. 5. 6. 7. Defer judgment Build on the ideas of others Encourage wild ideas Go for quantity over quality Be visual Stay focused on the topic One conversation at a time 10 -33

Group Problem Solving Techniques • Nominal Group Technique - process to generate ideas and evaluate solutions. • Delphi technique - process to generate ideas from physically dispersed experts 10 -34

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 technique B. Nominal group technique C. Garbage can technique D. Ostensible group technique 10 -35

Group Problem Solving Techniques • Computer-aided decision making - reduces consensus roadblocks while collecting more information in a shorter period of time 10 -36

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 10 -37

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 10 -38

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. 10 -39

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 10 -40 some disagreement

Garbage Can Model of Organizational Decision-Making A Problems Solutions Participants Choice opportunities Problems Solutions B Participants Choice opportunities 10 -41

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 10 -42

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? 10 -43

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? 10 -44