Foundations of decision making
in organizations
dr Adrianna Jaskanis
[email protected]
Chair of Organization Theory and
Methods
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Examples of Planning Decisions
•
•
•
•
•
•
What are the organization’s long-term objectives?
What strategies will best achieve those objectives?
What should the organization’s short-term objectives be?
What is the most efficient means of completing tasks?
What might the competition be considering?
What budgets are needed to complete department tasks?
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Key terms
Decision
Decision making
process
Problem
© Adrianna Jaskanis
• Choosing among alternatives; rather
a process than a simple act of choosing
• A set of steps that include identifying
a problem, selecting a solution and
evaluating effectiveness of the solution
• A discrepancy between an existing
situation and a desired state of affaires
Faculty of Management, University of Warsaw
Certainty, uncertainty and risk
Certainty
• Implies that a manager can make an accurate decision because of the
outcome of every alternative is known
• Manager assigns probabilities to outcomes that may result
Risk
Uncertainty
© Adrianna Jaskanis
• Manager – decision maker does not have full knowledge of the
problem and cannot determine even a reasonable probability of
alternative outcomes
Faculty of Management, University of Warsaw
Decision-making process
Identification
of a problem
Identification
of decision
criteria
Allocation of
weights to
criteria
Development
of alternatives
Analysis of
alternatives
Selection of
an alternative
Implementati
on
Evaluation of
decision
effectiveness
Źródło: Dean, J.W., Scharfman M.P. (1996). Does Decizion Process Matter? A Study of Strategic Decizion-Making Effectiveness,
„Academy of Management Journal, marzec 1996 za: Robbins S.P., DeCenzo, D.A. (2002). Podstawy zarządzania. Warszawa: PWE, s. 175.
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Rational model
The problem is
clear and
unambiguous
No time or cost
constraints exist
A single welldefined goal is to
be achieved
Preferences are
constant and
stable
All alternatives
and consequences
are known
Preferences are
clear
© Adrianna Jaskanis
Final choice will
maximizes
economic payoff
Faculty of Management, University of Warsaw
Algorithm vs. Heuristics
Heuristics:
Algorithm
• Judgmental shortcuts
• "rules of thumb"
• Self-contained step-bystep set of operations
to be performed
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Algorithm – selection of the
project
yes
yes
Is the scope of
the project as
the customer
required?
Is the project
feasible?
no
Project
rejected
© Adrianna Jaskanis
yes
yes
Selection
of the
project
Is the project to
be completed
within the
certain time
period?
Is the project
within the
budget limit?
no
no
no
Project
rejected
Project
rejected
Project
rejected
Faculty of Management, University of Warsaw
Common errors commited in
decision making
• Availability heuristics – the tendency to base judgements
on information that is readily available
• Representative heuristics – the tendency for people to
base judgements of probability on things with which they
are familiar
• Escalation of commitment to a previous decision despite
negative information
• Anchoring heuristics - tendency to rely too heavily on the
first piece of information offered (the "anchor") when
making decisions
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Availability heuristics
Covered in the news
What actually happens
in the world
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Availability heuristics
Source: http://www.psych2go.net/availability-heuristic-recall-ability-affects-perception/
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Survey conducted in 2010 in the U.S.
– The most feared ways to die
Top results
•
•
•
•
•
•
Terrorist attack
Shark attacks
Airplane crashes: Your chances of being
involved in a fatal airline accident
are once every 19,000 years.
Being murdered
Natural disaster
Falling: In 2001, 12,000 people aged 65+
died from a fall. However, only 80 people
die from falling from a tall height
annually.
The actual annual leading causes of
death in the U.S.
