Management Skills I: Foundations of Management Chapter 7: Decision making
I
Introduction
MANAGEMENT
SKILLS
FOUNDATIONS
OF
MANAGEMENT
Chapter 7: Decision Making
• Decision making
– The process of choosing a particular action that deals with a problem or opportunity
– Just one or two exceptionally good or poor 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.
Types of Decisions
• Programmed
– Repetitive and routine
– There is a definite There is a definite
procedure for handling them
Types of Decisions
• Non‐Programmed
– Novel and unstructured
– No established No established
procedure for handling the problem or situation
Types of Decisions
• The nature, frequency, and degree of certainty surrounding a problem dictates the management level at which the decision should be made.
– The main concern of top management should p
g
be non‐programmed decisions.
– First‐level management should be concerned with programmed decisions.
– Problems arise if top management spends too much
time and effort on programmed decisions.
Programmed Decisions
Nonprogrammed Decisions
Problem
Frequent, repetitive, routine.
Novel, unstructured.
Much certainty regarding cause Much uncertainty regarding
and effect relationships
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
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
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.
1
Management Skills I: Foundations of Management The Rational Decision‐Making Process
Chapter 7: Decision making
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
gp
– Identifying symptoms as problems
• Problems are of three types
– Opportunity
– Crisis
– Routine
Exhibit 7.2
Administrative Decision Making
• Impacts on the Decision Making Process.
– Time Pressures
– Incomplete information
– Limited human resources
Limited human resources
• Managers with limitations and restrictions often take a bounded rationality approach.
Intuitive Decision Making
• An intuitive decision maker uses experience, self‐confidence, and self‐motivation to…
– process information, data, and the environment.
– address a problem or opportunity.
address a problem or opportunity
Assumptions of Bounded Rationality
1. Managers rarely have all the info they need or want.
2. Managers are not aware of all possible alternatives and cannot predict consequences.
alternatives and cannot predict consequences.
3. Early alternatives and solutions are quickly adopted because of constraints and limitations.
4. Organizational goals constrain decision making.
5. Conflicting goals can force compromise.
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.
No history or past experience to draw upon
– Intense time pressures.
– An excessive number of alternatives.
2
Management Skills I: Foundations of Management Chapter 7: Decision making
Behavioral Influence on Decision Making
• Guidelines a person uses when
confronted with a situation in which
a choice must be made
Propensity
for Risk
Values
Decision
Maker
Values
Potential for
Dissonance
Escalation
of Commitment
Values
• Decision‐making elements affected by values
– Establishment of objectives
– Development of alternatives
– Choosing an alternative
Choosing an alternative
– Implementing a decision
– Evaluation and control
• Values influence one’s willingness to make ethical or unethical decisions.
Questions for Decision Makers
• If published in the newspaper, would readers consider the decision ethical?
• Is it right?
• Can it meet the “sunshine” test?
i
h “
hi ”
?
• Is it legal?
• What is fair?
Values
• Most cited reasons for making unethical choices:
– Pressure to perform exceptionally well
– “Keeping
Keeping up with the Joneses
up with the Joneses”
– A secretive and non‐revealing culture
– Failure to take responsibility for problems
– Focusing on cost before safety
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.
3
Management Skills I: Foundations of Management Potential for Dissonance
• Dissonance
Chapter 7: Decision making
Potential for Dissonance
• People try to reduce dissonance by…
– 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
Potential for Dissonance
• The potential for dissonance is influenced heavily by…
– Personality, particularly one’s self‐confidence and ability to be persuaded
ability to be persuaded
– Propensity to take risks
– Perceptions
– Value system
Making Decisions in Diverse Cultures
• As organizations transcend national boundaries, cultural differences and influences become increasingly significant
– Seeking information that supports the wisdom
of the decision.
– Selectively perceiving (distorting) information 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.
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:
y
g
– Are unclear of their goals
– Have a fear of failure
– Are feeling pressure
– Work in a culture of low trust
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
knowledge not usually possessed by one person.
– The decision must be accepted throughout the organization.
– Especially true for non‐programmed programs
4
Management Skills I: Foundations of Management Chapter 7: Decision making
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
f
– A dominant personality type in the group
– Status incongruity
– Perceived expertise
– Framing
Group Decision Making
• Non‐programmed group decisions are better when it comes to…
– Establishing goals and objectives
– Identifying causes
Identifying causes
– Developing alternative solutions
– Evaluating alternative solutions
– Solution selection
– Implementation and follow‐up
Relationship Between Quality of Group Decision and Method Utilized
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
Exhibit 7.3
Techniques for Stimulating Creativity
Brainstorming
• The generation of ideas in a group through
non‐critical discussion, with strict rules:
Nominal Group
p
Technique
B i t
Brainstorming
i
Delphi
Technique
– No idea is too ridiculous,
– An idea belongs to the group, not the person An idea belongs to the group not the person
stating it,
– No idea can be criticized.
5
Management Skills I: Foundations of Management Brainstorming
• Brainstorming effectiveness is decreased by:
– Social loafing
– Conformity
– Idea production blocking
Idea production blocking
– Downward norm setting
The Delphi Technique
• Solicitation and comparison of anonymous judgments on a topic of interest.
– Sequential questionnaires, interspersed with summarized information and feedback from
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.
Four‐Step NGT
Step 1: Individual members independently
record ideas, problems to be solved, or
opportunities
Initiate Step 1
with different
idea, problem,
or opportunity
Step 2: Each member records an idea,
problem or opportunity with no comments
problem,
or discussion
Step 3: Each recorded statement is
discussed, narrowing them down to the
best set
Chapter 7: Decision making
Brainstorming
• To increase performance:
– Set specific goals for teams to achieve.
– Provide meaningful incentives.
– Have a skilled facilitator.
Have a skilled facilitator
Nominal Group Technique (NGT)
• A method of decision making that occurs in a highly structured meeting.
– Group decision is the mathematically pooled outcome of individual votes
outcome of individual votes.
– No verbal communication or discussion.
Differences Between Delphi and NGT
• Delphi Technique
– Participants are anonymous, physically distant, never meet
– Communication is by C
i ti i b
written questionnaires, with feedback from the monitoring staff
• NGT
– Participants become acquainted, meet face‐
to‐face around a table
– Communication is direct C
i ti i di t
between participants
Step 4: Members vote/rank from best to
worst the winnowed set of ideas,
problems, opportunities
6
Management Skills I: Foundations of Management Chapter 7: Decision making
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.
7