CHAPTER 16 Decision Making Chapter Overview The chapter addresses the topic of decision-making in organizations by focusing on four primary topics: The types of decisions made in organizations Steps in the decision-making process The behavioral influences on individual decision-making Group decision-making The chapter begins by describing the two basic types of decisions (programmed and non-programmed) and providing the characteristics and examples of each decision type. Concerning the decision-making process, seven steps are discussed (presented in Figure 16-1): Establishment of specific goals/objectives Problem identification Development of alternatives Evaluation of alternatives Selection of an alternative Implementation of the chosen solution Control and evaluation of the solution Six primary behavioral influences on individual decision-making are examined: ethics, values, personality, propensity for risk, potential for dissonance, and escalation of commitment. Concerning group decision-making, the chapter discusses the relative advantages and shortcomings of decision-making by comparing groups to individuals and discusses three prominent techniques for enhancing creativity in groups: brainstorming, the Delphi technique, and the nominal group technique. Learning Objectives By the end of the chapter, students should be able to: 1. Define the terms programmed decision and nonprogrammed decision. 2. Describe the process of decision making. 3. Discuss the major behavioral influences on the process of decision making. 4. Compare group decision making and individual decision making. 5. Identify the various methods that managers can use to stimulate creativity in group decision making. Lecture Outline PowerPoint Slide Material from Text to Support Slide / Additional Comments The learning objectives for the chapter are listed. These objectives will be revisited at the close of the chapter. While managers in various organizations may be separated by background, lifestyle, and distance, sooner or later they must all make decisions Discuss the importance of decision making in the role of management. Consider a discussion on what would define a “good” or “poor” manager and lead the class to decision making. Regardless of organizational variations and the degree of employee participation, managers are ultimately responsible for decision outcomes. That is, they face a situation involving several alternatives, and their decision involves a comparison of alternatives and an evaluation of the outcome. Specialists in decision making have developed several ways of classifying decisions. Similar for the most part, these systems differ mainly in terminology. We shall use the widely adopted system suggested by Herbert Simon. It distinguishes between two types of decisions: programmed and nonprogrammed. The table compares programmed and nonprogrammed decisions. Discuss management level and the decision type typically addressed. Generally, only top management routinely addresses nonprogrammed decisions. Decisions should be thought of as means rather than ends. They are the organizational mechanisms by which an attempt is made to achieve a desired state. They are, in effect, an organizational response to a problem. Every decision is the outcome of a dynamic process that is influenced by a multitude of forces. Considering asking the students if they follow a process when they are confronted with a decision. Decision making may be facilitated by following a process. The decision-making process diagrammed in Figure 16.1 is not a fixed procedure. It is a sequential process rather than a series of steps. This enables us to examine each element in the normal progression that leads to a decision. This process applies more to nonprogrammed decisions than to programmed decisions. Problems that occur infrequently, with a great deal of uncertainty and risk surrounding the outcome, require that the manager utilize the entire process. For problems that occur frequently, the entire process is not necessary. If a policy is established to handle such problems, managers don’t need to develop and evaluate alternatives each time a problem of this kind arises. Adequately established goals and objectives will dictate which results must be achieved and which measures indicate whether those results have been achieved. If management fails to communicate a tolerance for risk, employees are liable to zero-out risk, a situation that involves avoiding any potential failures and thereby limiting the potential for success. If no problems exist, there would be no need for a decision. The existence of a problem is indicated by gap between the organization’s goals and objectives and the level of actual performance. The gap itself is not the problem, Identifying the exact problem may be hindered by three common factors. Perceptual factors may cause information to be selectively perceived, distorted or ignored. Defining problems in terms of solutions is really a form of jumping to conclusions. Identifying symptoms as problems fails to identify the causes of the symptoms and therefore does not address the true problem. Problems are usually of three types. Crisis and routine problems present themselves and must be attended to by management. Opportunities, in contrast, must usually be discovered and often go unnoticed. As crisis and routine problems demand immediate attention, management may spend so much time on them that they neglect