Assignment 7

may2025

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Chapter 14

Decision Making

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Introduction

Decision making is 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

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Decision making is defined as the process of choosing a particular action that deals with a problem or opportunity. The quality of the decisions that managers make is the yardstick of their effectiveness. Sometimes just one or two exceptionally good or exceptionally poor decisions can have significant effects on a manager’s career or an organization’s success.

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

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Researchers and experts in the field of decision making have developed several ways of classifying different types of decisions. For the most part, these classification systems are similar, differing mainly in terminology. We use the widely adopted distinction suggested by Herbert Simon. Simon distinguishes between two types of decisions: 1. Programmed decisions. If a particular situation occurs often, a routine procedure usually will be worked out for solving it. Decisions are programmed to the extent that they are repetitive and routine, and a definite procedure has been developed for handling them. 2. Nonprogrammed decisions. Decisions are nonprogrammed when they are novel and unstructured. There is no established procedure for handling the problem, either because it has not arisen in exactly the same manner before or because it is complex or extremely important.

Types of Decisions

EXHIBIT 14.1 Types of Decisions

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Exhibit 14.1 presents a breakdown of the different types of decisions, with examples of each type, in different kinds of organizations. The exhibit illustrates that programmed and nonprogrammed decisions require different kinds of procedures and apply to distinctly different types of problems.

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

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Ideally, the main concern of top management should be nonprogrammed decisions, while first-level managers are typically concerned with programmed decisions. Middle managers in most organizations also concentrate on programmed decisions, but will increasingly participate in nonprogrammed decisions. In other words, the nature, frequency, and degree of certainty surrounding a problem should dictate at what level of management the decision should be made. Obviously, problems arise in those organizations where top management expends much time and effort on programmed decisions. One unfortunate result of this practice is a neglect of long-range planning.

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

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Decisions should be thought of as means rather than ends. They are the organizational mechanisms through which an attempt is made to achieve a desired state. They are, in effect, anorganizational response to a problem. Every decision is the outcome of a dynamic process that is influenced by a multitude of forces.

The Rational Decision-Making Process

EXHIBIT 14.2 The Rational Decision-Making Process

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Exhibit 14.2 diagrams a rational decision-making process. The reader should not, however, interpret this out-line to mean that decision making is a fixed procedure. It is a sequential process rather than a series of steps. This sequence diagram enables us to examine each element in the normal progression that leads to a decision. Examination of Exhibit 14.2 reveals that it is more applicable to nonprogrammed decisions than to programmed decisions. Problems that occur infrequently, with a great deal of uncertainty surrounding the outcome, require that the manager utilize the entire process. For problems that occur frequently, however, this is not necessary. If a policy is established to handle such problems, it will not be necessary to develop and evaluate alternatives each time a similar problem arises.

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

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All problems are not created equal. Managers need to decide which problems need immediate attention. Determining problem significance involves consideration of three issues: urgency, impact, and growth tendency. Urgency relates to time. Impact describes the seriousness of the problem’s effects. Growth tendency addresses future considerations. Even though a problem may currently be of low urgency and have little impact, if allowed to go unattended it may grow.

Decision Making Environments

Certainty

Risk

Uncertainty

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Once alternatives have been developed, they must be evaluated and compared. In every decision situation, the objective is to select the alternative that will produce the most favorable outcomes and the least unfavorable outcomes. This again points to the necessity of objectives and goals since, in selecting from among alternatives, the decision maker should be guided by the previously established goals and objectives. The alternative-outcome relationship is based on three possible conditions:

• Certainty. The decision maker has complete knowledge of the probability of the outcome of each alternative.

• Uncertainty. The decision maker has absolutely no knowledge of the probability of the outcome of each alternative.

• Risk. The decision maker has some probable estimate of the outcomes of each alternative.

Alternatives to Rational Decision Making

Administrative Decision Making

Intuitive Decision Making

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Decision makers do not follow to the letter the decision-making process presented in Exhibit 14.2. Time pressures, incomplete information, limited human resources, and many other factors may impact the decision-making process.

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

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March and Simon offer a descriptive approach that is described as the administrative decision-making model. In this model decision makers are depicted as operating with incomplete information and being impacted by their cognitive abilities and by psychological and sociological factors. Managers who are faced with limitations and restrictions often use what is referred to as the bounded rationality approach .In this approach the decision makers are assumed to have a limited or incomplete view of the problems or opportunities facing them. The number of solutions that can be implemented is limited by the capabilities of the decision maker and the resources that are available. Since the information, data, and knowledge are not perfect, which decision is best is unknown.

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

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In the bounded rationality approach, the following assumptions are made: •Managers (decision makers) rarely have all the information they need or want. •Decision makers are not aware of all possible alternatives and are not able to predict consequences. •Early alternatives and solutions are quickly adopted because of constraints and limitations. •The organization’s goals constrain decision making. •Conflicting goals of different constituents (e.g., employees, suppliers, customers, and boards) can restrict decisions, forcing a compromise solution.

