Decision Making

Decision Making
Chapter 17
Decision Making
 Study questions.
– How are decisions made in organizations?
– What are the useful decision making models?
– How do intuition, judgment, and creativity
affect decision making?
– How can the decision-making process be
managed?
– How do technology, culture, and ethics
influence decision making?
Organizational Behavior: Chapter 17 2
How are decisions made
in organizations?
 Decision making.
– The process of choosing a course of action for
dealing with a problem or opportunity.

in organizations?
 Steps in systematic decision making.
– Recognize and define the problem or opportunity.
– Identify and analyze alternative courses of action, and

estimate their effects on the problem or opportunity.
– Choose a preferred course of action.
– Implement the preferred course of action.
– Evaluate the results and follow up as necessary.

in organizations?
 The systematic decision-making process
may not be followed where substantial
change occurs and many new technologies
prevail.
 Novel decision techniques may yield
superior performance in certain situations.
 Ethical consequences of decision making
must be considered.

in organizations?
 Decision environments include:
– Certain environments.
– Risk environments.
– Uncertain environments.

in organizations?
 Certain environments.
– Exist when information is sufficient to predict
the results of each alternative in advance of
implementation.
– Certainty is the ideal problem solving and
decision making environment.

in organizations?
 Risk environments.
– Exist when decision makers lack complete
certainty regarding the outcomes of various
courses of action, but they can assign
probabilities of occurrence.
– Probabilities can be assigned through
objective statistical procedures or personal
intuition.
in organizations?
 Uncertain environments.
– Exist when managers have so little
information that they cannot even assign
probabilities to various alternatives and
possible outcomes.
– Uncertainty forces decision makers to rely on
individual and group creativity to succeed in
problem solving.

in organizations?
 Uncertain environments — cont.
– Also characterized by rapidly changing:
• External conditions.
• Information technology requirements.
• Personnel influencing problem and choice
definitions.
– These rapid changes are also called organized
anarchy.

in organizations?
 Types of decisions.
– Programmed decisions.
• Involve routine problems that arise regularly and
can be addressed through standard responses.
– Nonprogrammed decisions.
• Involve nonroutine problems that require solutions
specifically tailored to the situation at hand

What are the useful
decision making models?
 Classical decision theory.
– Views the decision maker as acting in a world
of complete certainty.
 Behavioral decision theory.
– Accepts a world with bounded rationality and
views the decision maker as acting only in
terms of what he/she perceives about a given
situation.
What are the useful
 Classical decision theory.
– The classical decision maker:
• Faces a clearly defined problem.
• Knows all possible action alternatives and their
consequences.
• Chooses the optimum alternative.
– Is often used as a model of how managers
should make decisions.

What are the useful
 Behavioral decision theory.
– Recognizes that human beings operate with:
• Cognitive limitations.
• Bounded rationality.
– The behavioral decision maker:
• Faces a problem that is not clearly defined.
• Has limited knowledge of possible action
alternatives and their consequences.
• Chooses a satisfactory alternative.

What are the useful
 Classical decision theory:
– May not fit well in a chaotic world.
– Can be used toward the bottom of many firms,
even most high-tech firms.
 Behavioral decision theory:
– Fits with a chaotic world of uncertain
conditions and limited information.
– Encourages satisficing decision making.
What are the useful
 The garbage can model.
– A model of decision making that views
problems, solutions, participants, and choice
situations as mixed together in the “garbage
can” of the organization.
• In stable settings, behavioral decision theory may
be more appropriate.
• In dynamic settings, the garbage model may be
more appropriate.

What are the useful
 Implications of the garbage can model.

– Choice making and implementation may be
done by different individuals.
• Because of interpretation, there is a risk that the
actual implementation does not exactly match the
choice.
– Many problems go unsolved.

What are the useful
 Decision making realities.
– Managers face complex choice processes.
– Decision making information may not be
available.
– Bounded rationality and cognitive limitations
affect the way people define problems,
identify alternatives, and choose preferred
solutions.

What are the useful
 Decision making realities — cont.
– Most decision making in organizations goes
beyond step-by-step rational choice.
– Most decision making in organizations falls
somewhere between the highly rational and
the highly chaotic.
– Decisions must be made under risk and
uncertainty.

What are the useful
 Decision making realities — cont.
– Decisions must be made to solve nonroutine
problems.
– Decisions must must be made under time
pressures and information limitations.
– Decisions should be ethical.

How do intuition, judgment, and
creativity affect decision making?
 Intuition.
– The ability to know or recognize quickly and
readily the possibilities of a given situation.
– A key element of decision making under risk
and uncertainty.

 Judgmental heuristics.
– Simplifying strategies or “rules of thumb”
used to make decisions.
– Makes it easier to to deal with uncertainty and
limited information.
– Can lead to systematic errors that affect the
quality and/or ethics of decisions.

 Types of heuristics.
– Availability heuristic — bases a decision on recent
events relating to the situation at hand.
– Representativeness heuristic — bases a decision on
similarities between the situation at hand and
stereotypes of similar occurrences.
– Anchoring and adjustment heuristic — bases a
decision on incremental adjustments to an initial value
determined by historical precedent or some reference
point.
 General judgmental biases in decision
making.
– Confirmation trap.
• The tendency to seek confirmation for what is
already thought to be true and to not search for
disconfirming information.
– Hindsight trap.
• The tendency to overestimate the degree to which
an event that has already taken place could have
been predicted.
 Creativity factors.
– Creativity in decision making involves the
development of unique and novel responses to
problems and opportunities.
– Creativity is especially important in a dynamic
environment full of nonroutine problems.