opportunities. Many well-managed organizations try to draw attention away from crisis and routine problems towards longer-range issues through planning activities and goal-setting programs. An alternative view related to identifying problems can be seen through what Karl Weick has termed sense making. Weick suggested that management must constantly try to understand the contexts in which they are operating. Management should seek out data from multiple sources and involve others in the sense-making process. Management should try not to automatically apply their existing problem-solving approaches to the new information, but rather should be open to trying new approaches to problem solving. Before a decision is made, feasible alternatives should be developed and the possible consequences of each alternative considered. Developing alternatives is really a search process in which the relevant internal and external environments of the organization are investigated to provide information that can be developed into possible alternatives. Sufficient effort should be made to develop a wide range of alternatives. Contrary to what one may think, there is a positive link between the number of alternatives considered and the speed with which a decision can be reached. One means to broaden the development of alternatives is through scenario analysis. Scenarios compel managers to consider what could be, not what has been. Scenario analysis allows managers to overcome tunnel vision- the inability to think in abstract patterns. The major advantage of scenario-based development of alternatives is that it allows decision makers to uncover alternatives that would have been overlooked under traditional alternative generation practices. When evaluating alternatives it may be useful to consider the relationship between alternatives and outcomes. The alternative-outcome relationship is based on three possible conditions: Certainty. The decision maker has complete knowledge of the probability of the outcome of each alternative. Uncertainty. The decision maker has absolutely no knowledge of the probability of the outcome of each alternative. Risk. The decision maker has some probabilistic estimate of the outcomes of each alternative. Decision making under conditions of risk is probably the most common situation. Statisticians and operations researchers have made important contributions to decision making under the condition of risk. Decision making is more than an act of choosing, it is a dynamic process. An alternative rarely achieves the desired objectives without impacting outer objectives, either positively or negatively. Situations often occur when optimizing one objective may suboptimize another. Management may have knowledge of all of the alternatives or their consequences. In this environment, management may be satisficers rather than optimizers. A satisficer will select an alternative that satisfies an established requirement. It is entirely possible for a “good” decision be hurt by poor implementation. In this sense, implementation may be more important than the actual choice of the alternative. Implementation almost always involves people. The test of a decision’s soundness is the behavior of the people affected by the decision. A manager’s job is not only to choose good solutions but also to transform such solutions into behavior in the organization. This is done by effectively communicating with the appropriate individuals and groups. Control requires the comparison of actual and planned results and the implementation of corrective actions should deviation(s) result. It is important to note that without measurable objectives, it is impossible to evaluate results. If the original objective must be revised, the entire decision-making process must be reactivated. Following the decision-making process does not guarantee excellent decisions. Several behavioral factors influence the decision-making process; some affect only certain aspects of the process, while others influence the entire process. The following slides review these factors. Ethics is a system or code that guides individual’s conduct. In terms of decision making, it helps individuals evaluate different alternatives to a problem in terms of right and wrong. A survey conducted by the Society of Human Resource Management and the Ethics Resource Center asked 750 human resource professionals whether they had observed workplace conduct that was in violation of the law or organizational standards. The most common types of workplace violations are listed on the slide. Based on a comprehensive review of the empirical research done on ethical decision making in business, several tentative conclusions have been made regarding which factors appear to exert influence over ethical decisions. Of individual factors, gender, education, work experience, and level of awareness have not consistently been related to ethical decision making. Individuals that posses certain moral philosophies and that are older tend to take ethical considerations into account when making decisions. On the group level significant others within the organization influence peers and coworkers. At the organizational level culture and climate directly influence individual decision making Having a code of ethics raises employees’ awareness of ethical behavior Some individuals believe that ethics cannot be taught and that making ethical decisions is a product of one’s