Challenges for Decision Makers

Decision Making

The process of identifying and choosing alternative courses of action to meet the demands of a situation. Alternative courses of action must be identified, weighed, and weeded out.

Trends in Decision Making: The complexity of decision-making has accelerated.

 Dealing with Complex Streams of Decisions

—  Multiple criteria to be satisfied by a decision

—  Intangibles that often determine decision alternatives

—  Risk and uncertainty about decision alternatives

—  Long-term implications of the effects of the choice of a particular alternative

—  Interdisciplinary input, which increases the number of persons to be consulted before a decision is made

—  Pooled decision making increases the number of persons playing a part in the decision process.

—  Value judgments by differing participants in the process create disagreement over whether a decision is right or wrong, good or bad, and ethical or unethical.

—  Unintended consequences occur because the results of purposeful actions cannot always be predicted.

Sources of Complexity for Today’s Managerial Decision Makers

Types (Conditions) of Uncertainty

Certainty: Exists when a solid factual basis allows prediction of a decision’s outcome

Risk: Exists when a decision is made on the basis of incomplete but reliable information. Objective probabilities are based on reliable data. Subjective probabilities are based on judgment.

Uncertainty: Exists when no reliable data exist on which to base a decision.

 The Relationship between Uncertainty and Confidence

Information Processing Styles

Thinking Style: Being deliberative, logical, precise, and objective when making a decision. Suited to routine tasks requiring attention to detail and systematic implementation.

Intuitive Style: Being creative, following hunches and visions in decision making. Best for rapidly changing situations requiring creativity and intuition

How to Sharpen your Intuition

Avoiding Perceptual and Behavioral Decision Traps

Framing Error: The way in which information is presented influences one’s interpretation of it, which, in turn, may alter a decision based on the information.

Escalation of Commitment: Continuing on a course of action can lock a person into a losing position (“throwing good money after bad”).

Overconfidence: Believing too much in one’s own capabilities is a trap.

Why Escalation of Commitment Is So Common

Making Decisions, Types of Decisions

Programmed decisions:

Repetitive and routine decisions: A decision rule identifies the situation and specifies how the decision will be made. Useful for establishing solutions (in “if-then” terms) to standard, recurring problems that are solved only once

Streamlines  the decision making process: Allows lower-level managers to shoulder responsibility for programmed decisions. Frees up higher-level managers for more important decisions.

Nonprogrammed decisions: 

Decisions made in complex and non routine situations

Questions to ask:

·         What decision needs to be made?

·         When does it have to be made?

·         Who will decide?

·         Who needs to be consulted?

·         Who will ratify or veto the decision?

·         Who will need to be informed?

A General Decision-Making Model

Rational (Logical) Decision Model Steps

Scan the situation; identify a signal that a decision should be made.

—  Receipt of authoritative communications from superiors

—  Cases referred for decision by subordinates

—  Cases originating from the manager

Classify the decision. If it is routine, apply the appropriate decision rule; if it is not, generate a nonprogrammed decision through problem solving. Monitor and follow-up as necessary.

General Decision-Making Model

Knowledge Management

Developing a system to improve the creation and sharing of knowledge critical for decision making.

Tacit knowledge: Personal, intuitive, and undocumented private information

Explicit knowledge: Readily sharable public information in verbal, textual, visual, or numerical form

Key Dimensions of Knowledge Management (KM)

Improving the Flow of Knowledge

The flow of constructive tacit knowledge between coworkers is a priority. KM software is proving very useful and cost-effective in large organizations for sharing both tacit and explicit knowledge. Knowing what you know, what you don’t know, and how to find what you know yields better and more timely decisions.

Improving the Flow of Knowledge

·         Organization cultures

·         Training

·         Communication

·         Empowerment

·         Participative management

·         Virtual teams

·         Transformational leadership

·         Mentoring

Group-Aided Decision Making: A Contingency Perspective

Collaborative Computing: Teaming up to make decisions via a computer network programmed with groupware.

Group Involvement in Decisions

—  Analyzing the problem

—  Identifying components of the situation

—  Estimating components of the situation

—  Designing alternatives

—  Choosing an alternative

The Problem of Dispersed Accountability

Group-aided decision making: The group does everything except make the decision.

Group decision making: The group actually makes the final decision collectively. Results in loss of personal/individual accountability.

Individual accountability is required when: The decision will have significant organizational impact. The decision has legal ramifications. A competitive reward is tied to the decision.

Advantages-Disadvantages of Group-Aided Decision Making and Problem Solving

A Contingency Approach Is Necessary

Individuals Versus Groups

Groups do better quantitatively and qualitatively than the average individual. Exceptional individuals tend to outperform the group. Group decision-making performance does not always exceed individual performance, making a contingency approach to decision making advisable.

The Problem-Solving Process

Managerial Creativity

What Is Creativity?

The reorganization of experience into new configurations. Creativity is a function of knowledge, imagination, and evaluation.

Three domains of creativity:

—  Art

—  Discovery

—  Humor

Myth: Creative people are typically nonconformists

Learning to Be More Creative

Mental Locks

—  Looking for the “right” answer

—  Always trying to be logical

—  Strictly following the rules

—  Insisting on being practical

—  Avoiding ambiguity

—  Fearing and avoiding failure

—  Forgetting how to play

—  Becoming too specialized

—  Not wanting to look foolish

—  Saying “I’m not creative”

Creative Problem Solving

Problem solving is the conscious process of bringing the actual situation closer to the desired situation.

Steps in Creative Problem Solving

—  Identifying the problem

—  Generating alternative solutions

—  Selecting a solution

—  Implementing and evaluating the solution

Identifying the Problem

What is a problem?

Defined by the difference between the actual and the desired state of affairs

Stumbling Blocks for Problem Finders

—  Defining the problem according to a possible solution

—  Focusing on narrow, low-priority areas

—  Diagnosing problems in terms of their symptoms

Causes: Variables that are primarily responsible for differences between the actual and the desired conditions

Pinpointing Causes with Fishbone Diagrams

A TQM process improvement tool that shows possible problem causes and their interactive relationships

Generating Alternative Solutions

—  Brainstorming

—  Free association

—  Edisonian method

—  Attribute listing

—  Scientific method

—  Creative Leap

Selecting a Solution

Resolving the problem

Satisfice: To settle for a solution that is good enough rather than the best possible

Solving the problem

Optimize: Systematically identifying the solution with the best combination of benefits

Dissolving the problem

Changing the situation in which the problem occurs so that the problem (and the conditions that cause it) no longer exists

Implementing and Evaluating the Solution

Effective and efficient resolution removes the difference between actual and desired states. If problem persists, recycling through the problem-solving steps becomes necessary.

—  Trying other feasible solutions

—  Redefining the problem and beginning the problem-solving cycle again