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Management an Introduction
Chapter 7 – Decision making
‘Decision making is a generic process that is applicable to all forms of organised activity’ (Harrison, 1999). It involves:
- Identifying type of decision
- Identify surrounding conditions
- Use of models to guide process
- Select decision-making style
- Work through decision process
TASKS IN MAKING DECISIONS 203
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Decision -making conditions
- Certainty
- Risk -^ Uncertainty^ Decision^ -maker's^ style
- Ambiguity^ •Autocratic -^ Information seeking - Consulting - Negotiating -^ Delegating^ Figure^ 7.1 An overview of the chapter
The chapter contrasts programmed' andnon -programmed' decisions, identifies four conditions surrounding a decision, compares four models, shows how bias affects decisions, and how managers can shape the context of decision making. It begins by outlining a simple, systematic model of the process which later sections elaborate.
Activity 7.1 Questions about a decision
Identify a management decision of which you are aware. You may find it helpful to discuss this with a manager you know, or use an activity have managed.
- Note what the decision involved, and what was decided.
- Was it an easy decision to make, or complex and messy? What made it so?
- How did those involved make the decision? Note just two or three main points.
- Did you (and they) consider the outcome of the decision satisfactory or not? Why was that?
Daniel Schenk Maastricht University 12 th^ October 2015
Tasks in making decision
Decision – Specific commitment to action (usually a commitment of resources) Decision-making – Iterative process of identifying problems and opportunities and then resolving them.
Paul Nutt Idea discovery process – Leads to success
- Spending time understanding the claims
- Clear view of ‘arena of action’
- Identify outside forces – Might block implementation of preferred idea
- Set direction – Agreed outcome of decision Makes the stages of uncovering and evaluating ideas easier.
Idea imposition process – Leads to failure
- Limited search
- Consider too few ideas
- Pay too little attention to people that are affected
Recognising a problem or opportunity
Problem – Gap between existing and a desired state of affairs Opportunity – Chance to do something not previously expected Managers become aware of a problem as they compare existing conditions with the state they desire.
Set goals and weight criteria
Clarifying the scope of the decision helps to prevent people talking at cross purposes. Decision criteria – Factors that are relevant in making a decision
Develop alternatives
Identifying a solution
- arrange their induction into the job so that they work effectively.
During each of these tasks the manager may go back in the process to think again, or
to deal with another set of decisions -such as who to include on the selection committee.
Samsung's decision about which new models to offer follows many earlier decisions about
the target market, the design concept, how much to invest in design, production volumes
and price. A manager makes small but potentially significant decisions all the time - which^ of
several urgent jobs to do, whose advice to seek, which report to read, which customer to^ call.
These shape the way people use their time, and the issues to which they attend.
Figure 7.2 shows a systematic sequence of tasks that people can work through to^ make^ a
decision, with the direction of the arrows showing that it is an iterative process.^ As^ we^ do
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Decision making conditions Certainty – Situation when all the information the decision maker needs is available Risk – Decision maker is able to estimate the likelihood of the alternative outcomes Uncertainty – Being clear about the goals, but little information is available about which course of action is most likely to succeed Ambiguity – Being uncertain about goals and how best to achieve them CHAPTER 7 DECISION MAKING
Organisational problem
Certainty Risk Uncertainty Ambiguity Programmed Non-programmed decisions decisions re 7.5 Degree certainty and Solution ion -making place reserve funds can readily compare rates of interest from several banks, and calculate exactly the return from each. Few decisions are that certain, and most contain risk and/or uncertainty.
Risk
Risk refers to situations in which the decision maker can estimate the likelihood of the
alternative outcomes, possibly using statistical methods. Banks have developed tools to assess credit risk, and so reduce the risk that the borrower will not repay the loan. The questions on an application form for a loan (home ownership, tune at this address, employer's name, etc.) enable the bank to assess the risk of lending money to that person.
Uncertainty
Uncertainty means that people know what they wish to achieve, but do not have enough
information about alternatives and future events to estimate the risk confidently. Factors that may affect the outcomes of deciding to launch a new product (future growth in the market, changes in customer interests, competitors' actions) are difficult to predict. Managers at G1a~coSmithKline, the pharmaceutical group, experience great uncertainty in allocating research funds. Scientists who wish to develop a range of vaccines have to persuade the board to allocate resources to the project. Uncertainties include rapid change in the rel- evant science, what competitors are doing, and how many years will pass before the vaccines begins to earn revenue (if any).
Ambiguity
Ambiguity describes a situation in which the intended goals are unclear, and so the alterna- ~
tive ways of reaching them are equally fluid -leading to stress. Students would experience
Daniel Schenk Maastricht University 12 th^ October 2015
Dependency
…on other decisions. They are influenced by past and possible future decisions, and by events in other parts of the organisation.
