10/29/2015
Decision Making
Lecture 4
Prof. Mario Martínez-Córcoles, PhD
[email protected]
Summary
1 st PART
2 nd PART
B
§Definition & types of decisions
§How to perform a good
R
§Individual DM
E Brainstorming
A
§Organizational DM
§Exercise: Eggstronaut
K
§Cognitive biases
§Individual vs. Team DM
§Team DM techniques
Definition
§Cognitive process resulting in the selection of a
course of action among several alternative possibilities
§Process of identifying and solving problems
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Types of Decisions
§ Programmed Decision
§ Routine, virtually automatic decision making that follows
established rules or guidelines.
Example: Deciding to reorder office supplies.
§ Non-Programmed Decision
§ Nonroutine decision made in response to unusual or novel
opportunities and threats.
§ The are no rules to follow since the decision is new.
Example: Should the firm invest now in a new technology?
Individual Decision
Decision--Making
Individual Decision
Decision--Making
• Rational approach – ideal method for how
managers should make decisions
• Bounded rationality perspective – how decisions
are made under severe time and resource
constraints
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Disadvantages on the RationalRational-Model
• requires a great deal of time and information
• assumes rational, accurate, stable and complete knowledge of all
the alternatives, preferences, goals and consequences
• Volatility involves shortcuts by relying on intuition and
experience. These deviations are explained by Bounded
Rationality.
Bounded rationality
• There is a limit to how rational managers can
be—time and resource constraints
– Nonprogrammed decisions
• Constraints and Tradeoffs
– Constraints impinge on the decision maker
• The Role of Intuition
– Experience and judgment rather than logic
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Constraints and Tradeoffs
During NonNon-programmed Decision Making
Organizational Decision
Decision--Making
Organizational Decision
Decision--Making
4 types of Org. DM processes:
ü Management Science Approach
ü Carnegie Model
ü Incremental Decision Model
ü Garbage Can Model
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Management Science Approach
• Similar to rational individual approach
– Structured
• Based on technology
Management Science Approach
• Use of statistics to quantify relevant variables
• Remove human element
• Good tool for decisions where variables can be
indentified and measured
• A drawback of management science is that
quantitative data are not rich and lack tacit
knowledge
The Carnegie Model
• Introduces a set of more realistic assumptions about
the decision-making process
– Bounded rationality: a limited capacity to process
information. Time constraints
– Coalitions: managers talk to each other to gather info and
reduce ambiguity. Several implications:
• Satisficing: Accept a satisfactory (to all members) rather than a
maximum level of performance.
• Problemistic search: They look around in the immediate
environment for a solution to quickly resolve a problem.
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Differences
Management Science
Carnegie model
Information is available
Limited information is available
Decision making is costless
Decision making is costly
Possible alternatives are generated
Limited range of alternatives are
generated
Solution is chosen by unanimous
agreement
Solution is chosen by bargaining and
compromise
Soln chosen is best for the org
Soln chosen is satisficing for the org
Incremental Decision Process Model
• Focuses on sequence of events from problem
discovery to solution
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Garbage Can Model
• Pattern or flow of multiple decisions
• Explain decision making in high uncertainty organized anarchy:
– Ambiguity characterizes each step of a DM
– Unclear, poorly understood technology
– Turnover
• Streams of events instead of a sequence
“problem identification-solution”
Garbage Can Model
Solutions
Participants
Choice
opportunities
Problems
- Decisions in organizations are
random and unsystematic
Consequences of the
Garbage Can Model
1. Solutions may be proposed even when
problems do not exist
2. Choices are made without solving problems
3. Problems may persist without being solved
4. A few problems are solved
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Cognitive biases
ESCALATING COMMITMENT
à Organizations continue to invest time and money in a
solution despite it is not working.
Explanations:
-Managers think they can recoup their losses
-Managers block negative info when they are responsible for
bad decisions
-Consistent managers are better valued
Cognitive biases
LOSS AVERSION
-The threat of a loss has a greater impact on a decision than
the possibility of an equivalent gain.
