Decision Making in Organizations solving Problems & Making Decisions

1. Decision Making in Organizations solving Problems & Making Decisions

2. Decision-making • Decision-making process • A set of seven steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution • Problem • A discrepancy between an existing and a desired state of affairs • Decision criteria • Factors that are relevant in a decision

3. Examples of Planning-Function 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? • How difficult should individual goals be? Exhibit 4.1

4. The Decision-Making Process

5. Step 1: Identifying the Problem • Problem “A discrepancy between an existing and a desired state of affairs” (p. 186) • Ask the question, Why? • Determine the reason • Separating the symptoms from problems • Example: • A physician must identify reasons for a fever. Once the cause is identified, the problem has been determined

6. Step 2: Collect Relevant Information • Gather facts & information relevant to the problem: • Ask questions: • When did the problem start appearing? • Why is appearing now? • What are the affects of the problem? • What are the costs associated with the problem?

7. Step 3: Develop Alternatives • Generate a full range of alternatives for solving the problem • Creativity is critical • The more alternatives generated, the greater likelihood the best choice is among the possibilities

8. Step 4: Evaluate Each Alternative • Evaluation of all the strengths and weaknesses of each alternative • Guard against biases • Estimate the cost of each alternative • Estimate the implementation time of each alternative • Identify the strengths and weaknesses of each alternative • Approximate the expected outcome of each alternative • Favorable & Unfavorable

9. Step 5: Select the Best Alternative • Selection of the best alternative will depend on: • Comprehensiveness and accuracy of information gathered • Creativeness of alternatives • Quality of analysis

10. Step 6: Implement the Decision • Establish a plan: • When will the decision be implemented? • Who will be involved? • What will be involved? • What changes will take place? • How will they occur? • Convey the decision to those affected • Assign responsibilities • Allocate necessary resources • Identify and clarify deadlines • Get commitment from those involved in the implementation

11. Step 7: Follow Up & Evaluate • Continually monitor outcomes • Did your choice accomplish the desired result? • Did it correct the identified problem

12. Decision Tools Three possible condition: • Certainty • The implication that the outcome of every possible alternative is known. • Risk • The probability that a particular outcome will result from a given decision. Must rely on personal experiences, secondary information, and historical data. • Uncertainty • A condition under which there is not full knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined.

13. Decision Tools What is the Expected Value Analysis? • Expected Value Analysis: “A procedure that permits decision makers to place monetary value on various consequences likely to result from the selection of a particular course of action”(p. 190)

14. Decision Tools cont… • How are Decision Trees Helpful? • Decision Tree “A diagram that analyzes hiring, marketing, investment, equipment purchases • Encompass expected value analysis by assigning probabilities to each possible outcome and calculating payoffs for each decision path

15. Decision Tools cont… • Marginal Analysis: “A decision method that helps decision makers optimize returns or minimize costs by dealing with the additional cost in a particular decision, than the average cost”(p. 192) Example: Taking on a new customer What additional revenue would be generated by the new customer What additional costs would be generated by the new customer If the increased revenue exceeds the increased costs, total profits would be increased by accepting the new customer

16. Decision Making: Styles • Directive style • Characterizes the low tolerance for ambiguity and a rational way of thinking of individuals who are logical and efficient and typically make fast decisions that focus on the short term. • Analytic style • Characterizes the high tolerance for ambiguity combined with a rational way of thinking of individuals who prefer to have complete information before making a decision. • Careful decision makers with the ability to adapt or cope with new situations • Example: Supervisors, business students, & top executives

17. Decision Making: Styles (cont’d) • Conceptual style • Individuals who tend to be very broad in outlook, to look at many alternatives, and to focus on the long run and often look for creative solutions. • Behavioral style • Individuals who think intuitively but have a low tolerance for uncertainty; they work well with others, are open to suggestions, and are concerned about the individuals who work for them.

18. Decision-Making Styles

19. Common Decision-making Errors • Heuristics: Using judgmental shortcuts • Availability heuristic • The tendency to base judgments on information that is readily available. • Representative heuristic • The tendency to base judgments of probability on things (objects or events) that are familiar • Example: Not hiring certain types of people based upon previous performance of similar person • Escalation of commitment (Blackjack Strategy) • An increased commitment to a previous decision despite negative information about the decision’s present outcomes.

20. How Do Problems Differ? • Well-structured problems • Straightforward, familiar, easily defined problems (use programmed decision to solve) • Ill-structured problems • New problems in which information is ambiguous or incomplete (hire consultants to solve problem) • Programmed decision • A repetitive decision that can be handled by a routine approach • Nonprogrammed decisions • Decisions that must be custom-made to solve unique and nonrecurring problems • New laws • New organizational/departmental strategy

21. Advantages Make more accurate decisions Provides more complete information Offers a greater diversity of experiences and perspectives Generates more alternatives Increases acceptance of a solution Increases the legitimacy of a decision. Disadvantages Is more time-consuming and less efficient Minority domination can influence decision process Increased pressures to conform to the group’s mindset (groupthink) Ambiguous responsibility for the outcomes of decisions Group Decision Making

22. When Are Groups Most Effective? • Creativity • Groups tend to be more creative than individuals. • Acceptance of the final solution • Groups help increase the acceptance of decisions. • Effectiveness of group decision making • Groups of five to seven members are optimal for decision process speed and quality.

23. Improving Group Decision Making • Brainstorming • An idea-generating process that encourages alternatives while withholding criticism. • Nominal group technique • A decision-making technique in which group members are physically present but operate independently. • Electronic meeting • A type of nominal group technique in which participants are linked by computer.

24. Ethics and Business • Ethics • A set of rules or principles that defines right and wrong conduct • Code of ethics • A formal document that states an organization’s primary values and the ethical rules it expects managers and operatives to follow

25. Three Views of Ethics • Utilitarian view of ethics • Making decisions solely on the basis of their outcomes or consequences. • “Providing the greatest good for the greatest number” • Rights view of ethics • Respecting and protecting individual liberties and privileges & “Decision consistent with Bill of Rights” • Theory of justice view of ethics • Fairly and impartially imposing and enforcing rules. • “Union – pay is equal, seniority decides layoff, etc. the End