Decision Making Ch. 7 Management A Practical Introduction Angelo Kinicki & Brian K. Williams

Learning objective 1 Define decision and decision making Differentiate between programmed and nonprogrammed decision Explain the four stages of rational decision making process and illustrate the process with examples

Learning objectives 2 Discuss the differences between the rational and nonrational decision making model Discuss the characteristics of group decision making

7.1 The Nature Of Decision Making HOW DO MANAGERS MAKE DECISIONS? A choice made from available alternatives is a decision The process of identifying and choosing alternative courses of action is decision making Decisions that are repetitive and routine and made automatically are programmed Decisions that occur under nonroutine, unfamiliar circumstances and are not automatic are nonprogrammed

7.1 The Nature Of Decision Making The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff is referred to as risk propensity The combination of how an individual perceives and responds to information is the individual’s decision-making style Decision-making styles differ according to value orientation (the extent to which a person focuses on either task and technical issues or people and social concerns when making a decision) and tolerance for ambiguity (the extent to which a person has a need for structure or control)

7.2 Two Kinds Of Decision Making: Rational & Nonrational HOW CAN MANAGERS MAKE LOGICAL & OPTIMAL DECISIONS? The rational model of decision making (also known as the classical model) explains how managers should make decisions It assumes that managers will make logical decisions that will be optimal for the organization

7.2 Two Kinds Of Decision Making: Rational & Nonrational There are four stages in the rational decision making process Stage 1: Identify the problem or opportunity Difficulties that inhibit the achievement of goals are called problems Situations that present possibilities for exceeding existing goals are called opportunities Whether they face a problem or an opportunity, managers need to make decisions that will improve the firm To do this, they need to make a diagnosis (analysis of the underlying causes of the problem or opportunity)

7.2 Two Kinds Of Decision Making: Rational & Nonrational Figure 7.2: The Four Steps in Rational Decision Making

7.2 Two Kinds Of Decision Making: Rational & Nonrational Stage 2: Think up alternative solutions Once managers have identified problems or opportunities and diagnosed causes, they need to come up with alternative solutions Solutions for programmed decisions are simple and obvious, but nonprogrammed decisions will be more challenging Stage 3: Evaluate alternatives & select a solution Each alternative must be evaluated to determine whether it is ethical, feasible, and effective

7.2 Two Kinds Of Decision Making: Rational & Nonrational Stage 4: Implement & evaluate the solution chosen It is usually more straightforward to implement programmed decisions than nonprogrammed decisions To successfully implement a decision, managers must plan carefully and be sensitive to those affected by the decision If a decision fails to go as planned, managers should give it more time, change it slightly, or try another alternative In some cases, it might be necessary to start the process over

7.2 Two Kinds Of Decision Making: Rational & Nonrational WHAT’S WRONG WITH THE RATIONAL MODEL? The rational model describes what a manager ought to do (it is prescriptive), it does not describe how a manager should actually make a decision The model also assumes that the manager has complete information

7.2 Two Kinds Of Decision Making: Rational & Nonrational WHY DO MANAGERS MAKE NONRATIONAL DECISIONS? Nonrational models of decision making assume that decision making is usually uncertain and risky Nonrational models are descriptive - they describe how managers actually make decisions There are two nonrational models: satisficing and incremental

7.2 Two Kinds Of Decision Making: Rational & Nonrational 1. The satisficing model suggests that because of bounded rationality (when the ability of decision makers to be rational is limited by numerous constraints), managers do not seek all alternative solutions, but instead seek alternatives only until they find one that is satisfactory, not optimal 2. The incremental model of decision making argues that managers take small, short-term steps to solve problems

Example: Making Ethical Decisions Figure 7.4: The Ethical Decision Tree: What’s The Right Thing To Do?

7.5 Group Decision Making: How To Work With Others WHY WORK IN GROUPS? There are five advantages to using groups: groups provide a greater pool of knowledge groups offer different perspectives groups encourage intellectual stimulation groups allow for a better understanding of decision rationale groups encourage a deeper commitment to the decision Lecture Note: Most students have direct experience working in groups for class projects. Ask students to consider the benefits of working in groups. Do the students feel that they can do a better project through groups analysis or would they prefer to work alone? Why? Is there a difference between working in groups for a school project versus working in groups for a work project?

7.5 Group Decision Making: How To Work With Others WHAT ARE THE DISADVANTAGES OF GROUPS? There are several disadvantages of groups: groups can result in a few people dominating or intimidating groups encourage groupthink which occurs when group members strive to agree for the sake of unanimity and avoid accurately assessing the decision situation groups encourage satisficing groups promote goal displacement which occurs when the primary goal is subsumed by a secondary goal

7.5 Group Decision Making: How To Work With Others WHAT SHOULD MANAGERS KNOW ABOUT GROUPS & DECISION MAKING? Managers should be aware of four characteristics of groups: 1. groups are less efficient 2. group size affects the quality of decisions 3. groups may be too confident about their decisions 4. group decision making tends to be better when members know more about relevant issues, and when leaders can weight members’ opinions

7.5 Group Decision Making: How To Work With Others SHOULD EMPLOYEES BE INVOLVED IN DECISION MAKING? One technique to improve productivity is participative management (the process of involving employees in setting goals, making decisions, solving problems, and making changes to the organization) Studies have found that participative management is effective in some cases such as when management is supportive and employees trust managers

7.5 Group Decision Making: How To Work With Others When groups make decisions, they have to reach a consensus (when members are able to express their opinions and reach agreement to support the final decision) Three techniques that can help groups solve problems are brainstorming (helps groups generate ideas and alternatives for solving problems, nominal groups (generate ideas and evaluate solutions by writing down as many ideas as possible, listing them on a blackboard, and then taking a secret vote), and delphi groups (use physically dispersed experts who fill out questionnaires to anonymously generate ideas) These can be assisted with computer-aided decision making

Key terms Bounded rationality Brainstorming Consensus Decision Decision Making Model Decision-making style Delphi Group Group Decision Making Group think Incremental Model Nominal Group Nonprogrammed decisions Nutritional Model Participative Management Problems Programmed decisions Rational Model Risk Propensity Satisficing Model