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

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Managers sometimes simply make decisions based on a “gut” feeling or intuition. An intuitive decision maker uses experience, self-confidence, and self-motivation to process information, data, and the environment to address a problem or opportunity. Intuitive decision making involves an unconscious process that incorporates the decision maker’s personality and experience in reaching a decision.

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

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Intuitive decision making occurs frequently because: •High levels of uncertainty about a problem, the goals, and the decision criteria can exist. •In some situations there is no history or past experience to draw upon. •Time pressures are intense. •An excessive number of alternatives can be difficult to thoroughly analyze. These factors suggest that when uncertainty is high, time pressures are bearing down, and complexity exists, intuitive decision making is likely to be involved. The rational and administrative explanations of decision making are appealing because some logic and system is associated with each of these processes.

Behavioral Influence on Decision Making

Propensity for Risk

Potential for Dissonance

Escalation of Commitment

Values

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A number of behavioral factors influence any decision-making process (e.g., rational, administrative, intuitive). Some of these factors influence only certain aspects of the process, while others influence the entire process. However, each may have an impact and, therefore, must be understood to fully appreciate decision making as a process in organizations. Four behavioral factors—values, propensity for risk, potential for dissonance, and escalation of commitment—are discussed in this section. Each of these factors has been shown to have a significant impact on the decision-making process.

Values

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

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In the context of decision making, values can be thought of as the guidelines a person uses when confronted with a situation in which a choice must be made. Values are acquired early in life and are a basic (often taken-for-granted) part of an individual’s thoughts.

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

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The influence of values on the decision-making process is profound: In establishing objectives, it is necessary to make value judgments regarding the selection of opportunities and the assignment of priorities. In developing alternatives, it is necessary to make value judgments about the various possibilities. In choosing an alternative, the values of the decision maker influence which alternative is chosen. In implementing a decision, value judgments are necessary in choosing the means for implementation. In the evaluation and control phase, value judgments cannot be avoided when corrective action is taken.

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

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It is clear that values pervade the decision-making process. As one example, consider the issue of ethics in decision making. An ethical decision can be viewed as one that is legal and morally acceptable to society; an unethical decision is either illegal or morally unacceptable. To a large extent, a decision maker’s willingness to make ethical or unethical decisions will be influenced by his or her values. Why do some individual decision makers in every profession, occupation, and country resort to unethical choices? Philosophers and social scientists have studied this problem and found that no one set of explanations applies to all cases. Some of the most cited explanations of why decision makers still make unethical choices include those on the slide.

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?

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Improving the record of making ethical decisions is difficult. Values are difficult to change. Efforts to promote ethical decision-making focus on training, preparation of a code of ethics, having top executives serve as proactive role models, and personally examining the situation or decision to be made. When examining the situation, the decision maker should consider doing what is legal, doing what is right, being fair, and answering the question, “Could the decision meet the ‘sunshine’ test,” or “if it is published in the newspaper, would the reader consider the decision ethical?” Ethical decision making starts with the values that guide an individual’s decision making. There are no simple prescriptions, but there are right, fair, honest, and open ways of making decisions. Many decisions have an ethical dimension that requires thought, reflection, caution, and attention. Considering the rights of others, adhering to strong values, and living up to high standards of behavior are the starting points for facing inevitable ethical dilemmas when making decisions.

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

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From personal experience, you undoubtedly are aware that decision makers vary greatly in their propensity for taking risks. This one specific aspect of personality strongly influences the decision-making process. A decision maker who has a low aversion to risk will establish different objectives, evaluate alternatives differently, and select different alternatives than will another decision maker in the same situation who has a high aversion to risk. The latter will attempt to make choices where the risk or uncertainty is low or where the certainty of the outcome is high. You will see later in the chapter that many people are bolder and more innovative and advocate greater risk taking in groups than as individuals. Apparently, such people are more willing to accept risk as members of a group. Risk propensity is also affected by whether potential outcomes are characterized in terms of losses or gains. This, in turn, depends on how the decision maker “frames” the decision. Framing refers to the decision maker’s perception, in terms of gains or losses, of the decision’s possible outcomes.

