Management a practical introduction 3rd kinicky chapter 07

Chapter 7: Individual & Group Decision Making How Managers Make Things Happen The Nature of Decision Making Rational & Nonrational Decision Making Evidence-Based Decision Making & An

Chapter 7: Individual & Group

Decision Making

How Managers Make Things

Happen

The Nature of Decision Making

Rational & Nonrational Decision Making

Evidence-Based Decision Making & Analytics

Making Ethical Decisions

How to Work With Others

How to Overcome Barriers to Decision Making

7.1 The Nature Of Decision Making

HOW DO MANAGERS MAKE DECISIONS?

A choice made from available alternatives is a decision

The process of identifying and choosing

alternative courses of action is decision making

Decisions that are repetitive and routine and made automatically are programmed

Decisions that occur under nonroutine,

unfamiliar circumstances and are not automatic are nonprogrammed

7.1 The Nature Of Decision Making

The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff

is referred to as risk propensity

The combination of how an individual perceives and responds to information is the individual’s

decision-making style

Decision-making styles differ according to

value orientation (the extent to which a person

focuses on either task and technical issues or

people and social concerns when making a

decision) and tolerance for ambiguity (the extent

to which a person has a need for structure or

control)

7.1 The Nature Of Decision Making

When the dimensions of value orientation and tolerance for ambiguity are combined, four

decision-making styles emerge:

Knowing Your Decision Making Style…Directive

 Low tolerance for ambiguity and oriented

toward task and technical concerns

 Efficient, logical, practical, and

systematic in approach to solving problems

 Tend to be autocratic, exercise power and

control, and focus on the short-term

Knowing Your Decision Making Style…Analytical

 Higher tolerance for ambiguity and is

characterized by the tendency to overanalyze a situation

 Careful decision makers who take longer

to make decisions; also respond well to new situations

Knowing Your Decision Making Style…Conceptual

 High tolerance for ambiguity and tends to focus

on the people or social aspects of a work situation

 Adopts a long-term perspective and relies on

intuitions and discussions with others to acquire information

 Can result in an indecisive approach to decision

making

Knowing Your Decision Making Style…Behavioral

 The most people oriented

 Works well with others, enjoys social

interactions in which opinions are openly exchanged; has tendency to avoid conflict, but can be indecisive and have a hard time saying no

 Can lead to a wishy-washy approach to decision

making

7.1 The Nature Of Decision Making

Figure 7.1: Decision-Making Styles

best interests.

 The Rational Model is

based on unrealistic assumptions:

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

Figure 7.2: The Four Steps in Rational Decision Making

The Four Steps in Rational Decision Making

Stage 2

Think up alternative solutions

Stage 3

Evaluate alternatives &

select a solution

Stage 4

Implement &

evaluate the solution

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

There are four stages in the rational decision making process

Stage 1: Identify the problem or opportunity

Difficulties that inhibit the achievement of goals are called problems

Situations that present possibilities for exceeding

existing goals are called opportunities

Whether they face a problem or an opportunity,

managers need to make decisions that will improve the firm

To do this, they need to make a diagnosis (analysis of the underlying causes of the problem or opportunity)

Stage 1

Problems: difficulties that

inhibit the achievement

Opportunities: situations that present possibilities for exceeding existing goals

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

Stage 2: Think up alternative solutions

Once managers have identified problems or

opportunities and diagnosed causes, they need

to come up with alternative solutions

Solutions for programmed decisions are simple and obvious, but nonprogrammed decisions will

be more challenging

Stage 2

 For a programmed

decision — the alternative will be easy and obvious

Stage 2

Think up alternative solutions

 For a nonprogrammed

decision — the more

creative and innovative the alternative, the better

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

Stage 3: Evaluate alternatives & select a solution

 Each alternative must be evaluated to

determine whether it is ethical, feasible, and

effective

Stage 3

 Is solution ethical?

