DECISION MAKING
Prepared By: Prof. Priya Singh
MIT ADT University, Pune
THE DECISION-MAKING PROCESS
PROGRAMMED DECISION - A SIMPLE, ROUTINE MATTER FOR WHICH A
MANAGER HAS AN ESTABLISHED DECISION RULE
NONPROGRAMMED DECISION - A NEW, COMPLEX DECISION THAT
REQUIRES A CREATIVE SOLUTION
Recognize the problem and
THE the need for a decision
DECISION-
MAKING
PROCESS Identify the objective of
the decision
Gather and evaluate data
and diagnose the situation
List and evaluate
alternatives
Select the best
THE course of action
DECISION-
MAKING
PROCESS Implement
the decision
Gather
feedback
Follow up
MODELS OF DECISION-MAKING
EFFECTIVE DECISION
Rational Model
A TIMELY DECISION
THAT MEETS A DESIRED
OBJECTIVE AND IS Bounded Rationality
ACCEPTABLE TO THOSE Model
INDIVIDUALS AFFECTED
BY IT Garbage Can Model
Rationality - a logical,
step-by-step approach
Rational Model to decision making, with a
thorough analysis of
alternatives and their
consequences
1. THE OUTCOME WILL BE COMPLETELY RATIONAL
2. THE DECISION MAKER USES A CONSISTENT SYSTEM
OF PREFERENCES TO CHOOSE THE BEST ALTERNATIVE
3. THE DECISION MAKER IS AWARE OF ALL ALTERNATIVES
4. THE DECISION MAKER CAN CALCULATE THE
PROBABILITY OF SUCCESS FOR EACH ALTERNATIVE
Bounded Rationality - a
Bounded Rationality theory that suggests that
there are limits upon how
Model rational a decision maker
can actually be
1. MANAGERS SUGGEST THE FIRST SATISFACTORY ALTERNATIVE
2. MANAGERS RECOGNIZE THAT THEIR CONCEPTION OF THE WORLD IS
SIMPLE
3. MANAGERS ARE COMFORABLE MAKING DECISIONS WITHOUT
DETERMINING ALL THE ALTERNATIVES
4. MANAGERS MAKE DECISIONS BY RULES OF THUMB OR HEURISTICS
Garbage Can Model
Solutions
Problems Choice
GARBAGE CAN MODEL - opportunities
Participants
A THEORY THAT CONTENDS
THAT DECISIONS IN
ORGANIZATIONS ARE
RANDOM AND UNSYSTEMATIC
From M.D. Cohen, J.G. March, and J.P. Olsen in Administrative Science Quarterly 17 (March 1972) 1.25.
Reprinted by permission of the Administrative Science Quarterly
THE QUALITY, TIMELINESS, ACCEPTANCE, AND
ETHICAL APPROPRIATENESS OF A DECISION
INFLUENCE ITS EFFECTIVENESS
Ethical
Quality + Timeliness + Acceptance +
Appropriateness
A MANAGER’S DECISION-MAKING STYLES WILL
INFLUENCE THE WAY SHE ATTACKS PROBLEMS
Right-brain thinkers tend
Left-brain thinkers tend to value to value
technical/task issues people/social issues
ANALYTIC CONCEPTUAL
High Cognitive A problem solver who analyzes A socially oriented person
Complexity alternatives and innovates who sees the big picture
DIRECTIVE BEHAVIORAL
Low Cognitive A rapid decision maker who A person who needs
Complexity expects results and relies on rules affiliation and wants to help
others
MANAGERS TAKE SIX STEPS IN MAKING AN EFFECTIVE DECISION
USING THE RATIONAL DECISION-MAKING PROCESS
ANALYZE THE SITUATION
•What are the key elements in the situation?
•What constraints affect the decision?
•What resources are available?
SET OBJECTIVES
•Is the problem stated clearly?
•Do people understand what they will work on?
•By what criteria will decision making be judged?
SEARCH FOR ALTERNATIVES
•Do people involved in the problem make the decision?
•Have they sought complete information?
•Do those with information make the decision?
•Do they use diversity to generate ideas?
•Are all ideas encouraged?
Six Steps (Cont.)
EVALUATE THE ALTERNATIVES
•Do participants know that they are evaluating?
•Are criteria for assessment clear and understood?