morals, upbringing, and similar factors. Yet, given the apparent increase in less-than-ethical behavior, many leaders feel the need to act. TI developing a training program called “Decision Making in the New TI” that stresses the importance of corporate ethics and values centers around the points covered on the slide. In the context of decision making, values are the guidelines a person uses when confronted with a situation in which a choice must be made. Values profoundly influence decision making. Decision makers are influenced by many psychological forces, both conscience and subconscious. One of the most important of these forces is personality. Studies that have examined the effect of personality on the process of decision making have generally focused on three types of variables. The most important conclusions concerning the influence of personality on the decision-making process are shown on this slide. This specific aspect of personality strongly influences the decision-making process. The decision maker with a low aversion to risk establishes different objectives, evaluates alternatives differently, and seeks different alternatives than a decision maker in the same situation with a high aversion to risk. The amount of risk in a given decision is based upon three questions. Depending on the answers to these questions a framework may be used to classify whether decisions are being made in conditions of certainty, uncertainty or risk. When making decisions, managers who can identify goals in a clear manner and gather relevant information about alternative solutions and outcomes related to those alternatives are more likely to make successful decisions. Unfortunately, managers may not always have the time and resources to gather extensive amounts of information about a problem, or frame a problem to facilitate the discovery of a solution. Day-to-day issues can encourage managers to make nonoptimal decisions. Framing may influence how one approaches a problem. A car rental manager may acknowledge that the agency runs out of cars but is quick to say it happens only once in a while and is not a large problem. He is unlikely to make any decision to alter the inventory situation. If that same situation is framed as the lack of cars is hurting revenue and customer goodwill, the manager is more likely to make a decision. Cognitive dissonance, today termed regret theory, looks at post decision anxiety. Decision makers may have doubts and second thoughts regarding their decisions. Post decision anxiety can be heightened by several factors. If an individual is reluctant to admit a poor decision has been made, they may attempt to reduce their anxiety by distorting information. Rather than admit error, some decision makers continue on a course of action ignoring dismissing negative information. Self-justification theory has been offered as an explanation for the escalation of commitment. Managers must be aware of the tendency to justify past actions by continuing on an ill-fated course of action. It is recommended that managers take a step back periodically and objectively evaluate whether a project is meeting expectations. Managers are frequently confronted with situations in which they seek and combine judgments form groups of people. Groups may improve outcomes for nonprogrammed decisions Groups allow for specialized skills and unique perspectives to be incorporated into the decision making process. Managers are increasingly called upon to “collaborate,” a “process of joint decision making among key stakeholders of a problem domain about the future of that domain.” Considerable debate has taken place regarding the relative effectiveness of individual versus group decision making. The figure summarizes research findings on group decision making. The graph shows as we move from individual to consensus decisions, the quality of the decision typically improves. A key benefit of groups in decision making is the greater opportunity for creativity. This increased level of creativity may not occur spontaneously and several tools are available to promote creativity. Brainstorming may increase the creative output of a group. The Delphi Process attempts to balance the advantage of multiple judges while removing biasing effects that can occur in a face-to-face meeting. The nominal group technique is a structured group meeting where communication is tightly controlled and the group decision is the mathematically pooled outcome of individual preferences. While the Delphi Process and NGT share several similarities they are distinct in several facets. Lecture Tips Lecture Ideas 1. To facilitate understanding of decision-making and the seven steps in the decision-making process, ask your students: What's the most difficult decision you've ever made? Then have students consider how they approached the decision in terms of the model's seven steps. Have them identify and consider particular factors that influenced their approach and the alternative they selected. Then ask them to consider the extent to which behavioral factors influenced their approach (e.g., perception, propensity toward risk, cognitive dissonance, etc.). 2. You might want to address the issue of individual versus group decision-making by having students recount their experiences with group decision-making and identify one very successful and one very unsuccessful experience. Then ask them to identify and discuss the reasons for the group's very good or very poor performance, drawing from concepts in Chapters 8 & 9 (e.g., group cohesiveness, member characteristics, group norms, and roles). 