Copyright ©2008 by Cengage Learning. All rights reserved Management, Organizational Policies & Practices Lecture 8 Dr. Amna Yousaf PhD (HRM) University

Copyright ©2008 by Cengage Learning. All rights reserved

Management, Organizational Policies & Practices

Lecture 8Dr. Amna Yousaf

PhD (HRM)University of Twente, the

Netherlands


Recap Lecture 7• Organizational Stakeholders

• Social Responsibility

• Costs and benefits of planning

• Top level, medium level and bottom level plans

• Special purpose plans for planning for change, contingencies and product development processes.


Decision Making

Lecture 8


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What Is Rational Decision Making?

After reading these sections, you should be able to:explain the steps and limits to rational decision

making.

Explain the different mistakes managers make

Explain how decision making can be improved

explain how group decisions and group decision-making techniques can improve decision-making.


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What Is Rational Decision Making?

Decision Making

The process of choosing a solution fromavailable alternatives.

Rational Decision Making

A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions.


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Steps to Rational Decision Making

Define the problemDefine the problem

Identify decision criteriaIdentify decision criteria

Weight the criteriaWeight the criteria

Generate alternative courses of actionGenerate alternative courses of action

Evaluate each alternativeEvaluate each alternative

Compute the optimal decisionCompute the optimal decision

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22

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44

55

66


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Define the problemDefine the problem11

• A problem exists when there is a gap between a desired state and an existing state

• To make decisions about problems, managers must…– be aware of the gap.– be motivated to reduce the gap.– have the knowledge, skills, abilities, and

resources to fix the problem.


Defining the Problem

• Cisco Systems, Inc. makes the switches and routers that create the infrastructure for the Internet.

• But Cisco wants to make a broader impact on Internet communication, especially in the business world.

• The company will stretch its resources to develop instant messaging and Web conferencing as well as online video.

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Beyond the Book

Source: “The 50 Women to Watch 2008,” The Wall Street Journal, 10 November 2008, R6.


Problem Identification

• Kemp Mill Music had to close 30 of 36 stores.

• Case of an expensive dog food company– Could not identify – Business people compaint of

unreasonable working conditions – working 60 hours a week – response of congress

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Identify decision criteriaIdentify decision criteria22

• Standards used to guide judgments and decisions

• The more criteria a potential solution meets, the better that solution should be– Purchasing computer for office: Reliability, on-

site service, warranty, compatibility with existing software, technical details such as computer chip, several gigabites of memory and hard drive, CD-ROM to play DVD’s and good price!


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Weight the criteriaWeight the criteria33

• 17 inch monitor and a CD-ROM drive may not be that important for office but a Pentium 400 computer chip, 128 megabytes of memory, network/internet connections, at least 10 gegabytes hard drive are must haves



• Absolute comparisons– each criterion is compared to a standard

or ranked on its own merits

• Relative comparisons– each criterion is compared directly to

every other criterion

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Absolute Weighting of Decision CriteriaAbsolute Weighting of Decision Criteria


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Relative Weighting of Decision CriteriaRelative Weighting of Decision Criteria


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Generate alternative courses of actionGenerate alternative courses of action44

• The idea is to generate as many alternatives as possible

• A manufacturing company located in Los Angeles wants to relocate based on criteria of government regulations, cheap real estate rentals, quality labor, availability of raw materials – generate a few options


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Evaluate each alternativeEvaluate each alternative55


• This step can take much longer and be more expensive than other steps in the process• To evaluate each option for

manufacturing firm, it may have to deploy a research firm to collect all necessary information


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Compute the optimal decisionCompute the optimal decision66


• Multiply the rating for each criterion by the weight for that criterion

• Sum the scores for each alternative course of action


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Limits to Rational Decision MakingBounded Rationality

A decision-making process restricted in the real world by:

limited resources incomplete and imperfect information managers’ limited decision-making capabilities Gathering whole of information may lead to information

overload that may require much longer to process PC Magazine use of 24 specific decion criteria and

evaluation of approx. 50 PC’s to describe “perfect PC”


Limits to Rational Decision Making

• Memory problems – difficult retrieving important information.– Selecting the computer – managers

must track compatibility of existing computers .• Information retrieval can be time

consuming and costly

• Managers are not experts – to search perfect PC 24 times 50 analyses may not be easy to conduct and interpret 19


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Limits to Rational Decision Making

MaximizeMaximize SatisficeSatisfice


Maximize or Satisfice

• Maximizing is choosing the best alternative

• Satisficing is choosing a “good enough” alternative.

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Common Decision-Making Mistakes

• Intuition based decisions– Albert Einstein discoverer of law of

relativity said “ I did not arrive at the fundamental laws through my rational mind”

– Robert Pittman CEO of Time Warner said “Research just answers some questions; at the end of the day it’s a gut decision”. • Can be prone to mistakes – case of

radiologists22



• Availability bias – tendency to give preference to recent information and vivid images– Case of local channel advertising

security related items

• Representative bias – judge the likelihood of an event’s occurrence based on its similarity to previous events.– Hiring of ABC university graduate

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• Anchoring and adjustment bias- to use an initial value or experience as a basis of comparison throughout the decision process– Salary figure in a job interview– First travel in business class will make

economy class miserable every time

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Risk and Decision Making

• Condition of risk when the possibility of making a wrong decision prevails– Risky conditions make rational

decisions a challenge

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Using Rules and Tests to Improve Decisions

