11C H A P T E R

E L E V E N

Decision Makingin Organizations

Decision Making Define decision making Explain conditions that affect

decisions Describe and differentiate between

decision types Understand goals Understand three models of

decision making

Decision Making The process of defining problems,

gathering information, making sense of that information, generating alternatives, and choosing a course of action

Conditions that affect decisions Information Availability Certainty/Uncertainty and Risk Objective Probability and

Subjective Probability Experience

Types of Decisions to be Made

Based on Conditions Routine Adaptive Continuous Improvement-

incremental Innovative Decisions - re-

engineering

3. Develop3. Developalternativesalternatives

1. Identify1. Identifyproblemproblem

2. Choose2. Choosedecisiondecision

stylestyle

Decision Making Model

4. Choose4. Choosebest solutionbest solution

5. Implement5. Implementsolutionsolution

6. Evaluate6. Evaluatedecisiondecision

Programmed Decisions Routine, virtually automatic

decision making that follows established rules or guidelines automatic reorders categorizing based on set

information

Non-Programmed Decision Making Non-routine decision making that

occurs in response to unusual, unpredictable opportunities and threats

adaptive based on judgement and intuition

Bounded Rationality Cognitive limitations that constrain one’s

ability to interpret, process, and act on all information

Individuals do not have perfect or complete information

limited search because of limited resources-time, money, personnel, ability, etc.

Satisficing - Selecting less than the best alternative

Information Processing Biases Availability Selective perception-seeing what

your background predisposes you to see

Concrete information-experience outweighs real probabilities

Ambiguous Information - information that can be interpreted in multiple and conflicting ways

continued Law of Small Numbers - one or two

experiences influence rationality (making generalizations)

Gambler’s Fallacy - past results have an impact on future performance

Escalation of Commitment-tendency to commit additional resources to a failing project when evidence of failure exists

Escalation of Commitment

Escalation occurred when the British government continued funding the Concorde supersonic jet long after it’s lack of commercial viability was apparent. To this day, some scholars refer to escalation of commitment as the “Concorde fallacy.”

© Corel Corp. With permission

© Corel Corp. With permission

Causes of Escalation of Commitment

Self-justification Gambler’s fallacy Perceptual

blinders Closing costs

Team DecisionTeam DecisionMaking ProblemsMaking Problems

GroupGrouppolarizationpolarization

TimeTimeconstraintsconstraints

EvaluationEvaluationapprehensionapprehension

GroupthinkGroupthink

ConformityConformityto peerto peer

pressurepressure

Team Decision Making Problems

Conditions for Groupthink Team is highly cohesive Team is isolated from outsiders Team faces external threat Team has recent decision failures Team leader tries to influence

decision

Decision ProcessDecision Process

High RiskHigh Risk

IndividualIndividualOpinionsOpinions

Low RiskLow Risk

Group Polarization Process

Team DecisionTeam Decision

Team DecisionTeam Decision

Social SupportSocial SupportPersuasionPersuasion

Shifting ResponsibilityShifting Responsibility

Generating Constructive Controversy Form heterogeneous decision

making groups

Ensure team meets often to face contentious issues

Members should take on different discussion roles

Think about the decision under different scenarios

Features of Brainstorming No Criticism Encourage Freewheeling Piggyback Ideas Encourage Many Ideas

Photo: Courtesy of IBM.

Electronic Brainstorming at IBM

An electronic An electronic brainstorming session at brainstorming session at an IBM decision support an IBM decision support center.center.

DescribeDescribeproblemproblem

IndividualIndividualActivityActivity

TeamTeamActivityActivity

IndividualIndividualActivityActivity

Nominal Group Technique

Write downWrite downpossiblepossiblesolutionssolutions

PossiblePossiblesolutionssolutionsdescribeddescribedto othersto others

ReReworkworksolutionssolutionspresentedpresented

Photo: Courtesy of IBM.

Evaluating Electronic Brainstorming

Benefits+ Less production blocking+ Less evaluation

apprehension+ More creative synergy+ More decision efficiency

Problems Too structured Lacks interpersonal

dynamics Candid feedback is

threatening