3. To personalize the topic of behavioral influences on decisions, ask students whether they consider themselves to be optimists, realists, pessimists, or fatalists. Then ask them to consider the effect of this personality characteristic on the decisions they make and on the various steps in the decision process (e.g., setting decision objectives, generating and evaluating alternatives, selecting an alternative). 4. Have students participate on the basis managers make decisions. For example, is consistency of decision-making relevant? Should managers make decisions consistent with plans (single use or standing plans) etc.? Project and Class Speaker Ideas 1. As a group assignment, have students interview a CEO from a local business and prepare a written report on the executive's approach to decision-making, specifically his or her self-described decision style, approach to decisions substantially affecting the business (especially those involving high risk), and attitude toward risk and uncertainty. The report should also include the executive's comments on how his or her decision style has evolved over the years of acquired business experience. 2. As a self-assessment exercise, have students identify three recent and important non-programmed decisions they have made. In a written report, students should recount how each decision was made and apply what's been learned from the chapter material and evaluate the quality of each decision. Specifically, students should address ways in which the decision process used could be improved to produce a better decision. If a particular decision was successful, students should consider the factors that accounted for the decision's success. 3. In lieu of idea #1, invite a CEO from a local business to speak to the class about management decision-making and, specifically, his or her own decision style, approach to important decisions, attitudes about risk and uncertainty, and how his or her decision style has evolved over years of management experience. 4. If a member of the business or psychology faculty has conducted research on individual decision-making, invite the faculty member to speak to the class on recent research findings concerning the decision-making process. An interesting topic not covered in the chapter, which the speaker could address, is the cognitive and psychological barriers to effective decision-making. For instance, some interesting research has been conducted in the area of an individual's limitations in information processing and retrieval and its impact on decision quality. Discussion and Review Questions 1. Think about a current (or past) supervisor that you have (or had) at a job. What types of programmed decisions did he make? What types of nonprogrammed decisions needed to be addressed? Explain. Answer: Answer will vary by student, but answers should clearly indicate that the student understands the difference between a programmed decision and a nonprogrammed decision. Programmed Decisions: 1. Scheduling Shifts: Regularly creating work schedules based on set criteria. 2. Routine Performance Reviews: Using standardized forms and criteria for evaluating employee performance. 3. Inventory Replenishment: Reordering stock according to predefined levels and sales data. Nonprogrammed Decisions: 1. Handling Employee Conflicts: Resolving disputes between employees requires judgment and tailored solutions. 2. Responding to Market Changes: Adapting strategies based on unexpected shifts in the market. 3. Implementing New Initiatives: Introducing and managing new processes or technologies not previously used. 2. When looking at the decision-making process (Figure 16-1), do you feel any one step is more important than the others are? If so, why? Answer: Many students may feel that the most important step in the decision-making process is choosing an alternative. However, it is important to stress that without good input into the earlier stages of the process (i.e., setting objectives, identifying the problem), a particular alternative may be selected that cannot solve the problem or an alternative may be selected that doesn't actually exist. 3. Describe a situation you've encountered where a decision made by an individual would have been better made by a group. Why do you feel this way? Answer: This question is designed to encourage students to apply group concepts they learned in Chapter 8 to decision-making. In discussing student responses, it's useful to identify factors that influence conformity to a group decision and the reasons why group decisions in the cited examples would be superior to an individual's decision. In a previous job, a manager decided on a new software tool for the team without consulting others. The decision turned out to be problematic because it lacked input from those who would use the tool daily. A group decision involving input from various team members would have been better because it would have considered diverse perspectives and expertise, leading to a more effective and user-friendly choice. 