Transcript lecture8.decsion making.VU.ppt

Management, Organizational
Policies & Practices
Lecture 8
Dr. Amna Yousaf
PhD (HRM)
University of Twente,
the Netherlands
Copyright ©2008 by Cengage Learning. All rights reserved
Recap Lecture 7
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•
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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.
Copyright ©2008 by Cengage Learning. All rights reserved
Decision Making
Lecture 8
Copyright ©2008 by Cengage Learning. All rights reserved
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 decisionmaking techniques can improve decisionmaking.
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What Is Rational Decision Making?
Decision Making
The process of choosing a solution from
available 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
1
Define the problem
2
Identify decision criteria
3
Weight the criteria
4
Generate alternative courses of action
5
Evaluate each alternative
6
Compute the optimal decision
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Steps to Rational Decision Making
1
Define the problem
• 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.
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Beyond the Book
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.
Source: “The 50 Women to Watch 2008,” The Wall Street Journal, 10 November 2008, R6.
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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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Steps to Rational Decision Making
2
Identify decision criteria
• 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, onsite 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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Steps to Rational Decision Making
3
Weight the criteria
• 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
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Steps to Rational Decision
Making
• 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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Steps to Rational Decision Making
Absolute Weighting of Decision Criteria
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Steps to Rational Decision Making
Relative Weighting of Decision Criteria
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Steps to Rational Decision Making
4
Generate alternative courses of action
• 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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Steps to Rational Decision Making
5
Evaluate each alternative
• 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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Steps to Rational Decision Making
6
•
•
Compute the optimal decision
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 Making
Bounded Rationality
A decision-making process restricted in the real
world by:
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
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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”
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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
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Limits to Rational Decision Making
Maximize
Satisfice
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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
radiologists
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Common Decision-Making
Mistakes
• 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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Common Decision-Making
Mistakes
• 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
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Using Rules and Tests to
Improve Decisions
• Minimum Threshold Rule – alternative
required to meet all minimum established
criteria
– Ottawa rule for x-ray of ankle injuries
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Using Rules and Tests to
Improve Decisions
• 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
Structured
Conflict
Delphi
Technique
Nominal
Group
Technique
Electronic
Brainstorming
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Group Decision Making
Advantages
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
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Group Decision Making
Disadvantages
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
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Groupthink
Groupthink is likely to occur when…
 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.
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Structured Conflict
C-Type Conflict
Cognitive conflict
Disagreement that focuses on
problem- and issue-related
differences of opinion
A-Type Conflict
Affective conflict
Disagreement that focuses on
individuals 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 use
the originally proposed solution
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Dialectical Inquiry
Beyond the Book
Steps to Establish a Dialectical Inquiry Process
1. Generate a potential solution
2. Identify the assumptions underlying the
potential solution
3. Generate a conflicting counterproposal based
on opposite assumptions
4. Have advocates of each position present their
arguments and engage in a debate in front of
decision makers
5. Decide whether to use, change, or not use
the originally proposed solution
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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 the
highest 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.
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Brainstorming
Four 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 used
to come up with even more ideas.
4. Criticism or evaluation of ideas is not allowed.
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Electronic Brainstorming
Advantages 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 Brainstorming
Disadvantages 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
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