1. Chapter 7
The Manager as
Decision Maker

2. Learning Objectives
Explain the difference between programmed and non-programmed decisions.
Describe the classical and administrative models of decision making and the decision characteristics of risk, uncertainty, and ambiguity.
Describe the six steps that managers should take to make the best decisions.
Define heuristics and describe four cognitive biases that are used by people which can lead to poor decisions.

3. Learning Objectives
Identify the advantages and disadvantages of group decision making and describe techniques to improve it.
Describe a learning organization and its role in improving organizational decision making.

4. Decision Making
Decision making is the process of identifying problems and opportunities and then resolving them. Requires effort before and after choice
Visits to several colleges and searching for information about various colleges
Once Auburn is chosen, plan move and work to succeed

5. Types of Decisions Programmed decisions
Programmed decisions
situations that occur often enough to enable decision rules to be developed.
Problem is well defined and clearly understood
Standard response to a routine problem
In organizations, structured rules or standard operating procedures are developed for programmed decisions
Example: expense reports, college admissions decisions

6. Types of Decisions Nonprogrammed decisions
Nonprogrammed decisions
are made in response to situations that are unusual, and involve unpredictable opportunities or threats.
Past decisions are not very helpful
There is not a clearly correct alternative
High level managers typically face nonprogrammed decisions
Examples: which areas of business to expand, choice of colleges to apply for admission

7. Classical Model Earliest model of decision processes
Classical Model
Earliest model of decision processes
Describes logical and rational decision processes
Decisions are made based on the organization’s best economic interests
Defines how decisions should be made – not necessarily how they are made

8. Decision Process in the Classical Model
Decision Process in the Classical Model

9. Assumptions of the Classical Model
Assumptions of the Classical Model
Accomplishes goals that are known and agreed upon.
Attempts to gather complete information so that all alternatives are known.
Decision makers agree on criteria to evaluate alternatives and priorities
Decision maker is rational and uses logic.

10. Administrative Model by James March and Herbert Simon
Administrative Model by James March and Herbert Simon
Model of decision processes based on how managers actually make decisions
Does not assume completely logical and rational decision processes
More realistic model for non-programmed decisions.

11. Administrative Model Principal concepts in the administrative model
Administrative Model
Principal concepts in the administrative model
bounded rationality: means that people have limits or boundaries on how rational they can be.
Managers tend to construct simple models and identify the essential features of a problem
Managers can behave rationally within the simplified model

12. Administrative Model Principal concepts in the administrative model
Administrative Model
Principal concepts in the administrative model
Incomplete information: managers have incomplete information because of risk, uncertainty, ambiguity, and time
Risk
Uncertainty
Ambiguity
Time constraints – there is neither time or money to search for all possible alternatives

13. Administrative Model Incomplete information: Risk
Incomplete information:
Risk
decision has clear-cut goals.
Managers know possible outcomes - good information is available .
The outcomes for the alternatives are known but subject to chance – the outcome may be unsuccessful.

14. Administrative Model Incomplete information: Uncertainty
Incomplete information:
Uncertainty
managers know which goals they wish to achieve.
Information about alternatives is incomplete
Outcome for alternatives is incomplete – difficult to measure risk.

15. Administrative Model Incomplete information: Ambiguity
Incomplete information:
Ambiguity
possible to interpret information in multiple ways
alternatives are difficult to define.
information about outcomes is unavailable.