Decision making models
James Thompson (1967)
- Agreement or disagreement over goals
- Beliefs about relationship between cause and effect
Computational strategy – rational model
Rational model of decision-making – Assuming people make consistent choices to maximise economic value within specified constrains. Model depends on the assumption that decision maker is rational and logical, rather than relying on intuition and personal preferences.
The rational model is more realistic for programmed, certain decisions.
Another^ way^ to^ categorise^ decisions^ is^ by^ their^ dependency^ (or^ not)^ on^ other^ decisions. People^ make^ decisions^ in^ a^ historical^ and^ social^ context^ and^ so^ are^ influenced^ by^ past^ and possible future^ decisions,^ and^ by^ events^ in^ other^ parts^ of^ the^ organisation.^ Legacy^ computer systems^ (the^ result^ of^ earlier^ decisions)^ frequently^ constrain^ how^ quickly^ a^ company^ can adopt new systems. Some decisions have^ few^ implications^ beyond^ their^ immediate^ area,^ but^ others^ have significant ripples^ around^ and^ beyond^ the^ organisation.^ Changes^ in^ technology^ usually require consistent, supportive^ changes^ in^ structures^ and^ processes^ if^ they^ are^ to^ be effective -but^ decisions^ on^ these^ areas^ are^ harder^ to^ make^ than^ those^ on^ technology. Figure^ 7.6^ illustrates^ this.
Decisions in different^ areas^ of the organisation
What are^ other parts of the organisation^ / doing?
Decisions^ in^ the same area of the organisation
The decision Amount of^ Consideration 'history'^ to^ decision^ of^ how^ decision^ affects (change in policy)^ future^ options
Past decisions
Present decisions
Future decisions
Figure^ 7.6^ Possible^ relationships^ between^ decisions Source: Making Management^ Decisions,^ 2nd^ ed.,^ Prentice^ Hall,^ Hemel^ Hempstead^ (Cooke,^ S.^ and^ Slack,^ N.^ 1991)^ p.^ 24,^ CopyrightO^ Pearson Education^ Ltd.^ 1991.
DECISION^ MAKING^ MODELS^215
Agreement on^ goals? High^ Low
Certainty
Beliefs^ about cause^ -and^ -effect relationships
Uncertainty
Computational^ strategy
III
Compromise^ strategy Rational^ model^ Political^ model
II^ IV
Judgemental^ strategy^ Inspirational^ strategy Administrative,^ incremental^ Garbage^ -can^ model and intuitional^ models
The model^ depends^ on^ the^ assumption^ that^ the^ decision^ maker is rational^ and^ logical^ in
setting preferences,^ assigning^ values^ to^ costs^ and^ benefits, and evaluating^ alternatives. The rational^ model^ is^ normative,^ in^ that^ it^ defines^ how^ a^ decision maker^ should^ act^ -^ it s do act. It aims^ to^ help^ people^ to^ act^ more^ ratio-
Figure^ 7.7^ Condi- tions^ favouring different^ decision processes Source:^ Based^ on Thompson^ (1967), p.134.
Illusion of control
…overestimating one’s ability to control activities and events.
Escalating commitment
…increased commitment to a previous decision despite evidence that it may have been wrong – Rather than searching for a new solution, commitment on original task is increased.
Emotional attachment
…attachments (positive or negative) bring meaning and happiness and are bound to influence the decision.
Group decision making
Vroom and Yetton’s decision model
- Autocratic (AI) – You solve the problem or make decision yourself
- Information-seeking (AII) – Obtain necessary information from subordinate, then decide on solution to the problem yourself
- Consulting (CI) – Share problem with relevant subordinates individually, and make decision yourself
- Negotiating (CII) – Share problem with subordinates as a group, then you make the decision
- Group (G) – Share problem with subordinates as a group. Together generate and evaluate alternatives and attempt to reach consensus
In some situations, going through process of consulting will waste time and add little value. In other situations subordinates have relevant information, where it is necessary to consult them.
Groupthink
…a pattern of biased decision making that occurs in groups that become too cohesive – members strive for agreement among themselves at the expense of accurately and dispassionately assessing relevant, and especially disturbing information.
Irving Janis – Symptoms of groupthink
- Illusion of invulnerability – Belief that any decision will be successful
- Belief in inherent morality of group – Justifying decision by reference to higher value
- Rationalisation – Playing down negative consequences or risks
- Stereotyping out - groups – Characterising opponents in unfavourable terms – Dismisses even valid criticism
- Self-censorship – Suppressing legitimate doubts in interest of group loyalty_._
- Direct pressure – Strong expressions from other members that dissent to their favoured approach will be unwelcome
- Mindguards – Keeping uncomfortable facts or opinions out of the discussion
- Illusion of unanimity – Playing down remaining doubts or questions