•
•
•
•
•
•
•
Tobacco usage: 435,000 deaths, 18.1% of
total U.S. deaths
Poor diet/physical inactivity: 400,000
deaths, 16.6%
Alcohol consumption: 85,000 deaths,
3.5%
Microbial agents: 75,000
Toxic agents: 55,000
Motor vehicle crashes: 43,000
Incidents involving firearms: 29,000
Source: http://www.psych2go.net/availability-heuristic-recall-ability-affects-perception/
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Representative heuristics (1)
The Hanover (2009)
IMDb rating: 7,8/10
The Hangover II (2011)
IMDb rating: 6,5/10
The Hangover III (2013)
IMDb rating: 5,6/10
Budget: $35,000,000 (estimated)
Budget: $80,000,000 (estimated)
Budget: $103,000,000 (estimated)
Opening Weekend
$44,979,319 (USA) (7 June 2009)
(3,269 Screens)
Opening Weekend
$85,946,294 (USA) (29 May 2011)
(3,615 Screens)
Opening Weekend
$41,775,000 (USA) (28 May 2013)
(3,555 Screens)
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Representative heuristics (2)
• Kac Wawa (2012)
• IMDb rating: 1,2/10
…
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Escalation of committment
• Google glass – an optical head-mounted display designed in the
shape of a pair of eyeglasses
• Developed by Google X – the facility within Google devoted to
technological advancements (such as driverless cars, led by Jaque
Aldrich and his team of 27 prodigies) with the mission of producing
a ubiquitous computer
• Google started selling a prototype of Google Glass to qualified
"Glass Explorers" in the US on April 15, 2013, for a limited period
for $1,500, before it became available to the public on May 15,
2014
• On January 15, 2015, Google announced that it would stop
producing the Google Glass prototype
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Anchoring heuristics
Anchor
Today’s situation
• Two weeks all-inclusive holiday
offer to Thailand – PLN 20 000
during the winter break
• Two weeks all-inclusive holiday
offer to Thailand – PLN 12 000
during the winter break
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Anchoring heuristics
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Decision making techniques
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Well-structured and ill-structured
problems
Well-structured problems
Ill-structured problems
• Straightforward, familiar, easily
defined problems
• New problems in which information
is ambiguous or incomplete
• Programmed decision – a repetitive
decision that can be handled by a
routine approach
• Non-programmed decision –
a unique solution must be developed
to solve unique and nonrecurring
problems
• This types of problems align closely
with the assumptions underlying
perfect rationality and can be
handled efficiently through
standardized organizational method
• This types of problems require
custom-made, non programmed
response
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Types of problems, decision and
level in organization
Top
Ill-structured
Nonprogrammed
decisions
Type of
problem
Level in
organization
Programmed
decisions
Well-structured
© Adrianna Jaskanis
Lower
Faculty of Management, University of Warsaw
Multiple-criteria decision analysis
Information about the projects:
Criteria
Project X
Project Y
Project Z
Time (in months)
6
12
24
Cost (PLN)
400 000
320 000
240 000
Criteria
Weight
Project X
Project Y
Project Z
0,7 = 70%
1
2
3
0,3 = 30%
3
2
1
Time (in months)
Cost (PLN)
Project 𝑋 = 0,7 × 1 + 0,3 × 3 = 1,6
Project Y = 0,7 × 2 + 0,3 × 2 = 2
Project Z= 0,7 × 3 + 0,3 × 1 = 2,4
© Adrianna Jaskanis
Selected project
Faculty of Management, University of Warsaw
How to use the paired
comparaison analsysis
• Make a list of all of the options that are to be compared
• Compare options with one-another - within each of the blank cells,
compare the option in the row with the option in the column. Decide
which of the two options is most important, and write down the letter of
the most important option in the cell
• Example: when comparing A with B, we chose A over B and we think that
there is an important difference between the two projects
Projects:
A
B
A
X
A2
B
X
X
C
X
X
X
D
X
X
X
X
E
X
x
X
X
© Adrianna Jaskanis
C
D
E
X
Faculty of Management, University of Warsaw
Paired comparaison analysis (1)
Projects:
A
B
C
D
E
A
X
A2
C0
A2
A3
B
X
X
C1
B2
E1
C
X
X
X
C1
E2
D
X
X
X
X
D3
E
X
x
X
X
X
• Compare other projects as the cells of the matrix indicate.