16. Administrative Model Principal concepts in the administrative model
Administrative Model
Principal concepts in the administrative model
satisficing: means that decision makers choose the first solution alternative that satisfies minimal decision criteria.
Decide on the “good enough” solution
Don’t process large amounts of information to find the optimal solution
Review alternatives only until a sufficient alternative is found

17. Cognitive Biases in Decision Making
Cognitive Biases in Decision Making
Heuristics means that people use judgmental shortcuts or rules of thumb in making decisions
To avoid information overload
Base judgments on information that is readily available
Assess situation based on intuition (past practice and experience with a problem or decision situation)

18. Cognitive Biases in Decision Making
Cognitive Biases in Decision Making
Four particular sources of bias that lead to poor decisions are

19. Cognitive Biases in Decision Making
Cognitive Biases in Decision Making
Prior-Hypothesis Bias
tend to see and use information that is consistent with prior beliefs
Tend to ignore contradictory or conflicting information

20. Cognitive Biases in Decision Making
Cognitive Biases in Decision Making
Representativeness Bias
Tend to generalize from a small sample
Too much weight given to vivid events
Illusion of Control
Overestimate your ability to control events

21. Cognitive Biases in Decision Making
Cognitive Biases in Decision Making
Escalating Commitment
When there are indications that the project is failing, even more resources are committed in an effort to salvage the situation
“Gotta know when to fold’em”

22. Steps in Decision-Making Process
Steps in Decision-Making Process

23. Making Effective Decisions
Making Effective Decisions
1. Recognize Need for Decision
Problems
Organizational performance fall short of goals
Opportunities
Possibility of increasing performance beyond current levels
Scanning the environment
Look at both internal information (sales reports, quality reports, etc.) and external environment (competition, socio-cultural, etc.)

24. Making Effective Decisions
Making Effective Decisions
Generate Alternatives
With programmed decisions, alternatives are usually easily identified and available within procedures
For decisions with conditions of uncertainty, may develop one or two solutions which suffice.
Limited searches for alternatives is a primary reason for unsuccessful decisions (that bounded rationality problem)
Evaluate Alternatives
Be aware of decision biases in making decisions – use of cognitive biases
Manager’s risk propensity will influence analysis

25. Making Effective Decisions
Making Effective Decisions
Choose Among Alternatives
Implement Chosen Alternative
Similar to implementation under strategic planning – must provide leadership to implement alternatives
Make required changes in structure, human resources, reward systems, marketing, product development, etc.
Learn from Feedback
Continuously evaluate decision to determine if goals are being achieved. Beware problem of escalating commitment
May solve problems or work on opportunities by making incremental improvements

26. Group Decision Making
Decisions in the business world are most often made by groups
Advantages of group decisions
Diversity of experience and viewpoints
Generate more alternatives
Increased acceptance to decision

27. Group Decision Making
Decisions in the business world are most often made by groups
Problems with group decision making
Takes time to bring group together and groups take longer to reach a decision
Groups can be dominated by a few members
There can be increased pressures to conform - one form of this pressure is referred to as groupthink

28. Groupthink – Irving Janis
Groupthink – Irving Janis
Groupthink can occur in highly cohesive groups where the group’s desire to maintain agreement overrides realistic evaluation of alternatives
The film Groupthink by CRM Films looks at the characteristics of groupthink and factors which may prevent it.
James Essar identifies eight symptoms of groupthink. The more symptoms a group exhibits, the higher probability that groupthink can occur.

29. Copyright : Philip Jones Griffiths / Magnum Photos
USA Roger BOISJOLY with a section of an o-ring seal, the type which failed and caused the Challenger Space Shuttle disaster in From original feature :  USA. Utah. Roger BOISJOLY. (NASA: Challenger) by Philip Jones Griffiths

30. Groupthink – CRM Films Symptoms of Groupthink
Groupthink – CRM Films
Symptoms of Groupthink
Overestimation by the Group
Illusion of invulnerability
Inherent morality of the group
Closed Mindedness
Rationalization
Stereotypes of Outsiders

31. Groupthink – CRM Films Symptoms of Groupthink
Groupthink – CRM Films
Symptoms of Groupthink
Pressure toward Uniformity
Self censorship
Direct Pressure on members who disagree
Mind Guarding
Illusion of unanimity

32. Groupthink – CRM Films Steps Toward Preventing Groupthink Open Climate
Groupthink – CRM Films
Steps Toward Preventing Groupthink
Open Climate
Avoid Insulation of Group
Critical Evaluators
Leaders Avoid Being Directive