Fundamentals of Decision Making

The foundation of

good decision making

Dr Andrew Hirst Room 9339 1

What are you trying to achieve?

• True consensus

• Group harmony

• Quick and timely decisions

Lecture structure

• The manager as a decision maker

• Types of decision making

• Decision making process

• Practical solutions

THE MANAGER AS A

DECISION MAKER

• Decision-Making Conditions

– Certainty - outcome of every alternative is known

– Risk - able to estimate the probability of outcomes stemming from each alternative

– Uncertainty - not certain about outcomes and unable to estimate probabilities

Small vs Large Firms

• Small Firm

– Less information, costly and time consuming to collect

– evolving company, rapid pace of change

– changing environment, "law of small numbers"

– potential lack of experience of mangers and staff

– too much information "noise"

• More uncertainty

– leads to short term thinking

– stifles small businesses

THE MANAGER AS

DECISION MAKER (continued)

• Bounded Rationality

– Behave rationally within the parameters of a

simplified decision-making process that is limited

by an individual’s ability to process information

– Accept solutions that are “good enough”

– Irrational behaviour

– Escalation of commitment - increased commitment

to a previous decision despite evidence that it may

have been wrong

– cut your losses or stick to your guns?© 2003 Pearson Education Canada Inc.

“Good Enough”

versus

Optimizing

Lacks

Complete

Information

Cannot

Assess All

Alternatives

Cannot

Weigh

All Criteria

Bounded

Rationality

THE MANAGER AS

DECISION MAKER (continued)

• Role of Intuition

– Intuitive decision making

– Black Box

- subconscious process of making decisions

on the basis of experience and accumulated

judgment

• does not rely on a systematic or thorough

analysis of the problem

• generally complements a rational analysis© 2003 Pearson Education Canada Inc.

Gut feel

• +100 Million Brain cells in the gut

• When you die the gut keeps working for a time

• More brain cells in your gut than in a cats head

• Enteric Nervous System

– Vagus Nerves connect to the brain

• Part of our emotional system

TED lecture: Heribert Watzke: The brain in our gut

WHAT IS INTUITION?Managers make

decisions based

on experienceManagers make

decisions based

on feelings and

emotions

Managers make

Decisions based

on ethical values

or culture

Managers make

decisions based

on

subconscious

data

Manager make

decisions based

on skills,

knowledge,

or training

Intuition

Affect-

initiated

decisions

Experienced-

based decisions

Values or

ethics-based

decisions

Subconscious

mental

processing

Cognitive-

based

decisions

Two great films• 12 Angry Men (1957)

– Courtroom classic. One man goes against the other

11 jurors. One question, is he guilty? Examination of

inner prejudice, emotion and ulterior motives in

decision making.

• Moneyball (2011)

– Conflict between considered wisdom (gut feel or

intuition) and data analysis

– Need to think differently

• Lack of money and past experience

• Economic model based on ON BASE AVERAGE not

conventional wisdom of RUNS

What can help us make

decisions?

Models

Processes

Rarely used - Decision tree

Here's a great model by Steven

Covey - Stress Mgt

• Donut - Identifying the components of a problem

Circle of

influence

Circle of

concern

New Product Development

Decision process

Decision making Styles

Questionnaire

Decision-Making Styles– Basic Motivational Psychology

Stimulus - Organism - Response

– Scott and Bruce (1995) Decision-making styles

•Rational i.e I make decisions in a logical and systematic way.

•Intuitive i.e When I make decisions, I tend to rely on my intuition.

•Dependent i.e I rarely make important decisions without consulting other

people

•Spontaneous i.e I generally make snap decisions.

•Avoidant i.e I avoid making important decisions until the pressure is on.

Impact of different styles

• Data gathering

• Interpretation of data

– importance and relevance

• The number of alternatives

• The way the group interacts

– use frameworks/tools to help your team manage

differences

The group decision making

process

Some typical behaviours

• Apathy - no interest in the outcome deciding not to

decide

• Plops - decisions without any grounding or authority

• Self Authorised decisions - assertive team member

• Pairing / Minority groups - faction/cliques agreeing for

the group in advance or during meetings

• Topic Jumping - red herrings and "Hand Grenades"

• Majority views - show of hands

• Does anyone disagree? enforced conformity/consensus

Impact of decision process

Process of decision making

Practical Solutions • Structure meetings and record outcomes

• Follow the 80% rule - be action orientated

– on time and about right is better than late and perfect

• Avoid arguing - presents ideas clearly and logically

• You don't need to win - seek consensus or what is

acceptable

• Don't avoid conflict - be suspicious of easy agreements

• Avoid conflict avoidance - majority voting, averages, coin

flips

• Involve everyone

• Stay focused - make one decision at a time

• Remember that everyone is a leader in the team take

responsibility!

Summary

• Using Intuition can be a great way to make

decisions

– Quick and easy to do

– BUT...

• mindful of current experience

• distractions

• black box process

• Models and frameworks can be great too

– Consistent and transparent

– evidence suggest it leads to better decisions

Reading

• Effective teambuilding by John Adair

• Watch 12 angry men (1957), Moneyball (2011)

• Scott and Bruce 1995

• Dane and Pratt 2007

• See reading list