Chapter 13 Decision Making It’s all about making the right choices

Copyright © 2008 John Wiley & Sons, Inc.13-2 Chapter 13 Study Questions What is the decision-making process and its foundations? What are the useful decision-making models? How do intuition, judgment, and creativity affect decision making? How do you manage the decision-making process?

Copyright © 2008 John Wiley & Sons, Inc.13-3 What is the decision-making process and its foundations? Decision making –the process of choosing a course of action for dealing with a problem or opportunity.

Copyright © 2008 John Wiley & Sons, Inc.13-4 What is the decision-making process and its foundations? Steps in systematic decision making –Recognize and define the problem or opportunity –Identify and analyze alternative courses of action, and estimate their effects on the problem or opportunity –Choose a preferred course of action –Implement the preferred course of action –Evaluate the results and follow up as necessary

Copyright © 2008 John Wiley & Sons, Inc.13-5 What is the decision-making process and its foundations? Ethical dilemma –a situation in which a person must decide whether or not to do something that, although personally or organizationally beneficial, may be considered unethical and illegal

Copyright © 2008 John Wiley & Sons, Inc.13-6 What is the decision-making process and its foundations? Certain decision environments –Exist when information is sufficient to predict the results of each alternative in advance of implementation

Copyright © 2008 John Wiley & Sons, Inc.13-7 What is the decision-making process and its foundations? Risk decision environments –Exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they are aware of the probabilities associated with their occurrence

Copyright © 2008 John Wiley & Sons, Inc.13-8 What is the decision-making process and its foundations? Uncertain decision environments –Exist when managers have so little information on hand that they cannot even assign probabilities to various alternatives and their possible outcomes –Organized anarchy

Copyright © 2008 John Wiley & Sons, Inc.13-9 What is the decision-making process and its foundations? Programmed decisions –Involve routine problems that arise regularly and can be addressed through standard responses Nonprogrammed decisions –Involve nonroutine problems that require solutions specifically tailored to the situation at hand

Copyright © 2008 John Wiley & Sons, Inc What is the decision-making process and its foundations? Associative choices –decisions that can be loosely linked to nagging continual problems but that are not specifically developed to solve the problem

Copyright © 2008 John Wiley & Sons, Inc Figure 13.1

Copyright © 2008 John Wiley & Sons, Inc What are the useful decision-making models? Classical decision theory assumes a manager: –faces a clearly defined problem –knows all possible action alternatives and their consequences –chooses the optimum solution

Copyright © 2008 John Wiley & Sons, Inc What are the useful decision-making models? Bounded rationality –suggests that, while individuals are reasoned and logical, humans have their limits Satisficing –decision makers choose the first alternative that appears to give an acceptable or satisfactory resolution of the problem

Copyright © 2008 John Wiley & Sons, Inc What are the useful decision-making models? The garbage can model –The main components of the choice process - problems, solutions, participants, and choice situations – are all mixed together in the “garbage can” of the organization

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Intuition –The ability to know or recognize quickly and readily the possibilities of a given situation –A key element of decision making under risk and uncertainty

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Ways to Improve Your Intuition Drop the problem for a while Spend some quiet time by yourself Try to clear your mind Use images to guide your thinking Let ideas run freely without a specific goal

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Judgmental heuristics –Simplifying strategies or “rules of thumb” used to make decisions –Make it easier to to deal with uncertainty and limited information

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Availability heuristic –Involves assessing a current event based on past occurrences that are easily available in one’s memory Representativeness heuristic –Involves assessing the likelihood that an event will occur based on its similarity to one’s stereotypes of similar occurrences

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Anchoring and adjustment heuristic –Bases a decision on incremental adjustments to an initial value determined by historical precedent or some reference point

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Confirmation trap –The tendency to seek confirmation for what is already thought to be true and to not search for disconfirming information Hindsight trap –The tendency to overestimate the degree to which an event that has already taken place could have been predicted

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Creativity –involves the development of unique and novel responses to problems and opportunities

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Stages in the creative thinking process Preparation Concentration Incubation Illumination Verification

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Ways of fostering creativity –Diversify teams to include members with different backgrounds, training, and perspectives –Encourage analogical reasoning –Stress periods of silent reflection

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Ways of fostering creativity –Record all ideas so that the same ones are not rediscovered –Establish high expectations for creativity –Develop a physical space that encourages fun, divergent ideas

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Creativity is higher when: –Linguistic ability, willingness to engage in divergent thinking, and intelligence are present –Individuals are motivated by and derive satisfaction from task accomplishment

Copyright © 2008 John Wiley & Sons, Inc How do intuition, judgment, and creativity affect decision making? Creativity is higher when: –The decision maker emphasizes engagement in the creative process and counsels individuals to share their ideas with others –The decision maker encourages subordinates to recognize ambiguity, contact others with different views, and be prepared to make considerable changes

Copyright © 2008 John Wiley & Sons, Inc How do you manage the decision-making process? In choosing problems to address, ask and answer the following questions: –Is the problem easy to deal with? –Is this my decision to make? –Is this a solvable problem within the context of the organization?

Copyright © 2008 John Wiley & Sons, Inc Figure 13.2

Copyright © 2008 John Wiley & Sons, Inc How do you manage the decision-making process? Key problem attributes in the Vroom, Yetton, and Jago decision making framework –The required quality of the decision. –The commitment needed from subordinates. –The amount of information the leader has. –Commitment probability. –Goal congruence. –Subordinate conflict. –Subordinate information.

Copyright © 2008 John Wiley & Sons, Inc How do you manage the decision-making process? Authority decisions –Manager or team leader uses information that he or she possesses and decides what to do without involving others.

Copyright © 2008 John Wiley & Sons, Inc How do you manage the decision-making process? Consultative decisions –Manager or team leader solicits input from other people and then, based on this information and its interpretation, makes a final choice

Copyright © 2008 John Wiley & Sons, Inc How do you manage the decision-making process? Group decisions –Manager or team leader consults with others and allows them to help make the final choice

Copyright © 2008 John Wiley & Sons, Inc How do you manage the decision-making process? Escalating commitment –continuation and renewed effort on a previously chosen course of action, even though it is not working