1. Chapter 7 DECISION MAKING

2. Why study decision making? Tasks in making decisions
Programmed and non-programmed decisions
Decision making conditions
Four decision making models
Biases in making decisions
Vroom and Yetton decision styles
Cases and examples
IKEA, Diageo, Iris, Risk Capital, Nokia, Google, Inamo, London Stock Exchange

3. Themes in decision making
Figure 7.1 An overview of the chapter

4. Why study decision making?
People make choices about limited resources
Inputs (where to raise capital, who to employ)
Transformation (how to make a product)
Outputs (what price to charge)
These choices affect the value added (if any)
Significant choices are usually opaque, ambiguous and shaped by subjective interpretations.

5. (Iterative) tasks in making decisions
Figure 7.2 Tasks in making decisions

6. Possible dilemmas in these tasks
Iterative, not sequential
May miss a step, or spend too much time on some
Recognising problem
Subjective, spotting opportunities (e.g. Iris)
Setting and weighting criteria
Subjective, and in itself a set of decisions (Figure 7.3)
Developing alternatives
Costly – how many to develop (Mintzberg, 1976)?

7. Deciding on a new mobile phone
Figure 7.3 Illustrating the decision-making tasks – a new mobile phone

8. Types of decisions A commitment to action (use of resources)
At all levels – focus here is organisational
Visible decisions embedded in a wider process of decision making: before and after
Strategic or operational
Future directions or current issues, for example
Programmed or non-programmed
Dependent or independent
Influence of history and consequential links.

9. Programmed and non-programmed
Programmed decisions (Simon, 1960)
Familiar, structured problems and information known
Resolve by procedures, rules, policies and quantitative analysis.
Non-programmed decisions
Unfamiliar, unique problem, information unclear and open to interpretation
Resolution depends on judgement, intuition, negotiation and creativity – for example, Inamo.

10. Decision making conditions
Certainty
All information available (interest rates example)
Risk
Enough information to estimate (loans example)
Uncertainty
Goals clear, but lack information to decide action (e.g. competitors’ reactions)
Ambiguity
Goals AND how to reach them unclear (e.g. broad strategic issues where people disagree over mission).

11. Degree of uncertainty and decision-making type
Figure 7.5 Degree of uncertainty and decision-making type

12. Dependent or independent
Figure 7.6 Possible relationships between decisions Source: Making Management Decisions, 2nd ed., Prentice Hall, Hemel Hempstead (Cooke, S. and Slack, N. 1991) p. 24, Copyright © Pearson Education Ltd

13. Decision making models
Figure 7.7 Conditions favouring different decision processes Source: Based on Thompson (1967), p. 134.

14. Decision making models (Continued)
Computational – rational
Economic assumptions, maximising gains, full information, goals known and agreed
Valuable when situation has these features – Google example.
Judgemental – administrative/incremental
Bounded rationality (Simon, 1960) – people process limited amount of information
Satisficing – rather than maximising, people select the first option that is good enough
Descriptive model of how people deal with non-programmed decisions.
elel

15. Decision making models (Continued)
Compromise – political
How people make decisions when they disagree over ends and means
Assumes that organisations made up of diverse interest groups (e.g. Pensco)
Information ambiguous
Decisions the result of bargaining and political behaviour among players.

16. Decision making models (Continued)
Inspirational – garbage can (Cohen et al., 1972)
Decisions require (PPS)
Participants
Problems
Solutions.
To produce a decision, they need to come together in a ‘choice opportunity’ – for example, a meeting.
PPS are independent, and decisions get taken only when all three come together (even if randomly) in the ‘garbage can’ (a meeting).
Plausible in highly uncertain environments?
ennn

17. Biases in making decisions
Prior hypothesis
Select information which supports previous beliefs
Representativeness
Generalise from small sample
Optimism
Systematically understate costs, overstate benefits
Illusion of control
Overestimate chances of favourable outcome
Escalating commitment
Put in more resources despite evidence of failure
Emotional attachment
To people or things.
SGeneralise from small sample
temaiueesstitatesmin

18. Group decision making
Vroom and Yetton (1973) developed a contingency model of decision making – that is, the extent to which it is wise to involve subordinates in decision depends on the circumstances.
Section 7.7 outlines the five decision styles, and eight situational factors – Figure 7. 8.

19. Integrating themes Entrepreneurship
In small firms decisions are more centralised, less formal, and more intuitive than in larger ones.
Sustainability
Research shows that firms aiming for sustainability need to ensure their decision processes support this aim.
Internationalisation
International managers constantly balance decisions favouring integration or local diversity.
Governance and control
Biases in decision processes strengthen case for effective governance systems.

20. Summary
Making good decisions depends in part on recognising features of the choices to be made, especially:
The distinction between programmed and non-programmed decisions
The conditions of certainty, risk, uncertainty and ambiguity
Four models of decision making
Six common biases which lead to poor decisions.
Ially,