© 2008The McGraw-Hill Companies, Inc. All rights reserved. Individual and Group Decision Making Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Ch. 12 Learning Objectives 1.Compare and contrast the rational model of decision making, Simon’s normative model, and the garbage can model. 2.Discuss eight decision making biases. 3.Discuss knowledge management and techniques used by companies to increase knowledge sharing. 4.Explain the model of decision-making styles. 5.Explain the model of intuition and the ethical decision tree. 12-2

Ch. 12 Learning Objectives 6.Summarize the pros and cons of involving groups in the decision-making process. 7.Contrast brainstorming, the nominal group technique, the Delphi technique, and computer-aided decision making. 8.Describe the stages of the creative process. 9.Discuss the practical recommendations for increasing creativity. 12-3

Problem Solving Problem – gap between an actual and desired situation A rental car company notices a dip in revenue from 12 months ago. The branch is located in a very congested area and hybrid vehicles can travel in express lanes. Customers complain that they would like environmentally-friendly cars to choose from to rent. What is the problem? 12-4

Problem Solving Problem Solving Methods Historical Cues Scenario Technique Perceptions of others 12-5

Decision Making Decision making – Identifying and choosing solutions that lead to a desired end result First, determine responses or actions necessary to alleviate a problem Second, choose the best alternative 12-6

Models of Decision Making Rational Model logical four-step approach to decision making 1.Identifying the problem 2.Generating alternative solutions 3.Selecting solution 4.Implementing and evaluating the solution McGraw-Hill 12-7

Rational Decision Making Do decision makers actually make decisions this way? What goal does the rational model assume the decision maker has? What assumptions does the rational decision making model make? 12-8

Non-Rational Models Based on premise that decision making is not rational Assume that: Decision making is uncertain Not all information is available or known Making optimal decisions is difficult Simon’s Normative Model Garbage Can Model 12-9

Simon’s Normative Model of Decision Making Based on premise that decision making is not rational Decision makers are guided by bounded rationality constraints that restrict decision making Decision making is characterized by Limited information processing Satisficing Choosing a standard that meets a minimum standard of acceptance 12-10

Garbage Can Model Based on premise that decision making is sloppy and haphazard Decisions are made as a result of the interaction between: Problems, solutions, participants, and choice opportunities What are the implications of the Garbage Can model? 12-11

Integrating Normative and Rational Models Stable, cause & effect is clear RATIONAL MODEL Simple context Cause & effect is clear but multiple solutions would work RATIONAL MODEL; investigate options Complicated context One right answer; cause & effect unclear EXPERIMENT; test options; seek a creative solution Complex context Cause & effect constantly changing Act to establish order; then identify patterns to manage the problem Chaotic context 12-12

Decision Making Biases Availability heuristic – use information readily available in memory Representativeness heuristic – using similar situations to predict the occurrence of an event Confirmation bias – decide before investigating then seek confirming evidence Anchoring bias – decisions are influenced by initial information, data, stereotypes 12-13

Decision Making Biases Overconfidence bias – tendency to be overconfident about estimates or forecasts Hindsight bias – knowledge of an outcome influences our belief about the probability that we could have predicted the outcome earlier Framing bias – tendency to consider risks about gains differently than risks about losses Escalation of commitment bias – tendency to stick to an ineffective course of action when it is unlikely that the bad situation can be reversed 12-14

Test Your Knowledge  Which of the following will reduce escalation of commitment? (A=Reduce, B=Won’t reduce) 1.Set minimum targets for performance, and have decision makers compare their performance with these targets 2.Have the same person have decision making authority over all aspects of an on-going project 3.Tie the person’s reputation to the success of the project 4.Provide more frequent feedback about project completion and costs 5.Make decision makers aware of costs of persistence 12-15

Dynamics of Decision Making Knowledge Management Implementing systems and practices that increase the sharing of knowledge and information throughout an organization. What specific actions can organizations take to facilitate knowledge management? 12-16

Forms of Knowledge A.Troy is very effective at conducting client meetings. He knows what to say when and manages the discussion to maximize the impact of the meeting for all parties. B.Sandra has established a process for efficiently and accurately conducting financial analyses. She has established a spreadsheet accompanied with a set of instructions. Which of the following types of information would be easier to share or capture? Why? 12-17

Decision Making Styles Individual’s decision making styles vary on two dimensions….. Value Orientation Task vs. People/Social Tolerance for Ambiguity High vs. Low Your book has a questionnaire to determine your style 12-18

Decision Making Styles AnalyticalConceptual DirectiveBehavioral Tasks and Technical Concerns People and Social Concerns Value Orientation Low High Tolerance for Ambiguity 12-19

Decision Making Styles What is the best decision making style? What is the value of understanding decision making styles? 12-20

Intuition in Decision Making 12-21

Guidelines for Developing Intuitive Awareness 12-22

Decision Tree for Ethical Decisions 12-23

Group vs. Individual Decision Making What are the advantages of group decision making? What are the disadvantages? 12-24

Group-Aided Decision Making 12-25

Test Your Knowledge Which of the following research findings are true? (A-True, B-False) 1.Groups are more efficient than individuals. 2.Groups are more confident in their choices than individuals. 3.The larger the group, the poorer the decision quality

When to Use Groups for Decision Making 1)If additional information would increase the quality of the decision 2)If acceptance is important 3)If people can be developed through their participation 12-27

Brainstorming Brainstorming process to generate a quantity of ideas Quantity is more important than quality Criticism is withheld Build on others ideas Create status-free environment 12-28

Nominal Group Technique 1.Group meets to discuss a problem 2.Individual generate ideas independently 3.Everyone shares an idea from his/her list and they are recorded but not discussed 4.Group discusses all ideas 5.Group members vote for their top choices 12-29

Delphi Technique 1.Manager identifies an issue to investigate 2.Questionnaire is sent to others and returned to manager 3.Manager summarizes responds and sends feedback to participants 4.Participants send their feedback and comments 5.Cycle repeats until issue is resolve or all relevant information is gathered

Creativity & Innovation CREATIVITY is thinking up new things. INNOVATION is doing new things. ~ Theodore Levitt Process of developing something new or unique Three types… Creation Synthesis Modification 12-31

Model of Creativity 12-32

Test Your Knowledge Which of the following will foster creativity? (A-Yes, B-No) 1.Punishing mistakes or ideas that fail 2.Allowing time for fun and playing around 3.Holding people accountable for creative ideas 4.Emphasize the importance of taking action or generating output 5.Encouraging discussion of “half-baked” ideas 6.Rewarding creativity 7.Establishing a rigid, hierarchical corporate culture 12-33