4. Think back to the last big decision you had to make about work (e.g., asking for a pay raise), a major financial decision (e.g., buying a car), or a school-related issue (e.g., whether to take a certain course with a certain professor). How thorough were you in evaluating the different alternatives? Did you rush your decision? Explain. Answer: When deciding whether to take a new course at work, I thoroughly evaluated the alternatives by researching the course content, speaking with colleagues who had taken it, and assessing how it aligned with my career goals. I didn't rush the decision; I took the time to weigh the benefits and potential impact on my workload. This careful consideration helped me make a well-informed choice. 5. Think of a time when you held fast to a decision even after learning that it was probably a wrong or faulty decision. How long did you persist with your original (faulty) decision? Looking back now, when should you have modified your decision? What could have convinced you to do so? Describe. Answer: Student responses and/or participation will vary based on their frame of reference. Persisting in a faulty decision will depend on the personality of the individual, attitudes, values and behavior of the individual making the decision. Some individuals will persist; others will trade off their position immediately recognizing the fact they have made an error in decision-making. The degree of relevance to a decision must be considered before comprising or taking corrective action. It will depend on the decision-making style of the individual. In modifying a decision when new information or data becomes available one may reconsider and take corrective action. I once insisted on using a specific project management tool despite early feedback indicating issues with its functionality. I persisted with the decision for about two months before realizing it was causing inefficiencies. Looking back, I should have modified the decision after the initial feedback rather than waiting for more problems to arise. More frequent check-ins with the team and considering their input sooner would have convinced me to reassess the tool earlier. 6. Some people equate values and ethics. If you were a member of a group and you felt the group was making an unethical decision or one that conflicted with your values, what would you do? How far would you go to stop the unethical action? Answer: One way to address this question is to discuss whistle blowing. Most students will be able to recall an incident that they read about or may have witnessed in their own organization. If the group made an unethical decision conflicting with my values, I would first voice my concerns and provide reasoning. If unresolved, I would escalate the issue to higher authorities or an ethics officer. If necessary, I’d distance myself from the group to avoid complicity. 7. Describe a situation where you were forced to make a decision where your values helped make the final choice. Answer: This question is designed to focus students’ attention on the impact of values on the decision-making process. Were students’ comfortable with their choice? Do they recognize any negative effects that their values may have had on their choices? In a previous job, I was asked to overlook a minor compliance issue to meet a tight deadline. My commitment to integrity led me to insist on addressing the issue properly, even if it delayed the project. This decision upheld my values and maintained the company’s standards. 8. Brainstorming can be a very effective method for stimulating creativity for group decision-making. Describe a situation where you either used or could have used brainstorming to come up with a creative idea. How did the brainstorming begin or how would you have begun the process? Answer: Brainstorming is usually initiated when groups are experiencing difficulty devising solutions to problems. Many students have probably engaged in brainstorming at one time or another but have probably done so informally. In planning a new marketing campaign, I could have used brainstorming to generate creative ideas. I would have started by gathering the team for a session where everyone shares any and all ideas, no matter how unconventional. This open environment would encourage diverse thinking and lead to innovative solutions for the campaign. 9. Assume you are about to purchase a used car (i.e., a decision without “perfect” information). How would you go about reducing the uncertainty associated with this decision? What specific steps could you take to make sure you are getting a good car for a fair price? Explain. Answer: In making a decision as to the purchase of a used car a seven step decision-making model would be utilized. Without perfect information criteria must be examined before making a decision. Alternatives must be explored and an evaluation of each alternative must be examined before making a decision on a used car. 10. Think of a corporate executive who, you believe, is a good decision-maker. What traits make this executive effective? Answer: This question is designed to focus students' attention on the influence of personality and other behavioral influences on decision-making, such as attitude toward risk. Students can bring to class examples of stories and articles that they believe support their choice. A good decision-making corporate executive typically demonstrates strong traits such as clear vision, decisive action, and analytical thinking. They also show adaptability, effective communication, and the ability to gather and consider diverse input, leading to well-informed and impactful decisions. Case For Analysis: Breaking the Rules Case Summary This case concerns a customer service employee who went outside the rules established by her company and made her own decision in order to solve a customer's problem. The effect of that decision on her and her superiors' actions is presented. Answers to Case Questions 1. Why was Nancy rewarded for breaking the rules? Answer: Nancy was rewarded for breaking the rules because she showed concern and initiative in dealing with the customer's problem. Even though her response violated the rules, she and her supervisor recognized that there will be special situations that demand that one make an exception to previously established rules. 