•Are differences of opinion included in evaluation?
•Are some alternatives pilot tested?
MAKE THE DECISION
•Do employees know that they are making the decision?
•Are they aware if they are satisficing or optimizing?
•Do action plans fit with the decision?
•Are they committed to the decision?
EVALUATE THE DECISION
•Are responsibilities for data collection, analysis, and reporting clear?
•Is there a comprehensive evaluation plan?
•Is there an evaluation schedule?
MANAGERS CAN ASK THESE QUESTIONS
WHEN EVALUATING OBJECTIVES
Criteria Questions to Ask
Relevance Do the objectives relate to and support the basic purpose of
the organization?
Practicality Do the objectives recognize obvious constraints?
Challenge Do the objectives provide a challenge for managers at all
levels in the organization?
Measurability Can managers quantify the objectives?
Schedulability Can managers monitor the objectives at interim points to
ensure progress?
Balance Do the objectives provide a proper balance on all activities,
given organizational goals?
(cont.)
Criteria Questions to Ask
Flexibility Are the objectives sufficiently flexible or is the organization
likely to find itself locked into a particular course of action?
Timeliness Given the organization’s environment , is this the proper time
to adopt these objectives?
Technology Do the objectives fall within the boundaries of current
technological development?
Growth Do the objectives help the organization grow, not just
survive?
Cost Do the objectives’ expected costs clearly outweigh their
effectiveness benefit?
Accountability Can managers assess the performance of those responsible
for attaining the objectives?
PROBLEMS RANDOMLY ATTACH TO
SOLUTIONS IN THE “GARBAGE CAN”
Solutions Problems
Problem A
+
Solution X
Problem C
Solution Y
Gathering Ideas
•Brainstorming
•The Nominal Group Technique
•The Affinity Diagram
•The Delphi Method
•Electronic Meetings
Brainstorming
•Topic
•Take turns sharing ideas
•Record each idea
•No comments/criticisms
•Keep the tempo moving
•One idea per turn
•Members may pass
•Keep going until ideas are exhausted
MANGERS SHOULD FOLLOW THIS ADVICE
FOR SUCCESSFUL BRAINSTORMING
•List all ideas.
•Do not Evaluate any ideas during the initial stages.
•Encourage creativity.
•Offer ideas related to those already listed.
•Ask each participant to offer a specific number
(e.g. five to ten) of new ideas.
•Set a time for brainstorming.
MANAGERS USE AN AFFINITY DIAGRAM TO ORGANIZE
BRAINSTORMING IN A GROUP OF EMPLOYEES
THEME
Why has the number of The employees
defects increased 10 times lack the right
in the past year? training
Equipment has not Quality control
been repaired in a procedures are
timely fashion inadequate
The product
design is Top management needs
Materials received faulty to reexamine workers’
from suppliers have training needs and find
been defective ways to give them the
right training for their jobs.
The Nominal Group Technique
(Delbecq, Van de Ven and Gustafson, 1975)
A generic name for face-to-face group techniques in which instructions are given to group
members not to interact with each other except at specific steps in the process.
•Silent idea generations,
•Round-robin sharing of ideas,
•Feedback to the group,
•Explanatory group discussion,
•Individual re-assessment, and
•Mathematical aggregation of revised judgements.
Affinity Diagram
Definition: A group decision-making technique designed to sort a large number of ideas, process
variables, concepts, and opinions into naturally related groups. These groups are connected by a
simple concept.
Purpose: To sort a list of ideas into groups.
Guidelines:
Insure ideas are described with phrases or sentences.
Minimize the discussion while sorting --
discuss while developing the header cards.
Aim for 5-10 groups.
If one group is much larger than others, consider splitting it.
How to Conduct an Affinity Sort:
•Clarify the list of ideas. Record them on small cards.
•Randomly lay out cards on table, flipchart, wall, etc.
•Sort the cards into "similar" groups in silence -- based on your gut reaction. If you don't
like the placement of a particular card -- move it. Continue until consensus is reached.
•Create header cards consisting of a concise 3-5 word phrase description, the unifying
concept for the group. Place header card at top of group.
•Discuss the groupings and try to understand how the groups relate to each other.
TIPS
•Inquire if ideas are clarified.
•Use 3-5 words in the phrase on the header card to describe the group.