• Decision Rule – set of criteria that alternative solutions must meet to be acceptable to the decision maker– Fast food restaurant or clothing store

rules

• Dictionary Rule – rank criteria in order of importance and then test each alternative against those criteria in rank order so that alternative meeting first criteria checked on second and so on 26



• Minimum Threshold Rule – alternative required to meet all minimum established criteria– Ottawa rule for x-ray of ankle injuries

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• Multivariable Testing- systematic approach of small scale experiments to evaluate potential solutions– Amusement park conducted tests to

increase park attendance

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Using Groups to Improve Decision Making

DelphiTechnique

DelphiTechnique Electronic

Brainstorming

ElectronicBrainstorming

StructuredConflict

StructuredConflict

NominalGroup

Technique

NominalGroup

Technique


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Group Decision Making

1. View problems from multiple perspectives

2. Find and access more information

3. Generate more alternative solutions

4. More committed to making chosen solutions work

1. View problems from multiple perspectives

2. Find and access more information

3. Generate more alternative solutions

4. More committed to making chosen solutions work

Advantages


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Group Decision Making

1. Susceptible to groupthink and to considering a limited number of solutions

2. Takes considerable time

3. One or two people can dominate group discussion

4. Members don’t feel personally accountable for decisions and actions

1. Susceptible to groupthink and to considering a limited number of solutions

2. Takes considerable time

3. One or two people can dominate group discussion

4. Members don’t feel personally accountable for decisions and actions

Disadvantages


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Groupthink

the group is insulated from others with different perspectives.

the group leader expresses a strong preference for a particular decision.

there is no established procedure for defining problems and exploring alternatives.

group members have similar backgrounds.

the group is insulated from others with different perspectives.

the group leader expresses a strong preference for a particular decision.

there is no established procedure for defining problems and exploring alternatives.

group members have similar backgrounds.

Groupthink is likely to occur when…


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Structured Conflict

C-Type ConflictC-Type Conflict

Cognitive conflict Disagreement that focuses onproblem- and issue-related differences of opinion

Cognitive conflict Disagreement that focuses onproblem- and issue-related differences of opinion

A-Type ConflictA-Type ConflictAffective conflictDisagreement that focuses onindividuals or personal issues

Affective conflictDisagreement that focuses onindividuals or personal issues


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Devil’s Advocacy

Steps to Establish a Devil’s Advocacy Program

1. Generate a potential solution

2. Assign a devil’s advocate to criticize and question

3. Present the critique of the solution to key decision makers

4. Gather additional information

5. Decide whether to use, change, or not usethe originally proposed solution


2. Assign a devil’s advocate to criticize and question

3. Present the critique of the solution to key decision makers

4. Gather additional information



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Dialectical Inquiry

Steps to Establish a Dialectical Inquiry Process


2. Identify the assumptions underlying thepotential solution

3. Generate a conflicting counterproposal basedon opposite assumptions

4. Have advocates of each position present theirarguments and engage in a debate in front ofdecision makers



2. Identify the assumptions underlying thepotential solution

3. Generate a conflicting counterproposal basedon opposite assumptions

4. Have advocates of each position present theirarguments and engage in a debate in front ofdecision makers


Beyond the Book


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Nominal Group Technique

Steps to Establish Nominal Group Technique

1. During a quiet time, group members write down as many problems and solutions as possible.

2. Each member shares one idea at a time.

3. Ideas are posted on flipcharts until all ideas are shared.

4. Group discusses advantages/disadvantages.

5. Ideas are ranked during a second quiet time.

6. Members read rankings aloud, and the idea with thehighest average rank is selected.

1. During a quiet time, group members write down as many problems and solutions as possible.

2. Each member shares one idea at a time.

3. Ideas are posted on flipcharts until all ideas are shared.

4. Group discusses advantages/disadvantages.

5. Ideas are ranked during a second quiet time.

6. Members read rankings aloud, and the idea with thehighest average rank is selected.


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Delphi Technique Steps to Establish Delphi Technique

1. Assemble a panel of experts.

2. Create a questionnaire of open-ended questions.

3. Summarize the responses and feed back to the panel until the members reach agreement.

4. Create a brief report and send to the panel members for agreement/disagreement.

5. Continue the feedback process until panel reaches agreement.

1. Assemble a panel of experts.

2. Create a questionnaire of open-ended questions.

3. Summarize the responses and feed back to the panel until the members reach agreement.

4. Create a brief report and send to the panel members for agreement/disagreement.

5. Continue the feedback process until panel reaches agreement.


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BrainstormingFour Rules of Brainstorming

1. The more ideas, the better.

2. All ideas are acceptable, no matter how wild or crazy.

3. Other group members’ ideas should be usedto come up with even more ideas.

4. Criticism or evaluation of ideas is not allowed.

1. The more ideas, the better.

2. All ideas are acceptable, no matter how wild or crazy.

3. Other group members’ ideas should be usedto come up with even more ideas.

4. Criticism or evaluation of ideas is not allowed.


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Electronic BrainstormingAdvantages of Electronic Brainstorming

Overcomes production blocking• technology allows everyone to record their

ideas as they are created• no ideas lost while waiting your turn to speak

Overcomes evaluation apprehension• anonymity creates free expression


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Electronic BrainstormingDisadvantages of Electronic Brainstorming

• Greater expense• No automatic acceptance of ideas because

of one’s position• Some find it difficult to express themselves

in writing

• Lack of typing skills can frustrate

participants

Documents

Copyright ©2008 by Cengage Learning. All rights reserved Management, Organizational Policies & Practices Lecture 8 Dr. Amna Yousaf PhD (HRM) University