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

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Much attention has been focused on the forces and influences affecting the decision maker before a decision is made and on the decision itself. But only recently has attention been given to what happens after a decision has been made. Specifically, behavioral scientists have focused attention on the occurrence of post-decision anxiety. Such anxiety is related to what Festinger calls cognitive dissonance. Festinger’s cognitive dissonance theory states that there is often a lack of consistency or harmony among an individual’s various cognitions (attitudes, beliefs, and so on) after a decision has been made. That is, there will be a conflict between what the decision maker knows and believes and what was done, and as a result the decision maker will have doubts and second thoughts about the choice that was made. In addition, there is a likelihood that the intensity of the anxiety will be greater when any of the following conditions exist:

1. The decision is an important one psychologically or financially.

2. There are a number of forgone alternatives.

3. The forgone alternatives have many favorable features.

Each of these conditions is present in many decisions in all types of organizations. You can expect, therefore, that post-decision dissonance will be present among many decision makers, especially those at higher levels in the organization.

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

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Dissonance can be reduced by admitting that a mistake has been made. Unfortunately, many individuals are reluctant to admit they have made a wrong decision and will be more likely to use one or more of the following methods to reduce their dissonance:

1. Seek information that supports the wisdom of their decision.

2. Selectively perceive (distort) information in a way that supports their decision.

3. Adopt a less favorable view of the forgone alternatives.

4. Minimize the importance of the negative aspects of the decision and exaggerate the importance of the positive aspects.

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

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The potential for dissonance is influenced heavily by one’s personality, specifically one’s self-confidence and ability to be persuaded. In fact, all of the behavioral influences are closely interrelated and are isolated here only for discussion purposes. For example, what kind of a risk taker you are and your potential for anxiety following a decision are very closely related, and both are strongly influenced by your personality, your perceptions, and your value system. Before managers can fully understand the dynamics of the decision-making process, they must appreciate the behavioral influences on themselves and other decision makers in the organization when they make decisions.

Escalation of Commitment

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

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Decision makers who are unclear about their goals, have a fear of failure, are feeling pressure, and work in a culture with low trust are likely to be candidates for escalation of decision making. Escalation of commitment refers to an increasing commitment to a previous decision when a “rational” decision maker would withdraw. It typically results from a need to turn a losing or poor decision into a winning or good decision.

Making Decisions in Diverse Cultures

As organizations transcend national boundaries, cultural differences and influences become increasingly significant

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Organizational decision making in the United States is presumed to be based on thorough and objective analysis of relevant information. Whether this is true in actual practice is arguable, but it does represent what is supposed to happen ideally. This is not the ideal in every society, however. In some countries, it is inappropriate for senior executives to consult subordinates before making a decision; in other countries it is equally inappropriate for them not to consult subordinates. In almost every aspect of decision making, different cultural norms dictate different ways of proceeding

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

The decision must be accepted throughout the organization

Especially true for non-programmed programs

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In most organizations, a great deal of decision making is achieved through committees, teams, task forces, and other kinds of groups. Managers frequently face situations in which they must seek and combine judgments in group meetings. This is especially true for nonprogrammed problems, which are novel and have much uncertainty regarding the outcome. In most organizations, it is unusual to find decisions being made on such problems by one individual on a regular basis. The increased complexity of many nonprogrammed decisions requires specialized knowledge in numerous fields, usually not possessed by one person. This requirement, coupled with the reality that the decisions made eventually must be accepted and implemented by many units throughout the organization, has increased the use of the collective approach to the decision-making process.

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

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Considerable debate has occurred over the relative effectiveness of individual versus group decision making. Groups usually take more time to reach a decision than individuals do. But bringing together individual specialists and experts has its benefits since the mutually reinforcing impact of their interaction results in better decisions. In fact, a great deal of research has shown that consensus decisions with five or more participants are superior to individual decision making, majority vote, and leader decisions. Unfortunately, open discussion has been found to be negatively influenced by such behavioral factors as the pressure to conform; the influence of a dominant personality type in the group; “status incongruity,” as a result of which lower-status participants are inhibited by higher-status participants and “go along,” even though they believe that their own ideas are superior; and the attempt of certain participants to influence others because these participants are perceived to be experts in the problem area. Additionally, framing effects occur more frequently in groups.

Benefits of 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

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Certain decisions appear to be better made by groups, while others appear better suited to individual decision making. Nonprogrammed decisions appear to be better suited to group decision making. Usually calling for pooled talent, the decisions are so important that they are frequently made by top management and, to a somewhat lesser extent, by middle managers.

EXHIBIT 14.3 Probable Relationship between Quality of Group Decision and Method Utilized

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Exhibit 14.3 summarizes the research on group decision making. It presents the relationship between the probable quality of a decision and the method utilized to reach the decision. It indicates that, as we move from “individual” to “consensus,” the quality of the decision improves. Note also that each successive method involves a higher level of mutual influence by group members. Thus, for a complex problem requiring pooled knowledge, the quality of the decision is likely to be higher as the group moves toward achieving consensus.