 Stages in the creative thinking process.
– Preparation.
– Concentration.
– Incubation.
– Illumination
– Verification.

How can the decision-making
process be managed?
 Choosing problems to address.

– Ask and answer the following questions:
• Is the problem easy to deal with?
• Might the problem resolve itself?
• Is this my decision to make?
• Is this a solvable problem within the context of the
organization?

process be managed?
 Reasons for decision making failure.

– Managers too often copy others’ choices and
try to sell them to subordinates.
– Managers tend to emphasize problems and
solutions rather than successful
implementation.
– Managers use participation too infrequently.

process be managed?
 Deciding who should participate.

– Authority decisions.
• Made by the manager or team leader without involving other
people and by using information that he/she possesses.
– Consultative decisions.
• Made by one individual after seeking input from group
members.
– Group decisions.
• Made by all members of the group.

process be managed?
 Vroom, Yetton, and Jago decision making

framework.
– Decision-making method used should fit the problem.
– In choosing among individual, consultative, or group
methods, managers should analyze:
• Quality requirements.
• Availability and location of relevant information.
• Commitments required to implement decision.
• Available time.

process be managed?
 Knowing when to quit — eliminating

escalating commitments
– Escalating commitment reflects the
continuation and renewed efforts on a
previously chosen course of action even when
feedback suggests that it is failing.
– Eliminating escalating commitment requires
self-discipline to admit mistakes and change
direction.

How do technology, culture, and ethics
 Increasingly complex problems and
opportunities face decision makers in
organizations due to various workplace
trends.
 These workplace trends are changing the
who, when, where, and how of decision
making.
 Information technology and decision making.
– Artificial intelligence.
• The study of how computers can be programmed to think
like human beings.
• Will allow computers to displace many decision makers.
– Expert systems that support decision making by

following “either-or” rules to make deductions.

 Information technology and decision
making — cont.
– Fuzzy logic and neural networks that reason
inductively.
– Computer support for decision making.
• The Internet.
• Company intranets.
• Decision support software to facilitate virtual
teamwork.

 Information technology and decision
making — cont.
– Information technology does not deal with
issues raised by the garbage can model.

 Cultural factors and decision making.
– Culture is “the way in which a group of people solves
problems.”
– North American culture stresses decisiveness, speed,
and the individual selection of alternatives.
– Other cultures place less emphasis on individual
choice than on developing implementations that work.
– The most important impact of culture on decision
making concerns which issues are elevated to the
status of problems solvable with the firm.
 Ethical issues and decision making.
– Ethical dilemma.
• A situation in which a person must decide whether
or not to do something that, although personally or
organizationally beneficial, may be considered
unethical and perhaps illegal.
– Ethical dilemmas are often associated with:
• Risk and uncertainty.
• Nonroutine problem situations.

 Ethical decision-making checklist.
– Is my action legal?
– Is it right?
– Is it beneficial?
– How would I feel if my family found out
about this?
– How would I feel if my decision were printed
in the local newspaper?
 Suggestions for integrating ethical decision
making into the firm.
– Develop a code of ethics and follow it.
– Establish procedures for reporting violations.
– Involve employees in identifying ethical issues.
– Monitor ethical performance.
– Reward ethical behavior.
– Publicize ethical efforts.

 Implications of ethics for decision making.
– Morality is involved in:
• Choosing problems.
• Deciding who should be involved in making
decisions.
• Estimating the impacts of decision alternatives.
• Selecting an alternative for implementation.
– Moral conduct does not arise from after-the-
fact embarrassment.

Decision Making

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Decision Making

– The process of choosing a course of action for

dealing with a problem or opportunity.

Organizational Behavior: Chapter 17 3

– Identify and analyze alternative courses of action, and

– Implement the preferred course of action.

– Evaluate the results and follow up as necessary.

Organizational Behavior: Chapter 17 4

Organizational Behavior: Chapter 17 5

 Decision environments include:

Organizational Behavior: Chapter 17 6

Organizational Behavior: Chapter 17 7

Organizational Behavior: Chapter 17 9

Organizational Behavior: Chapter 17 10

Organizational Behavior: Chapter 17 11

Organizational Behavior: Chapter 17 13

Organizational Behavior: Chapter 17 14

Organizational Behavior: Chapter 17 16

 Implications of the garbage can model.

Organizational Behavior: Chapter 17 17

Organizational Behavior: Chapter 17 18

Organizational Behavior: Chapter 17 19

Organizational Behavior: Chapter 17 20

Organizational Behavior: Chapter 17 21

Organizational Behavior: Chapter 17 22

Organizational Behavior: Chapter 17 25

Organizational Behavior: Chapter 17 26

 Choosing problems to address.

Organizational Behavior: Chapter 17 27

 Reasons for decision making failure.

Organizational Behavior: Chapter 17 28

 Deciding who should participate.

Organizational Behavior: Chapter 17 29

 Vroom, Yetton, and Jago decision making

Organizational Behavior: Chapter 17 30

 Knowing when to quit — eliminating

Organizational Behavior: Chapter 17 31

– Expert systems that support decision making by

Organizational Behavior: Chapter 17 33

Organizational Behavior: Chapter 17 34

Organizational Behavior: Chapter 17 35

Organizational Behavior: Chapter 17 37

Organizational Behavior: Chapter 17 39

Organizational Behavior: Chapter 17 40

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