•If possible, have groupings reviewed by non-team personnel.
•To sort, physically get up and gather around the area the cards are placed.
•Team members will ultimately reach agreement on placement -- if for no other
reason that exhaustion.
•Sorting begins when all team members are ready.
•If an idea fits in more that one category or group, after discussion, make a second
card and place in both groups.
Delphi Technique
•Problem stated
•Questionnaires
•Anonymous & Independent
•Compile results
•Distribute copies of results
•New round begins
•Does not require physical presence
•Time consuming
Electronic Meetings
•Horseshoe-shaped table
•Up to 50 participants
•Issues are presented
•Responses typed
•Projection screen display
•Anonymity, honesty, & speed
•55% faster than traditional
•Lacks credit
•Fastest typist gets there first
•No face-to-face interchange
RISK AND THE MANAGER
RISK AVERSION - THE TENDENCY TO CHOOSE OPTIONS THAT ENTAIL
FEWER RISKS AND LESS UNCERTAINTY
RISK TAKERS
• ACCEPT GREATER POTENTIAL FOR LOSS
• TOLERATE GREATER UNCERTAINTY
• MORE LIKELY TO MAKE RISKY DECISIONS
Evidence: Successful Managers Take Risks
ESCALATION OF The tendency to continue to
COMMITMENT commit resources to a losing
course of action
• WHY IT OCCURS
• HUMANS DISLIKE INCONSISTENCY
• OPTIMISM
• CONTROL
• HOW TO DEAL WITH IT
• SPLIT RESPONSIBILITY FOR DECISIONS
• PROVIDE INDIVIDUALS WITH A GRACEFUL EXIT
• HAVE GROUPS MAKE THE INITIAL DECISION
COGNITIVE STYLE
COGNITIVE STYLE - AN INDIVIDUAL’S PREFERENCE FOR GATHERING
INFORMATION AND EVALUATING ALTERNATIVES
Jungian theory offers a way of understanding and
appreciating differences among individuals.
JUNG’S COGNITIVE STYLE
Style Ideal Organization
ST Sensing/thinking Facts/ Impersonal Control
SF Sensing/feeling Facts & Org. relationships
NT Intuiting/thinking Broad issues/ Impersonal & ideal
NF Intuiting/feeling Serve humankind/General values
Z PROBLEM-SOLVING MODEL
Look at What alternatives
Sensing Intuition
the facts do the facts
and details suggest?
Can it be What impact
analyzed Thinking Feeling will it have on
objectively? those involved?
Figure from Type Talk at Work by Otto Kroeger and Janet M. Thuesen. Copyright © 1992 by Otto Kroeger
and Janet M. Thuesen. Used by permission of Dell Publishing, a division of Random House. Inc.
INFLUENCES ON DECISION-MAKING
INTUITION - FAST, POSITIVE
FORCE IN DECISION CREATIVITY - A PROCESS
MAKING UTILIZED AT A INFLUENCED BY
LEVEL BELOW INDIVIDUAL AND
CONSCIOUSNESS, ORGANIZATIONAL
INVOLVES LEARNED FACTORS THAT RESULTS
PATTERNS OF IN THE PRODUCTION OF
INFORMATION NOVEL AND USEFUL
IDEAS, PRODUCTS, OR
BOTH
FOUR STAGES OF CREATIVE PROCESS
• PREPARATION - EXPERIENCE/ OPPORTUNITY TO BUILD KNOWLEDGE
BASE
• INCUBATION - REFLECTIVE, OFTEN UNCONSCIOUS THOUGHT
• ILLUMINATION - INSIGHT INTO PROBLEM
• VERIFICATION - THINKING, SHARING, TESTING THE DECISION
INFLUENCES ON CREATIVITY
• INDIVIDUAL EXAMPLES • ORGANIZATIONAL EX.
• COGNITIVE PROCESSES • FLEXIBLE
• DIVERGENT THINKING ORGANIZATION
• ASSOCIATIONAL STRUCTURE
ABILITIES • PARTICIPATIVE
• PERSONALITY FACTORS DECISION-MAKING
• BREADTH OF INTERESTS • QUALITY, SUPPORTIVE
• HIGH ENERGY RELATIONSHIPS WITH
• SELF CONFIDENCE SUPERVISORS
ORGANIZATIONS CAN FACILITATE CREATIVE
DECISION-MAKING
• REWARD CREATIVITY
• ALLOW EMPLOYEES TO FAIL
• MAKE WORK MORE FUN
• PROVIDE CREATIVITY TRAINING
• VARY WORK GROUPS (INTERNAL/EXTERNAL)
• ENCOURAGE CREATIVE STIMULI (MUSIC, ART, ETC.)