Creativity in Group Decision Making

Creativity A process by which an individual, group, or team produces novel and useful ideas

Groups have more creative potential than do individuals

Characteristics of creative people

Perseverance

Risk-taking propensity

Openness

Tolerance of ambiguity

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Since most decisions involve some degree of risk, there is a need for creativity to solve problems and seize opportunities. Creativity is a process by which an individual, group, or team produces novel and useful ideas to solve a problem or capture an opportunity. In organizations, moving away from logical, linear, or “in the box” thinking describes creativity. This is called lateral thinking or a process of generating novel ways to solve problems faced by an individual or group.

Techniques for Stimulating Creativity

Brain-storming

Delphi Technique

Nominal Group Technique

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Practicing managers need specific techniques that will enable them to in-crease the benefits from group decision making while reducing the associated problems. If problems are not addressed, then a group’s creativity can be substantially diminished. We shall examine three techniques that, when properly utilized, have been found to be extremely useful in increasing the creative capability of a group in generating ideas, understanding problems, and reaching better decisions. Increasing the creative capability of a group is especially necessary when individuals from diverse sectors of the organization must pool their judgments and create a satisfactory course of action for the organization. The three techniques are brainstorming, the Delphi technique, and the nominal group technique.

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

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In many situations, groups are expected to produce creative or imaginative solutions to organizational problems. In such instances, brainstorming often has been found to enhance the creative output of the group. The technique of brainstorming includes a strict series of rules. The purpose of the rules is to promote the generation of ideas while, at the same time, avoiding the inhibitions of members that usually are caused by face-to-face groups. The basic rules are shown on the slide.

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

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Issues that can decrease the effectiveness of brainstorming in teams include: 1. Social loafing. Team members tend to not work as hard mentally or physically as they would alone, so social loafing can decrease the quality and quantity of ideas generated from the brainstorming session. 2. Conformity. If members of the team are overly concerned that their ideas and suggestions will be viewed critically by others, then they will be less likely to provide innovative and creative suggestions. 3. Idea production blocking. This occurs when a team member has to wait for his or her turn to provide an idea that contributes to the brainstorming session. The delay may cause the individual to forget what he or she was going to say, or to not listen to what is being said by other contributors. 4. Downward norm setting. When a brainstorming session is not well managed, the lowest-performing members tend to pull down the overall performance of the

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

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This technique involves the solicitation and comparison of anonymous judgments on the topic of interest through a set of sequential questionnaires that are interspersed with summarized information and feedback of opinions from earlier responses. The Delphi technique retains the advantage of having several judges while removing the biasing effects that might occur during face-to-face interaction. The basic approach has been to collect anonymous judgments by mail questionnaires. For example, the members independently generate ideas to answer the first questionnaire and return it. The staff members summarize the responses as the group consensus and feed this summary back along with a second questionnaire for reassessment. Based on this feedback, the respondents independently evaluate their earlier responses. The underlying belief is that the consensus estimate will result in a better decision after several rounds of anonymous group judgment. While it is possible to continue the procedure for several rounds, studies have shown essentially no significant change after the second round of estimation.

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

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NGT has gained increasing recognition in health, social service, education, industry, and government organizations. The term nominal group technique (NGT) was adopted by earlier researchers to refer to processes that bring people together but do not allow them to communicate verbally. Thus, the collection of people is a group “nominally,” or in name only. You will see, however, that NGT in its present form combines both verbal and nonverbal stages. Basically, NGT is a structured group meeting that proceeds as follows: A group of individuals (7 to 10) sit around a table but do not speak to one another. Rather, each person writes ideas on a pad of paper. After five minutes, a structured sharing of ideas occurs. Each person around the table presents one idea. A person designated as recorder writes the ideas on a flip chart in full view of the entire group. This continues until all of the participants indicate that they have no further ideas to share. There is still no discussion. The output of this phase is a list of ideas (usually between 18 and 25). The next phase involves structured discussion in which each idea receives attention before a vote is taken. This is achieved by asking for clarification or stating the degree of support for each idea listed on the flip chart. The next stage involves independent voting in which each participant, in private, selects priorities by ranking or voting. The group decision is the mathematically pooled outcome of the individual votes.

EXHIBIT 14.4 Four-Step Nominal Group Technique

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Differences Between Delphi and NGT

Delphi Technique

Participants are anonymous, physically distant, never meet

Communication is by written questionnaires, with feedback from the monitoring staff

NGT

Participants become acquainted, meet face-to-face around a table

Communication is direct between participants

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Both the Delphi technique and NGT have had excellent

success records. Basic differences between them are shown on the slide.

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

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Decision making is a common responsibility shared by all executives, regardless of functional area or management level. Every day, managers are required to make decisions that shape the future of their organization as well as their own futures. The quality of a manager’s decisions is the yardstick of his or her effectiveness. Some of these decisions may have a strong impact on the organization’s success, while others will be important but less crucial. However, all of the decisions will have some effect (positive or negative, large or small) on the organization.

Assignment 7

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