Making Decisions in Organizations

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Three Good Reasons Why You Should Care About . . . Decision MakingDecision Making1. Human decision making is inherently

imperfect, although these imperfections can be overcome if you know what they are and how they operate

2. Functioning effectively in today’s business environment requires awareness of cultural differences in the way people make decisions

3. Groups are widely used to make organizational decisions despite the fact they often are ineffective at dealing with the kinds of tasks they are likely to face

Decision Making

The process by which managers respond to opportunities and threats that confront them by analyzing options and making determinations about specific organizational goals and courses of action.

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The Nature of Managerial Decision Making -

• Decisions in response to opportunities -occurs when managers respond to ways to improve organizational performance to benefit customers, employees, and other stakeholder groups

• Decisions in response to threats - events inside or outside the organization are adversely affecting organizational performance

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The Decision-Making Process

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Cultural Differences

Recognizing problems

Preference for decision-making unit

Who makes the decisions?

Time taken to make decisions

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Organizational Decisions

Programmed vs. Nonprogrammed

Certain vs. Uncertain

Top-down vs. Empowered

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Programmed versus Nonprogrammed

Programmed decisions Programmed decisions are routine decisions, made by lower-level personnel, that rely on predetermined courses of actionNonprogrammed decisions Nonprogrammed decisions are decisions for which there are no ready-made solutions. The decision maker confronts a unique situation in which the solutions are novel

Strategic decisions Strategic decisions are nonprogrammed decisions that have important long-term implications for the organization and are made by coalitions of high-level executives

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Examples of Strategic Decisions

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Certain versus Uncertain

Usually expressed as statements of riskWhat makes an outcome risky is the probability of obtaining the desired outcome Objective probabilities are based on concrete,

verifiable data Subjective probabilities are based on personal

beliefs or hunchesTo make the best possible decisions in organizations, people seek to “manage” the risks they take

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Top-down decision-making Top-down decision-making puts the power to make decisions in the hands of managers, leaving lower-level workers with little or no opportunity to make decisions

Empowered decision-making Empowered decision-making allows employees to make the decisions required to do their jobs without seeking supervisory approval More likely to lead to effective decisions Helps build commitment to decisions

Top-down versus Empowered

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Decision-Making Approaches

The Rational-Economic Model

The Administrative Model

Image Theory

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The Rational-Economic Model

Rational DecisionsRational Decisions: Decisions that maximize the attainment of individual, group, or organizational goals

Rational-Economic ModelRational-Economic Model: The model of decision making according to which decision makers consider all possible alternatives to problems before selecting the optimal solution

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The Administrative ModelA model of decision making that recognizes that decision makers may have a limited view of the problems confronting themSatisficing DecisionsSatisficing Decisions: Decisions made by selecting the first acceptable alternative as it becomes availableBounded RationalityBounded Rationality: The idea that people lack the cognitive skills required to formulate and solve highly complex business problems in a completely objective, rational wayBounded DiscretionBounded Discretion: The tendency to limit decision alternatives to those that fall within the bounds of current moral and ethical standards

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Image Theory

A theory of decision making that recognizes that decisions are made in an automatic, intuitive fashion based on actions that best fit their personal standards, goals, and plans for the future

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Characteristics of DecisionsDecision makers have a limited view of the problems confronting them Bounded rationality

Decision makers consider solutions as they become available Satisficing

Decision makers face time constraintsDecision makers are sensitive to political “face saving” pressure

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Biases(Partial,unfairly) in Decision MakingFraming effects refers to the tendency for people to make different decisions based on how a problem is presented to them Positive framing tends to make decision makers risk averse Negative framing tends to make decision makers risk seeking

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Advantages of group decision making Pooling of resources Specialization of labor Greater decision acceptance

Disadvantages of group decision making Wasted time Group conflict Intimidation(demotivated karna) by group leaders

Conclusion: neither groups nor individuals are always superior

Group vs. Individual Decisions

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Group vs. Individual Decisions

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When members of a group develop a very strong group spirit – high levels of cohesiveness – they sometimes become so concerned about not disrupting the like-mindedness of the group that they may be reluctant to challenge the group’s decisions

When this happens, group members tend to isolate themselves from outside information, and the process of critical thinking deteriorates

Groupthink

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Improving Group Decision Making

The Stepladder Technique

The Delphi Technique

The Nominal Group Technique

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Stepladder TechniqueA technique for improving the quality of group decisions that minimizes the tendency

for group members to be unwilling to present their ideas by adding new members to a group one at a time and requiring each to present his or her ideas

independently to a group that already has discussed the problem at hand

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Effectiveness of Stepladder Technique

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Delphi TechniqueA systematic way of collecting and organizing the opinions of several experts

into a single decision

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Nominal Group Technique

A technique for improving group decisions in which small groups of individuals systematically present and discuss their ideas before privately voting on their preferred solution. The most preferred solution is accepted as the group’s decision

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Computer-Based Approaches Electronic Meeting SystemsElectronic Meeting Systems: Involve holding

teleconferencees in which individuals in different locations participate in group conferences by means of telephone lines or direct satellite transmissions

Computer-Assisted CommunicationComputer-Assisted Communication: The sharing of information, such as text messages and data relevant to the decision, over computer networks

Group Decision Support Systems (GDSS)Group Decision Support Systems (GDSS):: Interactive computer-based systems that combine communication, computer, and decision technologies to improve the effectiveness of group problem-solving meetings