1. Decision Making Chapter 14 Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. 14-2 Introduction Decision making ■ The process of choosing a particular action that deals with a problem or opportunity Just one or two exceptionally good or poor decisions can have significant effects ■ On a manager’s career or an organization’s success ■ Poor decisions have cost companies billions of dollars Increasingly, important decisions are being made by non-managers

3. 14-3 Types of Decisions Programmed Repetitive and routine There is a definite procedure for handling them Non- Programmed Novel and unstructured No established procedure for handling the problem or situation

4. 14-4 EXHIBIT 14.1 Types of Decisions

5. 14-5 Types of Decisions The main concern of top management should be non-programmed decisions ■ First-level management should be concerned with programmed decisions The nature, frequency, and degree of certainty surrounding a problem ■ Dictates the management level at which the decision should be made ■ Problems arise if top management spends too much time and effort on programmed decisions

6. 14-6 The Rational Decision-Making Process Decisions are an organizational response to a problem ■ Every decision is the outcome of a dynamic process influenced by a multitude of forces The diagram on the next slide shows a rational decision-making process ■ If a policy is established to handle problems, this process may not be necessary

7. 14-7 EXHIBIT 14.2 The Rational Decision-Making Process

8. 14-8 The Rational Decision-Making Process Factors that lead to difficulty in identifying exactly what a problem is ■ Perceptual problems ■ Defining problems in terms of solutions ■ Identifying symptoms as problems Problems are of three types ■ Opportunity ■ Crisis ■ Routine

9. 14-9 Decision Making Environments Certainty Risk Uncertainty

10. 14-10 Alternatives to Rational Decision-Making Administrative Decision Making Intuitive Decision Making

11. 14-11 Administrative Decision Making Time Pressures Incomplete information Limited human resources Impacts on the Decision Making Process Managers with limitations and restrictions often take a bounded rationality approach

12. 14-12 Assumptions of Bounded Rationality Managers rarely have all the info they need or want Managers are not aware of all possible alternatives and cannot predict consequences Early alternatives and solutions are quickly adopted because of constraints and limitations Organizational goals constrain decision making Conflicting goals can force compromise solutions

13. 14-13 Intuitive Decision Making Uses experience, self-confidence, and self-motivation To process information, data, and the environment To address a problem or opportunity An intuitive decision maker

14. 14-14 Intuitive Decision Making Intuitive decision making occurs because of… ■ High levels of uncertainty about a problem, the goals, and the decision criteria ■ No history or past experience to draw upon ■ Intense time pressures ■ An excessive number of alternatives

15. 14-15 Behavioral Influence on Decision Making Decision Maker Propensity for Risk Potential for Dissonance Escalation of Commitment Values

16. 14-16 Values Guidelines a person uses when confronted with a situation in which a choice must be made

17. 14-17 Values Decision-making elements affected by values ■ Establishment of objectives ■ Development of alternatives ■ Choosing an alternative ■ Implementing a decision ■ Evaluation and control One’s willingness to make ethical or unethical decisions is influenced by values

18. 14-18 Most cited reasons for making unethical choices Pressure to perform exceptionally well“Keeping up with the Joneses”A secretive and non-revealing cultureFailure to take responsibility for problemsFocusing on cost before safety

19. 14-19 Questions for Decision Makers If published in the newspaper, would readers consider the decision ethical? Is it right? What is fair? Can it meet the “sunshine” test? Is it legal?

20. 14-20 Propensity for Risk Many people are bolder, more innovative, and advocate greater risk taking when in groups Decision makers vary greatly in their propensity for taking risks When the choice is between two losses, there is greater propensity to take risks Risk propensity is also affected by whether potential outcomes are losses or gains

21. 14-21 Potential for Dissonance Dissonance ■ A lack of consistency or harmony among an individual’s various cognitions after a decision has been made Anxiety is greater if any of these conditions exist ■ The decision is psychologically or financially important ■ There are a number of foregone alternatives ■ Foregone alternatives have many favorable features

22. 14-22 Potential for Dissonance People try to reduce dissonance by… ■ Seeking information that supports the wisdom of the decision ■ Selectively perceiving (distorting) information in a way that supports their decision ■ Adopting a less favorable view of foregone alternatives ■ Minimizing the negative aspects of the decision and exaggerating the positive aspects

23. 14-23 Potential for Dissonance The potential for dissonance is influenced heavily by… Personality, particularly one’s self- confidence and ability to be persuaded Propensity to take risks Perceptions Value system

24. 14-24 Individual Versus Group Decision Making Groups take more time to reach decisions ■ Brings interaction and better decision making Open discussion is negatively influenced by ■ Pressure to conform ■ A dominant personality type in the group ■ Status incongruity ■ Perceived expertise ■ Framing

25. 14-25 Group Decision Making Non-programmed group decisions are better when it comes to… ■ Establishing goals and objectives ■ Identifying causes ■ Developing alternative solutions ■ Evaluating alternative solutions ■ Solution selection ■ Implementation and follow-up

26. 14-26 Creativity in Group Decision Making Creativity ■ A process by which an individual, group, or team produces novel and useful ideas Characteristics of creative people ■ Perseverance ■ Risk-taking propensity ■ Openness ■ Tolerance of ambiguity Groups have more creative potential than do individuals

27. 14-27 Techniques for Stimulating Creativity Brain- storming Delphi Technique Nominal Group Technique

28. 14-28 Brainstorming The generation of ideas in a group through non-critical discussion, with strict rules No idea is too ridiculous Ideas belong to the group, not the person stating it No idea can be criticized

29. 14-29 Brainstorming Brainstorming effectiveness decreased by ■ Social loafing ■ Conformity ■ Idea production blocking ■ Downward norm setting To increase performance ■ Set specific goals for teams to achieve ■ Provide meaningful incentives ■ Have a skilled facilitator

30. 14-30 The Delphi Technique Solicitation and comparison of anonymous judgments on a topic of interest ■ Sequential questionnaires ■ Interspersed with summarized information and feedback from earlier responses ■ Retains the advantage of several judges ■ Removes the biasing effects that might occur in face-to-face interaction

31. 14-31 The Nominal Group Technique A method of decision making that occurs in a highly structured meeting ■ Group decision is the mathematically pooled outcome of individual votes ■ No verbal communication or discussion

32. 14-32 Key Points Decision making ■ A common responsibility shared by all executives, regardless of functional area or management level ■ Shapes the future of both the organization and the decision makers The quality of a manager’s decisions is the yardstick of his/her effectiveness