-Managers have a tendency to analyze problems in terms of
what they fear losing rather what they might gain.
-Overweight the value of potential losses and underweight
the value of potential gains
Cognitive biases
GROUPTHINK
Tendency of people in groups to supress contrary opinions.
-Desire for harmony outweighs concerns over decision
quality.
Mantaining unity rather challenging problems and
alternatives. People censor their personal opinions and are
reluctant to criticize others’ opinions
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Individual Vs Team DM
ADVANTAGES (group)
DISADVANTAGES (group)
Pooling of resources
Waste time
Specialization of labour
Group conflict
Decision acceptance
Intimidation by group leaders
When are individuals better in DM than groups?
-There’s a simple task to do and the person is skilled in it
-Team members aren’t problem-focused
-The team members don’t communicate freely and good ideas are
accepted fastly
Improving team DM
Encourage Dissent and Diversity: Useful to open the decision
process to a wide variety of ideas and opinions (avoiding
social biases)
*Ensure the group is diverse in terms of gender, age,
occupation, hierarchical level and experience.
Devil’s Advocacy: Challenging the assumptions and assertions
made by group.
Team DM Techniques
Delphi Technique: provides for a written format without
having all managers meet face-to-face.
-Problem is distributed by a leader in written form to
experts who then generate written different solutions.
-Solutions are compiled by the leader who share in a 2 nd
mailing the different alternatives and managers can
discuss about the validity of each one.
The process continues until consensus is reached.
Average: 1 month-2 months
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Team DM Techniques
Nominal Group Technique: Provides a more structured way to generate
alternatives in writing.
Avoids the production blocking problem.
Each member is given time to write a possible solution.
Alternatives are then read aloud without discussion until all have been
listed.
Then team discusses and clarifies each alternative.
Members privately rank order their preferred solutions
à Idea with higher rank is taken as group’s decision
Group DM Techniques
Brainstorming: face-to-face meeting to generate and debate many
alternatives.
References
Kahneman, D. (2011). Thinking, fast and slow. New York:
Farrar, Straus and Giroux.
Daft, R. L. (2010). Decision Making Processes. In Organization
theory and design (tenth edition), pp. 450-489. Mason, Ohio:
Thomson/South-Western.
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2nd PART
Brainstorming
Creative tasks
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Creative tasks
-“We could do this…”
-“It could work…”
-“Perhaps it is a good idea…”
-“I like it…”
-“In the next meeting we
decide what should be done”
1st Brainstorming rule
• Divide the dynamic
– Create = 60%
– Make choices = 40%
Brainstorming: Creating
• 1 moderator
• No criticism, no judgement
-Organize the dialogue/dyn
-Ask all team members
-Write and integrate ideas
• Suspend authority
• Harebrained ideas allowed
• Quantity and diversity
(painting)
-Manage time
-Manage turns
• Co-construction of knowledge
• No interruptions
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Brainstorming: Making choices
-Organize the dialogue/dyn
• 1 moderator
-Integrate information
• Devil’s advocate allowed
-Inform about choices
• Keep a door open
• Quality and singularity
created
-Manage the transition to
• Approaching consensus
making choices
-Ask all team members
• No interruptions
-Manage time
• Manage plan “B”
-Manage turns
Eggstronaut!!
Eggstronaut
Prof. Mario Martínez-Córcoles
[email protected]
Instructions
Dr. Eggstronaut wants to travel to Mars. You are the
team that will design and create his spacecraft, taking
into consideration that:
-The spacecraft will impact on Mars with an estimated
gravity force of 2 Kg and a speed of 20km/h.
-We want Dr. Eggstronaut survives to this impact.
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Instructions
- Teams (Competition)
- Create a spacecraft
-Design the spacecraft (just seeing
materials): 20 minutes
-20 minutes to build the spacecraft
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