1. Chapter 14
Decision Making

2. Learning Objectives Contrast programmed with non-programmed decisions
Identify the steps in the decision-making process
Discuss priority setting
Describe the conditions governing alternative-outcome relationships
Explain how behavior influences decision-making
Compare individual and group decision-making
Identify techniques for stimulating creativity

3. 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

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

5. Nonprogrammed Decisions
Types of Decisions
Programmed Decisions
Nonprogrammed Decisions
Problem
Frequent, repetitive, routine. Much certainty regarding cause and effect relationships
Novel, unstructured. Much uncertainty regarding cause and effect relationships
Procedure
Dependence on policies, rules, and definite procedures
Necessity for creativity, intuition, tolerance for ambiguity, creative problem solving
Business Example
Periodic reorders of inventory
Diversification into new products and markets
Government Example
Merit system for promotion of state employees
Reorganization of state government agencies

6. 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

7. 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

8. The Rational Decision-Making Process

9. 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

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

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

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

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. Behavioral Influence on Decision Making

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

17. 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. Most cited reasons for making unethical choices
Values
Most cited reasons for making unethical choices
Pressure to perform exceptionally well
“Keeping up with the Joneses”
A secretive and non-revealing culture
Failure to take responsibility for problems
Focusing on cost before safety

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

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

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

24. Escalation of Commitment
Increasing commitment to a previous decision when a rational decision maker would withdraw
Those likely to escalate decision making
Are unclear of their goals
Have a fear of failure
Are feeling pressure
Work in a culture of low trust

25. Making Decisions in Diverse Cultures
As organizations transcend national boundaries, cultural differences and influences become increasingly significant

26. Decisions about non-programmed problems are usually made by groups
Group Decision Making
Decisions about non-programmed problems are usually made by groups
The increased complexity requires specialized knowledge not usually possessed by one person
Plus, the decision must be accepted throughout the organization
Especially true for non-programmed programs

27. 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

28. Non-programmed group decisions are better when it comes to…
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

29. Relationship Between Quality of Group Decision and Method Utilized

30. Creativity in Group Decision Making
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

31. Techniques for Stimulating Creativity
Brainstorming
Nominal Group Technique
Delphi Technique

32. 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

33. To increase performance
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

34. 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

35. 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

36. Four-Step Nominal Group Technique
Individual members independently record ideas, problems to be solved, or opportunities
Each member records an idea, problem, or opportunity with no comments or discussion
Each recorded statement is discussed, narrowing them down to the best set
Members vote/rank from best to worst the winnowed set of ideas, problems, opportunities
Initiate Step 1 with different idea, problem, or opportunity
Step 2
Step 3
Step 4

37. Differences Between Delphi and NGT
Delphi Technique
NGT
Participants are anonymous, physically distant, never meet
Communication is by written questionnaires, with feedback from the monitoring staff
Participants become acquainted, meet face-to-face around a table
Communication is direct between participants

38. 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