Operations Management and Decision-Making Models

MBA503 – Operations

Management and

Decision-Making Models

Workshop 8 – Decision-making

– approaches and techniques

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2

Introductory Student Activity

Watch the following video monologue by

Ellen Degeneres – what reflections do you

have on her commentary

• https://www.youtube.com/watch?v=BatqV

3B9hiU

Lesson Learning Outcomes

1 Appreciate the key concepts which

underpin effective decision-making 2 Identify decision-making constructs

and approaches 3 Understand how biases and errors limit

effective decision-making

LEARNING OUTCOME 1

Appreciate the key concepts

which underpin

effective decision-making

What is a decision?

“A choice made between alternative

courses of action in a situation of

uncertainty.” Business Dictionary, 2019

“A conclusion or resolution reached

after consideration.” Oxford dictionaries 2019

Decision-Making

“The thought process of selecting a logical choice from the available

options.”

Business Dictionaries, 2019

When trying to make a

good decision, a person

must weigh the positives

and negatives of each

option, and consider all

the alternatives.

For effective decision

making, a person must be

able to forecast the

outcome of each option as

well, and based on all these

items, determine which

option is the best for that

particular situation.

Business Dictionaries 2019

Good Decision

Effective Decision Making

Effective Decision Making

LEARNING OUTCOME 2

Identify decision-making

constructs

and approaches

The 8 Step Decision-Making

Process http://franzimanagement.blogspot.com.au/2010/10/week-4-chapter-5-managerial-planning.html

Student Activity You are in charge of a business that is in financial trouble.

One staff member must be made redundant.

A shortlist of five staff members has been put forward:

• Finance manager • Marketing manager • Office manager • HR manager • Operations manager

• By working through the 8-step decision-making process, identify

who you would make redundant

first. Why?

Rational Decision-Making

• Operations managers are expected to make

decisions that are:

• logical • consistent • act to maximise

enterprise value (not

their own interests).

• The process of rational decision-

making favours

• logic, • objectivity, and • analysis over

subjectivity and

insight.

Behaviour that is rational within the parameters of a

simplified decision- making process that is limited (bounded)

by an individual’s ability to process

information.

Often results in the pursuit of a course of action that will satisfy

the minimum requirements

necessary to achieve a particular goal. This

is satisfiscing.

“Hey! It is not a perfect outcome but it

will do!”

Bounded Rationality

Intuitive Decision-Making

• A subconscious process of making

decisions on the basis of experience,

feelings and accumulated

judgement.

• Is there a role for values and ethics in

intuitive decision-making?

Well-Structured Problems and Programmed

Decisions

Rule: An explicit

statement that tells a

manager what they

can or cannot do

Structured problem: Straightforward, familiar and easily defined problems

Programmed decision: a repetitive decision that that can handled by a routine approach

Policy: a guideline that establishes parameters for making decisions

Student Activity

• In groups of four, identify three

examples of each type of decision

described in the previous slide.

• What type of decisions are the most

common in your life at present?

Unstructured Problems and Non-

Programmed Decisions

• Unstructured problems: problems that are

new or unusual and for which information

is ambiguous or incomplete

• Non-programmed decisions: decisions that

are unique and require customised

solutions

• See Table 6.5 Robbins et al

LEARNING OUTCOME 3

Understand how biases and errors

limit

effective decision-making

Escalation of Commitment

Decision is made

Evidence suggests that the decision was wrong

Money, or time and commitment makes people reluctant to change direction

Sometimes, during

decision making people

can chose to continue

on a path, despite the

evidence that it is the

wrong decision

Sometimes known as

Throwing good money

after bad

Or

Sunk Costs

Availability heuristic:

Overestimating the importance of information that

is easily available to them

Anchoring bias:

Being too reliant on the first information available to the

decision-maker

Bandwagon effect:

One person’s views are too readily accepted by others

(groupthink)

Blind-spot bias:

An individual is often poor at identifying their own personal

biases

Decision Making Biases and

Errors

Clustering illusion: seeing patterns in

random events (the gambler’s curse)

Confirmation Bias: preferring to only receive information that confirms

a preconception

Conservatism Bias: favouring older

information over new or radically different

information

Information Overload: constantly seeking more

information than is necessary to make a

decision

Decision Making Biases

and Errors

Ostrich Effect:

Ignoring or avoiding information that may be dangerous or negative –

‘hiding your head in the sand’

Outcome Bias:

Judging the quality of a decision based on its

outcome rather than its process

Conservatism Bias:

Favouring older information over new or radically different

information

Information Overload: Constantly seeking more

information than is necessary to make a decision

Decision Making Biases and

Errors

Overconfidence:

Too confident in one’s own abilities – leads to risk-

taking – the ‘expert’ syndrome

Recency Bias:

Opposite to conservatism – placing too much weight on

recent information at the expense of older data

Stereotyping:

Expectation that a group or individuals will have certain qualities that is not based

on factual information

Zero Risk Bias:

We love certainty even if it is counterproductive – trying to eliminate risk completely

– do no harm to anyone

Decision Making Biases

and Errors

Student Activity

• View the following video which explains

some of the common decision-making

biases.

https://youtu.be/cAbdmV3VOwA.

Student Activity

Imagine you are interviewing a

candidate for an important new role in

your company.

• In pairs, identify two ways that each

of those biases could become

manifest either before, during or after

the recruitment process.

Dangers of Categorical

Thinking

• “We all think categorically, and for good

reason: It helps us make sense of the

world, But in business, categorical

thinking can lead to major errors in

decision-making”

• Langhe and Fernbach (2019, pg. 82)

Categorical thinking

Make sure everyone appreciates the danger or categorisation. Analysing data assists us to understand the problems, by questioning the decision- making criteria de-fossilising, categories

The solution

By categorising we make things in the category more “alike "than they are – and then make the differences between the categories more significant than they are.

The consequences

Categorical thinking is normal human behaviour, however, it can impact on our ability to make good decisions

The problem

How to avoid categorisation

Increased awareness – understand that we all

think categorically and its limitations

Develop capabilities to analyse data continuously. Good analytics are critical

Audit decision criteria. Avoid having an arbitrary

threshold for “passing” a decision

Schedule regular meetings where you brainstorm your

basic assumptions underpinning your decisions

– are they still valued?

Effective Decision-Making in the

21st Century

• Understand cultural differences.

• Create standards for good decision-

making.

• Know when it is time to call it quits. If it is

not working then walk away.

• Constantly validate the effectiveness of

your decision-making processes.

Exit Activity

• Individually, think of a circumstance when

you made a significant decision, which

turned out to be either a very good

decision or a poor decision

• What made the decision right or wrong?