2. Describe what type of decision Nancy had to make. What decision alternatives were available to her besides the one she chose? Answer: The company had rules for responding to customer complaints. Thus, one might argue that the decision situation was of the programmed variety. However, Nancy Taggart felt that the customer problem she had to deal with was sufficiently unique as to require a non-programmed decision. Other alternatives available to Nancy were to refuse to send the part until the distributor could be reached (the programmed response) or she could have delayed action until speaking with a supervisor. However, these alternative responses would not have dealt adequately with the customer's need for urgency in filling the order. 3. What types of behavioral factors might have influenced Nancy's decision? Answer: Almost all of the behavioral influences discussed in the chapter could have influenced Nancy's decision. She obviously was willing to take a risk (in terms of whether the company would receive payment for the part they shipped and whether or not she would be reprimanded or fired for breaking the rules). Her values and personality also played some part in her decision as well. It's extremely difficult to separate a person's values and personality from the decisions they make in their personal life or on the job. Experiential Exercise: Lost on the Moon: A Group Decision Exercise Objectives 1. To increase understanding of group behavior and the variables affecting it. 2. To provide an actual experience in which: a. The group product is identified and measured. b. The group process has an effect on the group product. The Exercise in Class Instructors who have utilized experiential exercises will undoubtedly be familiar with this “classic” exercise. In fact, many have probably utilized it in the past and already know what to expect. This is an extremely successful exercise, which elicits a great deal of group responses. The instructor may also wish to compare solo decisions with team decisions. The ultimate purpose, of course, is to compare the results with the actual NASA ranking and reasoning. Those are as follows: The Moonwalk Decision Items NASA’s Reasoning NASA’s Ranks Box of matches No oxygen on moon to sustain flame, virtually worthless 15 Food concentrate Efficient means of supplying requirements 4 Fifty Feet of nylon rope Useful in scaling cliffs: tying injured together 6 Parachute silk Protection from sun’s rays 8 Solar-power portable heating unit Not needed unless on dark side 13 Two .45-caliber pistols Possible means of self-propulsion 11 One case of dehydrated milk Bulkier duplication of food concentrate 12 Two 100-pound tanks of oxygen Most pressing survival need 1 Stellar map (of the moon’s constellation) Primary means of navigation 3 Self-inflating life raft CO2 bottle in military raft may be used for propulsion 9 Magnetic Compass Magnetic field on moon is not polarized; worthless for navigation 14 Five gallons of water Replacement for tremendous liquid loss on lighted side 2 Signal flares Distress signal when mother ship is sighted 10 First-aid kit containing injection needles Needles for vitamins, medicines, etc., will fit special aperture in NASA space suits 7 Solar-power FM receiver transmitter For communication with mother ship but FM requires line-of-light transmission and short ranges 5 In discussing the group and individual scores, it’s useful to pose these questions: 1. (To the most accurate and least accurate groups): Explain the approach you group used in ranking the items. (Instructor: It’s useful to compare and contrast the two approaches). 2. (To all groups): What decision-making strategies did you use that were most effective: Looking back on you group activity, how would you change your decision-making approach? 3. What advantage(s) does group decision-making provide over individual decision-making in this exercise? Ten Term Paper Topics 1. The Role of Creativity in Decision-making 2. (Selected individual): A Profile of a Decision Style 3. The Influence of Individual Values on Decision-making 4. (Selected decision): Profile of an Ineffective Decision 5. The Most Important Decision I've Ever Made and How I Made It 6. Topic for Term Paper Debate: Intuition-Does It Really Make a Difference in Decision-making? 7. Psychological and Cognitive Barriers to Effective Decision-making 8. An Executive's Perspective on Decision-making 9. Are Groups Riskier Decision-makers than Individuals? A Look at the Evidence 10. The Impact of Group Variables on Group Decision-making Instructor Manual for Organizations: Behavior, Structure, Processes James L. Gibson, John M. Ivancevich, James H. Donnally, Robert Konopaske 9780078112669, 9781259097232, 9780071086417, 9780071315272
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