7-1 The Manager as Decision Maker Chapter 7. 7-2 Learning Objectives 1. Explain the difference between programmed and non- programmed decisions. 2. Describe.

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The Manager as Decision Maker

Chapter 7

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Learning Objectives1. Explain the difference between programmed and non-

programmed decisions.

2. Describe the classical and administrative models of decision making and the decision characteristics of risk, uncertainty, and ambiguity.

3. Describe the six steps that managers should take to make the best decisions.

4. Define heuristics and describe four cognitive biases that are used by people which can lead to poor decisions.

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Learning Objectives5. Identify the advantages and disadvantages of group decision

making and describe techniques to improve it.

6. Describe a learning organization and its role in improving organizational decision making.

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Decision Making Decision making is the process of identifying

problems and opportunities and then resolving them. Requires effort before and after choice Visits to several colleges and searching for

information about various colleges Once Auburn is chosen, plan move and work to

succeed

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Types of Decisions

Programmed decisions situations that occur often enough to enable

decision rules to be developed. Problem is well defined and clearly understood Standard response to a routine problem In organizations, structured rules or standard operating

procedures are developed for programmed decisions Example: expense reports, college admissions

decisions

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Types of Decisions

Nonprogrammed decisions are made in response to situations that are unusual,

and involve unpredictable opportunities or threats. Past decisions are not very helpful There is not a clearly correct alternative High level managers typically face nonprogrammed

decisions Examples: which areas of business to expand, choice of

colleges to apply for admission

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Classical Model Earliest model of decision processes Describes logical and rational decision

processes Decisions are made based on the

organization’s best economic interests Defines how decisions should be made –

not necessarily how they are made

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Decision Process in the Classical Model

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Assumptions of the Classical Model Accomplishes goals that are known and agreed

upon. Attempts to gather complete information so that

all alternatives are known. Decision makers agree on criteria to evaluate

alternatives and priorities Decision maker is rational and uses logic.

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Administrative Model by James March and Herbert Simon

Model of decision processes based on how managers actually make decisions

Does not assume completely logical and rational decision processes

More realistic model for non-programmed decisions.

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Administrative ModelPrincipal concepts in the administrative model bounded rationality: means that people have limits

or boundaries on how rational they can be. Managers tend to construct simple models and identify

the essential features of a problem Managers can behave rationally within the simplified

model

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Administrative ModelPrincipal concepts in the administrative model Incomplete information: managers have incomplete

information because of risk, uncertainty, ambiguity, and time Risk Uncertainty Ambiguity Time constraints – there is neither time or money to search for

all possible alternatives

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Administrative Model Incomplete information: Risk

decision has clear-cut goals. Managers know possible outcomes - good information is

available . The outcomes for the alternatives are known but subject to

chance – the outcome may be unsuccessful.

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Administrative ModelIncomplete information: Uncertainty

managers know which goals they wish to achieve. Information about alternatives is incomplete Outcome for alternatives is incomplete – difficult to

measure risk.

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Administrative ModelIncomplete information: Ambiguity

possible to interpret information in multiple ways alternatives are difficult to define. information about outcomes is unavailable.

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Administrative ModelPrincipal concepts in the administrative model satisficing: means that decision makers choose the

first solution alternative that satisfies minimal decision criteria. Decide on the “good enough” solution Don’t process large amounts of information to find the

optimal solution Review alternatives only until a sufficient alternative is

found

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Cognitive Biases in Decision MakingHeuristics means that people use judgmental shortcuts

or rules of thumb in making decisions To avoid information overload Base judgments on information that is readily available Assess situation based on intuition (past practice and

experience with a problem or decision situation)

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Cognitive Biases in Decision Making

Four particular sources of bias that lead to poor decisions are

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Cognitive Biases in Decision MakingPrior-Hypothesis Bias

tend to see and use information that is consistent with prior beliefs

Tend to ignore contradictory or conflicting information

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Cognitive Biases in Decision MakingRepresentativeness Bias

Tend to generalize from a small sample Too much weight given to vivid events

Illusion of Control Overestimate your ability to control events

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Cognitive Biases in Decision MakingEscalating Commitment

When there are indications that the project is failing, even more resources are committed in an effort to salvage the situation

“Gotta know when to fold’em”

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Steps in Decision-Making Process

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Making Effective Decisions

1. Recognize Need for Decision Problems

Organizational performance fall short of goals

Opportunities

Possibility of increasing performance beyond current levels

Scanning the environment

Look at both internal information (sales reports, quality reports, etc.) and external environment (competition, socio-cultural, etc.)

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Making Effective Decisions

2. Generate Alternatives• With programmed decisions, alternatives are usually

easily identified and available within procedures

• For decisions with conditions of uncertainty, may develop one or two solutions which suffice.

• Limited searches for alternatives is a primary reason for unsuccessful decisions (that bounded rationality problem)

3. Evaluate Alternatives• Be aware of decision biases in making decisions –

use of cognitive biases• Manager’s risk propensity will influence analysis

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Making Effective Decisions

4. Choose Among Alternatives

5. Implement Chosen Alternative• Similar to implementation under strategic planning –

must provide leadership to implement alternatives• Make required changes in structure, human resources,

reward systems, marketing, product development, etc.

6. Learn from Feedback• Continuously evaluate decision to determine if goals are

being achieved. Beware problem of escalating commitment

• May solve problems or work on opportunities by making incremental improvements

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Group Decision MakingDecisions in the business world are most often made by groups

Advantages of group decisions

•Diversity of experience and viewpoints

•Generate more alternatives

•Increased acceptance to decision

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Group Decision MakingDecisions in the business world are most often made by groups

Problems with group decision making

•Takes time to bring group together and groups take longer to reach a decision

•Groups can be dominated by a few members

•There can be increased pressures to conform - one form of this pressure is referred to as groupthink

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Groupthink – Irving JanisGroupthink can occur in highly cohesive groups where the group’s desire to maintain agreement overrides realistic evaluation of alternatives

The film Groupthink by CRM Films looks at the characteristics of groupthink and factors which may prevent it.

James Essar identifies eight symptoms of groupthink. The more symptoms a group exhibits, the higher probability that groupthink can occur.

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USA. 1988. Roger BOISJOLY with a section of an o-ring seal, the type which failed and caused the Challenger Space Shuttle disaster in 1986. From original feature :  USA. Utah. Roger BOISJOLY. (NASA: Challenger) by Philip Jones Griffiths

Copyright : Philip Jones Griffiths / Magnum Photos  

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Groupthink – CRM FilmsSymptoms of Groupthink

Overestimation by the Group

Illusion of invulnerability

Inherent morality of the group

Closed Mindedness

Rationalization

Stereotypes of Outsiders

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Groupthink – CRM FilmsSymptoms of Groupthink

Pressure toward Uniformity

Self censorship

Direct Pressure on members who disagree

Mind Guarding

Illusion of unanimity

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Groupthink – CRM FilmsSteps Toward Preventing Groupthink

Open Climate

Avoid Insulation of Group

Critical Evaluators

Leaders Avoid Being Directive