Making Decisions Chapter Ten Mc GrawHillIrwin 2012 The

Making Decisions Chapter Ten Mc. Graw-Hill/Irwin © 2012 The Mc. Graw-Hill Companies, Inc. All rights reserved. Copyright © 2012 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

After reading the material in this chapter, you should be able to: LO 10. 1 Compare and contrast the rational model of decision making, Simon’s normative model, and the garbage can model LO 10. 2 Review the eight decision-making biases. LO 10. 3 Discuss the thrust of evidence-based decision making and its implementation principles. LO 10. 4 Describe the model of decision-making styles, the role of intuition in decision-making and the stages of the creative process. LO 10. 5 Summarize the pros and cons of involving groups in the decision-making process. LO 10. 6 Contrast brainstorming, the nominal group technique, the Delphi technique, and computer-aided decision making. 10 -2

Models of Decision Making Decision making 9 identifying and choosing solutions that lead to a desired state of affairs 10 -3

Models of Decision Making The Rational Model 9 proposes that managers use a logical four-step approach to decision making. 10 -4

Rational Model Identifying the Problem 9 Problem – exists when the actual situation and the desired situation differ 9 Opportunity - represents a situation in which there are possibilities to do things that lead to results that exceed goals and expectations Generating Solutions 9 For routine decisions alternatives are readily available through decision rules 10 -5

Rational Model Selecting a Solution 9 Is the potential solution ethical? 9 Is it feasible? 9 Will it remove the causes and solve the problem? 10 -6

Rational Model Implementing and Evaluating the Solution 9 After solution is implemented, the evaluation phase is used to evaluate its effectiveness 9 Optimizing – producing the best possible solution 10 -7

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 -8

Summarizing the Rational Model 1. The quality of decisions may be enhanced 2. It makes the reasoning behind a decision transparent 3. If made public, it discourages the decider from acting on suspect considerations 10 -9

Nonrational Models of Decision Making Nonrational models 9 Attempt to 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 -10

Simon’s Normative Model Bounded rationality 9 represents the notion that decision makers are “bounded” or restricted by a variety of constraints when making decisions Satisficing 9 choosing a solution that meets some minimum qualifications, one that is “good enough. ” 10 -11

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 -12

Garbage Can Model 9 decision making is sloppy and haphazard 9 decisions result from complex interaction of four independent streams of events: problems, solutions, participants and choice opportunities 10 -13

Implications of the Garbage Can Model 1. More pronounced in industries that rely on science-based innovations 2. Many decisions are made by oversight 3. Political motives frequently influence decision makers 4. Important decisions are more likely to be solved 10 -14

Integrating Rational and Nonrational Models A simple context is stable, and clear causeand-effect relationships can be discerned, so the best answer can be agreed on In a complicated context, there is a clear relationship between cause and effect, but some people may not see it, and more than one solution may be effective 10 -15

Integrating Rational and Nonrational Models In a complex context, there is one right answer, but there are so many unknowns that decision makers don’t understand cause-and-effect relationships. In a chaotic context, cause-and-effect relationships are changing so fast that no pattern emerges. 10 -16

Decision-Making Biases Judgmental heuristics 9 rules of thumb or shortcuts that people use to reduce information processing demands. 10 -17

Decision-Making Biases Availability heuristic Representativeness heuristic Confirmation bias Anchoring bias Overconfidence bias Hindsight bias Framing bias Escalation bias 10 -18

Evidence-Based Decision Making Evidence-based decision making (EBDM) 9 represents a process of conscientiously using the best available data and evidence when making managerial decisions 10 -19

A Model of Evidence-Based Decision Making (EBDM) 10 -20

Seven Implementation Principles 1. Treat your organization as an unfinished prototype 2. No brag, just facts 3. See yourself and your organization as others do 4. Evidence-based management is not just for senior executives 10 -21

Seven Implementation Principles (cont. ) 5. Like everything else, you still need to sell it 6. If all else fails, slow the spread of bad practice 7. The best diagnostic question: what happens when people fail? 10 -22

Why Is It Hard to be Evidenced Based? 1. 2. 3. 4. 5. 6. 7. There’s too much evidence. There’s not enough good evidence. The evidence doesn’t quite apply. People are trying to mislead you. You are trying to mislead you. The side effects outweigh the cure. Stories are more persuasive anyway. 10 -23

General Decision Making Styles Value orientation 9 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 9 extent to which a person has a high need for structure or control in his life 10 -24

Decision Making Styles 10 -25

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 -26

Intuition in Decision Making Intuition 9 represents judgments, insights, or decisions that “come to mind on their own, without explicit awareness of the evoking cues and of course without explicit evaluation of the validity of these cues. ” 10 -27

A Model of Intuition Holistic hunch 9 judgment that is based on a subconscious integration of information stored in memory Automated experiences 9 choice based on a familiar situation and a partially subconscious application of previously learned information related to that situation 10 -28

A Model of Intuition 10 -29

Creativity 9 process of using intelligence, imagination, and skill to develop a new or novel product, object, process, or thought 10 -30

The Creativity Stages Preparation Concentration Incubation Illumination Verification 10 -31

Road Map to Ethical Decision Making: A Decision Tree Decision tree 9 graphical representation of the process underlying decisions and it shows the resulting consequences of making various choices 10 -32

An Ethical Decision Tree 10 -33

Group Involvement Minority dissent 9 extent to which group members feel comfortable disagreeing with other group members, and a group’s level of participation in decision making 10 -34

Advantages and Disadvantages of Group-Aided Decision Making 10 -35

Group Problem Solving Techniques Consensus 9 reached when all members can say they either agree with the decision or have had their ‘day in court’ and were unable to convince the others of their viewpoint. Everyone agrees to support the outcome. Brainstorming 9 process to generate a quantity of ideas 10 -36

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 -37

Group Problem Solving Techniques Nominal Group Technique 9 process to generate ideas and evaluate solutions. Delphi technique 9 process to autonomously generate ideas from physically dispersed experts 10 -38

Group Problem Solving Techniques Computer-aided decision making 9 reduces consensus roadblocks while collecting more information in a shorter period of time 9 Chauffeur-driven systems, group-driven electronic meetings 10 -39

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 -40