11 C H A P T E R E L E V E N Decision Making in Organizations

Decision Making n Define decision making n Explain conditions that affect decisions n Describe and differentiate between decision types n Understand goals n Understand three models of decision making

Decision Making n The process of defining problems, gathering information, making sense of that information, generating alternatives, and choosing a course of action

Conditions that affect decisions n Information Availability n Certainty/Uncertainty and Risk n Objective Probability and Subjective Probability n Experience

Types of Decisions to be Made Based on Conditions n Routine n Adaptive n Continuous Improvement- incremental n Innovative Decisions - re- engineering

3. Develop alternatives 1. Identify problem 2. Choose decisionstyle Decision Making Model 4. Choose best solution 5. Implement solution 6. Evaluate decision

Programmed Decisions n Routine, virtually automatic decision making that follows established rules or guidelines u automatic reorders u categorizing based on set information

Non-Programmed Decision Making n Non-routine decision making that occurs in response to unusual, unpredictable opportunities and threats n adaptive n based on judgement and intuition

Bounded Rationality n Cognitive limitations that constrain one’s ability to interpret, process, and act on all information n Individuals do not have perfect or complete information n limited search because of limited resources-time, money, personnel, ability, etc. n Satisficing - Selecting less than the best alternative

Information Processing Biases n Availability n Selective perception-seeing what your background predisposes you to see n Concrete information-experience outweighs real probabilities n Ambiguous Information - information that can be interpreted in multiple and conflicting ways

continued n Law of Small Numbers - one or two experiences influence rationality (making generalizations) n Gambler’s Fallacy - past results have an impact on future performance n Escalation of Commitment- tendency to commit additional resources to a failing project when evidence of failure exists

Escalation of Commitment Escalation occurred when the British government continued funding the Concorde supersonic jet long after it ’ s lack of commercial viability was apparent. To this day, some scholars refer to escalation of commitment as the “ Concorde fallacy. ” © Corel Corp. With permission

Causes of Escalation of Commitment n Self-justification n Gambler’s fallacy n Perceptual blinders n Closing costs

Team Decision Making Problems Grouppolarization Timeconstraints Evaluationapprehension Groupthink Conformity to peer pressure Team Decision Making Problems

Conditions for Groupthink n Team is highly cohesive n Team is isolated from outsiders n Team faces external threat n Team has recent decision failures n Team leader tries to influence decision

Decision Process High Risk IndividualOpinions Low Risk Group Polarization Process Team Decision Social Support Persuasion Shifting Responsibility

Generating Constructive Controversy n Form heterogeneous decision making groups n Ensure team meets often to face contentious issues n Members should take on different discussion roles n Think about the decision under different scenarios

Features of Brainstorming n No Criticism n Encourage Freewheeling n Piggyback Ideas n Encourage Many Ideas

Photo: Courtesy of IBM. Electronic Brainstorming at IBM An electronic brainstorming session at an IBM decision support center.

Describeproblem Individual Activity Team Activity Individual Activity Nominal Group Technique Write down possiblesolutionsPossiblesolutionsdescribed to others Rework solutionspresented

Photo: Courtesy of IBM. Evaluating Electronic Brainstorming Benefits + Less production blocking + Less evaluation apprehension + More creative synergy + More decision efficiency Problems u Too structured u Lacks interpersonal dynamics u Candid feedback is threatening