Stage 3

Evaluate alternatives

& select a solution

 Is solution feasible?

 Is solution ultimately effective?

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

Stage 4: Implement & evaluate the solution chosen

It is usually more straightforward to implement programmed decisions than nonprogrammed

decisions

To successfully implement a decision, managers must plan carefully and be sensitive to those

affected by the decision

If a decision fails to go as planned, managers

should give it more time, change it slightly, or try another alternative

In some cases, it might be necessary to start the process over

Stage 4

 Evaluation – you

need to follow up and evaluate the results of the

decision and take action

Stage 4

Implement

& evaluate the

solution chosen

Stage 4, cont.

 Evaluation – Taking Action

1) Give it more time

solution chosen

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

WHAT’S WRONG WITH THE RATIONAL MODEL?

The rational model describes what a manager ought to do (it is prescriptive), it does not

describe how a manager should actually make a decision

The model also assumes that the manager has complete information

Some Hindrances to Perfectly Rational Decision Making

 Complexity

 Time and money constraints

 Different cognitive capacity, values, skills, habits and

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

WHY DO MANAGERS MAKE NONRATIONAL

DECISIONS?

Nonrational models of decision making assume that decision making is usually uncertain and

risky

Nonrational models are descriptive - they

describe how managers actually make decisions

There are two nonrational models: satisficing and incremental

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

1 The satisficing model suggests that because of bounded rationality (when the ability of decision makers to be rational is limited by numerous

constraints), managers do not seek all alternative solutions, but instead seek alternatives only until they find one that is satisfactory, not optimal

2 The incremental model of decision making

argues that managers take small, short-term

steps to solve problems

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

CAN MANAGERS MAKE BETTER DECISIONS THROUGH KNOWLEDGE MANAGEMENT?

Today, managers are shifting toward

knowledge management or the development of

an organizational culture (tools, processes,

systems, and structures) that encourages

continuous learning and sharing of knowledge and information among employees, for the

purpose of making better decisions

7.2 Two Kinds Of Decision Making:

Rational & Nonrational

There are two types of knowledge:

1 explicit knowledge is information that can easily be put into words, graphics, and numbers and shared with

others like the tax code

2 tacit knowledge is individual-based, intuitive, and

acquired through considerable experience, and is hard to explain and to share like how to write a speech

solutions like e-mail and Web sites, and low-tech

solutions like human interaction in meetings and informal networking

7.3 Evidence–Based Decision

Making & Activities

WHY IS EVIDENCE BASED DECISION MAKING

USEFUL?

put aside beliefs and conventional wisdom and act on the facts

really new ideas, true is better than new, doing well usually dominates

often have a competitive advantage over those who do not

7.3 Evidence–Based Decision

Making & Activities

Companies using evidence-based

decision-making should:

treat the organization as an unfinished prototype

provide the facts

see themselves and their company as outsiders do

use evidence-based management regardless of management level

work to sell their solution

use evidence-based management even when it

is not the popular method

learn from failure

7.3 Evidence–Based Decision

Making & Activities

Analytics or business analytics refers to sophisticated forms of business data analysis and is one of the purest forms of evidence-based management

Competitors that use analytics share three key attributes:

1 they go beyond basic statistics and use other

techniques like predictive modeling (a data mining

technique used to predict future behavior and anticipate the consequences)

2 they do not rely on a single method, but instead use multiple applications

3 they have support from top level executives

7.4 Making Ethical Decisions

HOW CAN MANAGERS BE SURE THEIR

DECISIONS ARE ETHICAL?

Today, ensuring that employees understand

what constitutes desirable business behavior has become important

Many companies have ethics officers (someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas)

7.4 Making Ethical Decisions

their possible consequences that are used to crate a plan

to reach a goal) to help them reach ethical decisions

When using a decision tree, managers should ask:

value?

action?

7.4 Making Ethical Decisions

Figure 7.4: The Ethical Decision Tree:

What’s The Right Thing To Do?

