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2. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 2 Definition Decision Making: The process by which members of an organization choose a specific course of action to respond to both problems and opportunities.

3. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 3 Types of Decisions Programmed Decisions - decisions made in response to recurring problems and opportunities. Nonprogrammed Decisions - decisions made in response to novel problems and opportunities

4. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 4 FIGURE 14.1 Nonprogrammed and Programmed Decision Making

5. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 5 The Decision-Making Process Classical Model of Decision Making March and Simon’s Administrative Model of Decision Making

6. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 6 Classical Model of Decision Making A prescriptive approach based on the assumptions that the decision maker has all the necessary information and will choose the best possible solution or response.

7. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 7 March & Simon’s Administrative Decision-Making Model A descriptive approach stressing that incomplete information, psychological and sociological processes, and the decision maker’s cognitive abilities affect decision making and that decision makers often choose satisfactory, not optimal, solutions.

8. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 8 Definitions Satisficing: Searching for and choosing an acceptable response or solution, not necessarily the best possible one. Bounded Rationality: An ability to reason that is constrained by the limitations of the human mind itself.

9. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 9 Advice to Managers Realize that different members of an organization are going to define the same problem or opportunity in different ways depending on their personalities, abilities, knowledge, expertise, and the groups they belong to.

10. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 10 Advice to Managers Carefully examine how you define problems and opportunities. Explore the implications of defining these problems and opportunities in different ways.

11. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 11 Advice to Managers Realize there are limits to the amount of information you and your subordinates can take into account when making decisions. Focus on information that is most relevant to the decision at hand.

12. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 12 Sources of Error in Decision Making Heuristics and Potential Biases Escalation of Commitment

13. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 13 FIGURE 14.2 Heuristics and the Biases They May Lead To

14. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 14 Definition Heuristics: Rules of thumb that simplify decision making.

15. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 15 Heuristics and Potential Biases Availability Heuristic - the rule of thumb that says an event that is easy to remember is likely to have occurred more frequently than an event that is difficult to remember. Potential bias is overestimating the frequency of vivid, extreme, or recent events and causes.

16. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 16 Heuristics and Potential Biases Representativeness Heuristic - the rule of thumb that says similar kinds of events that happened in the past are a good predictor of the likelihood of an upcoming event. Potential bias is failure to take into account base rates and overestimating the likelihood of rare events.

17. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 17 Heuristics and Potential Bias Anchoring and Adjustment Heuristic - the rule of thumb that says that decisions about how big or small an amount should be can be made by making adjustments from some initial amount. Potential bias is inappropriate decisions when initial amounts are too high or too low.

18. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 18 Escalation of Commitment The tendency to invest additional time, money, or effort into what are essentially bad decisions or unproductive courses of action.

19. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 19 FIGURE 14.3 Escalation of Commitment

20. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 20 Advice to Managers Do not give vivid or extreme instances of an event too much weight in decision making. If a vivid or extreme instance comes to mind, think about the extent to which less extreme or vivid events and causes have occurred.

21. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 21 Advice to Managers When making decisions, be sure to consider events and causes beyond the most recent ones. When trying to estimate the likelihood of an event or cause occurring, take into account the number of times this event or cause has actually occurred. Remember, rare events are unlikely to be repeated.

22. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 22 Advice to Managers Whenever you are making a decision based on adjusting some initial amount, stop and determine whether the initial amount was originally too high or too low. Realize that a sign of good decision making is the ability to recognize when a decision needs to be reversed.

23. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 23 Advice to Managers When deciding whether to commit resources to a course of action, take into account the costs only of the resources you are about to commit. Do not take into account costs that have already been incurred.

24. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 24 Advice to Managers If you are deciding whether to commit more resources to a course of action that has already resulted in some losses of money, time, or effort, ask yourself whether you would commit the resources if you had not already experienced the losses but had your current knowledge.

25. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 25 Group Decision Making Advantages and Disadvantages Availability / Diversity of Members’ Skills, Knowledge, and Expertise Enhanced Memory for Facts Capability of Error Detection Greater Decision Acceptance Time The Potential for Groupthink

26. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 26 Groupthink A pattern of faulty decision making that occurs in cohesive groups whose members strive for agreement at the expense of accurately assessing information relevant to the decision.

27. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 27 Symptoms of Groupthink Illusion of Invulnerability Belief in inherent morality of the group Collective rationalizations Stereotypes of other groups Self-censorship Illusion of unanimity Direct pressure on dissenters Emergence of self - appointed mind guards

28. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 28 Other Consequences of Group Decision Making Diffusion of Responsibility Group Polarization Potential for Conflict

29. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 29 Advice to Managers Use groups to make decisions when the decision requires a wide range of skills, knowledge, and expertise, or more information than a single individual could be expected to consider and remember, or when acceptance by others is necessary to implement the decision. But keep in mind that group decision making is time- consuming.

30. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 30 Advice to Managers Use individuals to make decisions when an individual has all the skills and knowledge necessary to make a good decision, when an individual can gather and accurately take into account all necessary information, and when acceptance by others for successful implementation is either unnecessary or likely to occur without their participation.

31. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 31 Advice to Managers Encourage group members to be critical of each other’s ideas and to raise any doubts or misgivings they may have. In the groups you lead, wait to express your own opinions until the group has had a chance to evaluate different alternatives.

32. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 32 Advice to Managers Whenever a decision-making group is cohesive, follow the five steps to prevent Groupthink. Impress on group members that each of them is responsible for helping the group make a good decision.

33. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 33 Group Decision Making Techniques Brainstorming The Nominal Group Technique The Delphi Technique Benchmarking Empowerment

34. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 34 Brainstorming A spontaneous, participative decision- making technique that groups use to generate a wide range of alternatives from which to make a decision.

35. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 35 Nominal Group Technique A decision-making technique that includes the following steps: group members generate ideas on their own and write them down, group members communicate their ideas to the rest of the group, and each idea is then discussed and critically evaluated by the group.

36. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 36 Delphi Technique A decision-making technique in which a series of questionnaires are sent to experts on the issue at hand who never actually meet face to face.

37. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 37 Benchmarking Selecting a high-performing group and using this group as a model.

38. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 38 Empowerment The process of giving workers throughout an organization the authority to make decisions and be responsible for their outcomes.

39. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 39 Definitions Creativity: A decision-making process that produces novel and useful ideas. Innovation: The successful implementation of creative ideas.

40. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 40 The Creative Process Recognition of a problem or an opportunity Information gathering Production of creative ideas Selection of creative idea(s) Implementation of creative idea(s)

41. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 41 FIGURE 14.5 The Creative Process

42. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 42 Characteristics That Contribute to Creativity Decision Maker Individual Differences Task-relevant Knowledge Intrinsic Motivation Situation Level of Autonomy Form of Evaluation Reward System Importance of a Decision

43. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 43 FIGURE 14.6 Determinants of Creativity

44. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 44 Advice to Managers Make sure that workers have knowledge that is relevant to the kinds of decisions they need to make. If a decision requires knowledge from a number of different areas, use a group to make the decision, and assign members to the group who bring with them some additional task knowledge.

45. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 45 Advice to Managers Give workers constructive feedback on what they are working on, but do not be too critical of their day-to-day activities. Do not punish workers when their creative ideas do not pan out.

46. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 46 Advice to Managers Be sure that extrinsic rewards are distributed to workers who have performed well and made a real contribution to the organization. Do not use extrinsic rewards to control day-to-day behaviors.

47. CHAPTER 14 Decision Making Copyright © 1999 Addison Wesley Longman 47 Advice to Managers Let workers know how the ideas and suggestions they come up with will affect the organization. If a group of workers is making an important decision, let them know why it is so important.