Chapter 16: Decision Making

1. Chapter 16: Decision Making Creating Effective Organizations

2. Problems in Decision Making • Satisficing versus maximizing (bounded rationality) • Sunk Cost Bias/Escalation of Commitment • Psychological Limits • Personality Limits (e.g. overconfidence)

3. The Decision Making Process Establish goals and objectives Identify the problem Develop alternative solutions R e c y c l e Evaluate the alternatives Choose an alternative Implement the decision Evaluate and control

4. Assets and Liabilities of Groups in Making Decisions • Assets of Groups: • Greater knowledge of information • Greater variety of approaches to a problem • Increased acceptance of the decision • Reduced communication problems

5. Assets and Liabilities of Groups in Making Decisions • Liabilities of Groups • Social pressures to conform • Loss of valuable time of group members • Hasty convergence on a solution • Possibility of control by a dominant individual • Distraction by hidden agenda and secondary goals • Insufficient time to reach a decision • Problems with disagreement and interpersonal conflicts • Possibility of final decision being an irrational compromise

6. Victor Vroom: Decision Making/Leadership Model Victor Vroom Commenting on Participative Decision Making: “It would be naïve to think that group decision making is always more “effective” than autocratic decision making, or vice versa; The critics and proponents of participative management would do well to direct their efforts toward identifying the properties of situations in which different decision making approaches are effective rather than wholesale condemnation or deification of one approach.” --Vroom, 1974

7. Types of Management Decision Styles

8. Table 1: Decision Model NO 1-AI 2-AI YES YES NO NO 3-GII NO 4-AI YES 5-AI 6-GII YES YES NO YES 7-CII YES YES NO NO NO YES YES NO 9-AII 8-CI YES NO 10-AII YES 11-CII NO YES 12-GII NO YES NO NO 14-CII 13-CII

9. Cases in Decision Making • Rearranging Work Assignments • Sharply decreasing profits for the firm has resulted in a directive from top management that makes it impossible to take on any new personnel even to replace those who leave. Shortly after this directive is issued, one of your five subordinates resigns to take a job with another firm. Your problem is to rearrange the work assignments among the remaining four subordinates without reducing the total productivity of the group. • Choosing a Replacement • You have been chosen by your firm to attend a nine-week senior executive program at a famous university. Your problem is to choose one of your subordinates to take your place during your absence. • The Behind-Schedule Project • You have two main projects under your direction with three subordinates assigned to each. One of these projects is three months behind schedule with only six months remaining before the work must be completed. Your problem is to get the project back on schedule to meet the completion date.

10. Ways to encourage creativity in decision making • Brainstorming (everyone participates in sharing ideas/opinions) • Nominal Group Technique (all group members present ideas before discussion) • Delphi Technique (expert opinions are gathered before decision making takes place)

11. Key Learnings about Decision-Making • Programmed decisions should follow the steps outlined in the decision-making model • Non-programmed decisions require brainstorming or other creative decision-making techniques • We should be aware of the conceptual blocks and biases in decision making, both in individuals and groups • We should know when to make a decision by ourselves and when include others