• Score the difference in importance between the options, running from
zero (no difference/same importance) to, say, three (major difference/one
much more important than the other.)
• Consolidate the results by adding up the values for each of the options
and form a rank list of all the options.
• E.g. Project A= 2+2+3=7
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Technika porównywania parami
(2)
Project
A
B
C
D
E
© Adrianna Jaskanis
Values
7
2
2
3
3
Rank list
1
3
3
2
2
Selected project
Faculty of Management, University of Warsaw
Decision Trees
• They provide a highly effective structure within which
options are laid out and possible outcomes are
investigated
• How to use the decision tree tool?
1. With starting a decision it is to be made and with listing
solutions to the problem
2. Then present the results of each solution and estimate
the probability of each outcome. The total must come to
100% at each circle. Then evaluate your decision tree by
assessing the value of each outcome
3. Calcuate every node of your decision tree
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Decision tree – effective
method of decision making
• Decision trees clearly lay out the problem so that all
options can be challenged
– Allow to analyze fully the possible consequences of a decision
– Provide a framework to quantify the values of outcomes and the
probabilities of achieving them
– Help to make the best decisions on the basis of existing
information and best guesses
 Please get familiar with an example of decision tree in
the book: Robbins, DeCenzo, 2008, p. 143-144.
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Decision tree example
Probability
Place
with
garden
5/12
Estimated profit
Expected Value in 000s PLN
5x120 000 zł
=5/12x600+7/12x490 = 535,8
7/12
7x70 000 zł
5/12
5x100 000 zł
Place to rent
Place
without
a garden
=5/12x500+7/12x630 =453,8
7/12
7x90 000 zł
- Decision point
- Outcome point
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Fishbone diagrams
Machine
Man
Seconardy
cause
Secondary
cause
Primary
cause
Primary
cause
Primary
cause
Primary
cause
Primary
cause
Effect
Primary
cause
Primary
cause
Primary
cause
Primary
cause
Method
© Adrianna Jaskanis
Environment
Faculty of Management, University of Warsaw
5M+E
• People / Manpower: Everyone involved with the process across the
value stream, including support functions
• Processes / Methods: This defines how the process is performed
and the all requirements needed for doing it, including quality
procedures, work orders / travellers / work instructions, drawings
• Machines / Equipment: All machines and equipment, needed to
accomplish the job, including tools
• Materials: Raw materials, purchased parts and sub assemblies that
feed into the end product
• Measurements: defines how have we determined that the
outcome is wrong
• Environment: The conditions that influence the process including
time, temperature, humidity or cleanliness
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
How to use the fishbone
diagram to solve a problem?
• The technique uses a diagram-based approach for thinking through
all of the possible causes of a problem
• Steps to use the tool to analyze the problem:
1. Identify the problem.
2. Work out the major factors involved.
3. Identify possible causes.
4. Analyze your diagram.
• This method is particularly useful when you're trying to solve
complicated problems
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Example 1
Source:
https://s3.amazonaws.com/accredible_card_attachments/attachments/67840/original/MODULE_2_2_Problem_Solving.
pdf
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Example 2
Source: https://www.mindtools.com/pages/article/newTMC_03.htm
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Flow diagram for potato chips proces
with Critical Control Points (CCP)
CCP1
1. Receiving
potatoes-potatoe
chamber
8. Frying
9. Seasoning
glazing
CCP2
2. Destoningtuber washing
7. Dehydration
10. Final product
picking
CCP3
3. Tuber/peeling
6. Washing
11. Weighingpackaging
CCP5
4. Picking tuber
cutting
5. Slicing
12. Storage and
distribution
CCP6
CCP4
Arvanitoyannis, I.S., Varzakas, T.H. (2007). Appplication of failure mode and effect analysis (FMEA), cause and effect analysis and
Pareto diagram in conjunction with HACCP to a potato chips manufacturing plant. International Journal of Food Science and
Technology, 42, s. 1424-1442.