Individuals who are affected
PARTICIPATIVE by decisions influence the
making of those decisions
DECISION MAKING
• ORGANIZATIONAL FOUNDATIONS
• PARTICIPATIVE, SUPPORTIVE ORGANIZATIONAL CULTURE
• TEAM-ORIENTED WORK DESIGN
• INDIVIDUAL PREREQUISITES
• CAPABILITY TO BECOME PSYCHOLOGICALLY INVOLVED IN
PARTICIPATIVE ACTIVITIES
• MOTIVATION TO ACT AUTONOMOUSLY
• CAPACITY TO SEE THE RELEVANCE OF PARTICIPATION FOR
ONE’S OWN WELL-BEING
TWO BRAINS, TWO COGNITIVE STYLES
Left Hemisphere Right Hemisphere
Verbal Nonverbal, visuospatial
Sequential, temporal, digital Simultaneous, spatial,
Logical, analytic analogical
Rational Gestalt, synthetic
Western thought Intuitive
Eastern thought
Ideal = “brain-lateralized” making use of
either or both sides, depending on situation
From Left Brain, Right Brain by Springer and Deutsch © 1989, 1985, 1981 by Sally Springer and Georg Deutsch.
Used with permission by W.H. Freeman and Company
GROUP DECISION-MAKING
• ROLE OF SYNERGY - A POSITIVE FORCE IN GROUPS
THAT OCCURS WHEN GROUP MEMBERS STIMULATE
NEW SOLUTIONS TO PROBLEMS THROUGH THE
PROCESS OF MUTUAL INFLUENCE AND
ENCOURAGEMENT IN THE GROUP
• ROLE OF SOCIAL DECISION SCHEMES - SIMPLE RULES
USED TO DETERMINE Majority Wins
FINAL GROUP DECISIONS Truth Wins
(PREDICTION 80% CORRECT) Two-thirds Majority Wins
First-shift rule
GROUP DECISION-MAKING
Advantages 1) pressure in
groups to conform
1) more knowledge 2) domination by
through pooling of one forceful member
group resources or dominant clique
2) increased 3) amount of time
acceptance & required, because
commitment due group is slower
to voice in decisions than individual
3) greater under- to make a
standing due to decision
involvement in
decision stages
Disadvantages
GROUP PHENOMENON
GROUPTHINK - A DETERIORATION OF MENTAL EFFICIENCY, REALITY
TESTING, AND MORAL JUDGMENT RESULTING FROM IN-GROUP
PRESSURES
GROUP POLARIZATION - THE TENDENCY FOR GROUP DISCUSSION TO
PRODUCE SHIFTS TOWARD MORE EXTREME ATTITUDES AMONG
MEMBERS
Brainstorming
Nominal Group Technique
Self-Managed Teams
Group
Decision
Delphi Technique
Techniques
Quality Circles & Quality Teams
Devil’s Advocacy
Dialectical Inquiry
TECHNOLOGICAL AIDS TO DECISION-
MAKING
EXPERT SYSTEMS - A PROGRAMMED DECISION TOOL SET UP
USING DECISION RULES
DECISION SUPPORT SYSTEMS - COMPUTER AND
COMMUNICATION SYSTEMS THAT PROCESS INCOMING DATA
AND SYNTHESIZE PERTINENT INFORMATION FOR MANAGERS
TO USE
GROUP DECISION SUPPORT SYSTEMS - SYSTEMS THAT USE
COMPUTER SOFTWARE AND COMMUNICATION FACILITIES TO
SUPPORT GROUP DECISION-MAKING PROCESSES
ETHICS CHECK
• IS IT LEGAL?
• DOES IT VIOLATE LAW
• DOES IT VIOLATE
COMPANY POLICY
• IS IT BALANCED?
• IS IT FAIR TO ALL
• DOES IT PROMOTE WIN-WIN
• HOW WILL IT MAKE ME FEEL ABOUT MYSELF