7.5 Group Decision Making:

How To Work With Others

WHY WORK IN GROUPS?

There are five advantages to using groups:

groups provide a greater pool of knowledge

groups offer different perspectives

groups encourage intellectual stimulation

groups allow for a better understanding of

decision rationale

groups encourage a deeper commitment to the decision

7.5 Group Decision Making:

How To Work With Others

WHAT ARE THE DISADVANTAGES OF GROUPS?

There are several disadvantages of groups:

intimidating

group members strive to agree for the sake of unanimity and avoid accurately assessing the decision situation

the primary goal is subsumed by a secondary goal

7.5 Group Decision Making:

How To Work With Others

WHAT SHOULD MANAGERS KNOW ABOUT

GROUPS & DECISION MAKING?

Managers should be aware of four characteristics

of groups:

1 groups are less efficient

2 group size affects the quality of decisions

3 groups may be too confident about their

decisions

4 group decision making tends to be better when members know more about relevant issues, and when leaders can weight members’ opinions

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

Which of the following is not true of group decision making?

A) it is more efficient

B) group size affects decision quality

C) groups are more confident of the decision D) knowledge is important

7.5 Group Decision Making:

How To Work With Others

SHOULD EMPLOYEES BE INVOLVED IN

DECISION MAKING?

management (the process of involving employees in

setting goals, making decisions, solving problems, and making changes to the organization)

effective in some cases such as when management is supportive and employees trust managers

7.5 Group Decision Making:

How To Work With Others

When groups make decisions, they have to reach a

consensus (when members are able to express their

opinions and reach agreement to support the final

decision)

Three techniques that can help groups solve problems are brainstorming (helps groups generate ideas and

alternatives for solving problems, nominal groups

(generate ideas and evaluate solutions by writing down as many ideas as possible, listing them on a blackboard, and then taking a secret vote), and delphi groups (use

physically dispersed experts who fill out questionnaires to anonymously generate ideas)

These can be assisted with computer-aided decision

making

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

Which of the problem solving techniques is

useful when managers want to generate as many new ideas or alternatives as possible?

A) nominal group technique

B) delphi technique

C) brainstorming

D) computer-aided decision making

7.6 How To Overcome Barriers

To Decision Making

HOW DO MANAGERS RESPOND TO DECISION SITUATIONS?

There are four ineffective reactions:

1 relaxed avoidance - a manager decides to take

no action in the belief that there will not be great negative consequences

2 relaxed change - a manager realizes that

complete inaction will have negative

consequences but opts for the first available

alternative that has low risk

7.6 How To Overcome Barriers

To Decision Making

3 defensive avoidance - the manager can’t find a good solution so procrastinates, passes the buck,

or denies the risk of any negative consequences

4 panic - a manager is so frantic to get rid of the problem that he can’t deal with the situation

realistically

When a manager agrees that he must decide

what to do about a problem or opportunity, and

takes effective decision-making steps, we say he

is deciding to decide

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

A manager that simply takes the easy way out is using the strategy.

A) panic

B) defensive avoidance

C) relaxed change

D) relaxed avoidance

7.6 How To Overcome Barriers

To Decision Making

There are several common decision making biases (called heuristics) that simplify the process of

making decisions:

1 When managers use only information that is

readily available from memory to make judgments,

an availability bias exists

2 When people seek information to support their point of view and discount data that do not, a

confirmation bias exists

3 A representativeness bias refers to the tendency

to generalize from a small sample or a single event

7.6 How To Overcome Barriers

To Decision Making

4 When managers add up all the money already spent on a project and conclude it is too costly to simply abandon it, sunk cost bias exists

5 The tendency to make decisions based on an initial figure is adjustment bias

6 Escalation of commitment bias occurs when

decision makers increase their commitment to a project despite negative information about it

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

Which type of bias occurs when a manager generalizes from a small sample?