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Arvanitoyannis, I.S., Varzakas, T.H. (2007). Appplication of failure mode and effect analysis (FMEA), cause and effect analysis and
Pareto diagram in conjunction with HACCP to a potato chips manufacturing plant. International Journal of Food Science and
Technology, 42, s. 1424-1442.
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Group decision making process
 Many decisions in organizations, especially important ones that
have far-reaching effects on organizational activities and
personnel are typically made in groups
 Organization uses committees, task forces, review panels, work
teams and similar groups for making decisions
 The above are formed by the most affected by a certain
decision
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Advantages of group decision
making
• Group decision s provide more complete information that
do individual ones
– Two heads are better than one
– A group brings a diversity of experiences and perspectives that
an individual acting alone cannot
– Groups generate more alternatives
– Quantity and diversity of information is the greatest when group
member represent different specialties
– Group decision making increases a process of decision
acceptance
– Group decision making is consistent with democratic ideals
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Disadvantages of group decision
making
• Group decisions are not without drawbacks
– Time-consuming, inefficient interactions between the
group members
– Minority domination – group members differences –
e.g. tank in the organization, experience, knowledge
about the problem, influence on other members,
verbal skills, assertiveness and the like
– Pressure to conform – groupthink
– Ambiguous responsibility to a developed solution
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Problem of the groupthink
• Group members rationalize any resistance to the
assumptions they have made
• Members apply direct pressures on those who
momentarily express doubts about any of the group’s
shared views or who question the validity of arguments
favored by the majority
• Those members who have doubts or hold differing points
of view seek to avoid deviating from what appears to be
group consensus
• An illusion of unanimity is pervasive. If someone does not
speak, it is assumed that he/she is in full accord
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Improving group decision
making
• Brainstorming – an idea-gathering process that
encourages alternative while withholding criticism
• Nominal group technique – a decision making
techniques in which group members are physically
present but operate independently
• Electronic meeting – a type of nominal group
techniques in which participants are linked by
computer
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Case study
Decision making process in
EcoOrganic Cosmetics Company
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Questions to the case study
1.
2.
3.
4.
5.
List a few examples of the well- and ill-structured problems that the company
EcoOrganic Cosmetics is facing.
List a few examples of the programmed and non-programmed decisions that
the company EcoOrganic Cosmetics has to make.
Write down an algorithm for production and market introduction of the
selected new product of the company. Please consider all the legal,
technological, economic, social and cultural factors.
Think of the production process of the EcoOrganic Cosmetics and describe it
briefly. Where would be a Critical Control Point in the process? Please do the
Ishikawa Diagrams of the potential problems that the company may encounter.
Please discuss and elaborate on the best way of decision making for the
EcoOrganic Cosmetics.
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Questions to the case study
6.
7.
Set the criteria and their weights to evaluate company’s development and
growth options. Use Multiple-criteria decision analysis to select the best option.
Do the necessary calculations.
Use the paired comparison analysis to evaluate the development and growth
options of the EcoOrganic Cosmetics company.
 A case study to solve in groups of 2-3 people, to
return via e-mail or printed by 9/11/2016
© Adrianna Jaskanis
Faculty of Management, University of Warsaw
Additional materials 
• An article to help you out with the Question 4 - Arvanitoyannis, I.S.,
Varzakas, T.H. (2007). Appplication of failure mode and effect
analysis (FMEA), cause and effect analysis and Pareto diagram in
conjunction with HACCP to a potato chips manufacturing plant.
International Journal of Food Science and Technology, 42, s. 14241442.
• Paired comparaison analysis https://www.mindtools.com/pages/article/newTED_02.htm
• Multiple-criteria decision analysis - Robbins, DeCenzo, 2008, p. 100103.
© Adrianna Jaskanis
Faculty of Management, University of Warsaw