Decision Making in an Organization

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definition, Importance of Decisions; Theories of Decision-Making;Types, Process, Errors and Biases

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Decision Making in an Organization

  1. 1. 1. Marie Tokpah 2. Paul Y. Paye 3. Stephen F. Nagbe Reporters/Discussants
  2. 2. Topic Outline: • What is decision –making? • Importance of Decision-Making to Organization • Theories of Decision-Making • Types of Decision – making • Decision-Making Process • Tool and Techniques to improve decision-making • Biases and Errors in Decision- Making • Conclusion
  3. 3. • Making choices from among two or more alternatives. For example, determining the goals of organizations, what types of products or services to offer, deciding financing options, and locating a plant are decisions that must be made by top management. Thus, in order to arrive at the best decision on such programs, various options must be examined and analyzed (Robbins & Judge,2010, p.36). • Carpenter, Bauer, & Erdogan(2010) as well propounded that decision-making also requires making choices among alternative courses of actions and inaction. Therefore, they argued that in order to maximize effectiveness at work it would entail increasing effectiveness in decision-making. What is Decision-Making?
  4. 4. Importance of Decision -Making Management theorists agree that decision making is one of the most important—if not the most important—of all management activities (Drucker, 2010; Mintzberg, 2008; Simon, 1997). It is important to note, however, that not only managers make decisions in organizations, but also employees at every level in an organization participate in decision-making as well. The late management consultant put it this way, “Most discussions of decision making assume that only senior executives make decisions . This is a dangerous mistake . Making sound decisions is a crucial skill at every level in the organization.” (Drucker, 2009, p. 27). Source: Lunenburg (2011)
  5. 5. Relating to our own experience, for example, we could make similar argument that the political, social, and economic problems we face today as a nation and people are results of bad decisions in the past. Importance of Decision -Making The downfall of American corporate giants like Enron & Worldcom in which the former lost almost US$60 billion dollars is a classic example of unwise decision (Carpenter, Bauer, & Erdogan,2010, p.281).
  6. 6. Theories of Decision Making Rationale Comprehensive Model The Incremental Theory Mixed Scanning
  7. 7. The Rational Comprehensive Model The rational comprehensive model is based on the reasoning of economists, mathematicians, and psychologists. It assumes that the decision maker can identify the problem, that the decision maker's goals, values, and objectives are clear and ranked in accord with their importance, that alternative ways of addressing the problem are considered, that the cost and benefits or advantages and disadvantages of each alternative are investigated, that alternatives and their consequences can be compared with other alternatives, and that the decision maker will choose the alternative that maximizes the attainment of his or her goals, values, and objectives. Source: http://www.unc.edu/~wfarrell/SOWO%20874/Readings/decisiontheory.pdf
  8. 8. The Incremental Theory Source: Miclat (2004) Planning Models as cited by Bitonio (2013) • Decisions are constructed by a mixture of "intuition, experience, rules of thumb, various techniques (rarely sophisticated ) known to individual planners, and an endless series of consultations“ • Lindblom calls it "the science of muddling through
  9. 9. Mixed Scanning Sociologist Amitai Etzioni found fault with both the rational-comprehensive model of decision-making and the incremental model of decision-making. His mixed scanning approach considers both fundamental and incremental decisions and is more realistic than the rational model and less passive than the incremental model • The mixed scanning model tries to involve the strengths of the rational model and the incremental model and to eliminate the weaknesses (Mitchell 2002). It is based on ‘bounded’ instrumental rationality (Larsen 2003). Source: Miclat (2004) Planning Models as cited by Bitonio (2013)
  10. 10. Types of Decision-Making Programmed Decision Rationale Decision Bounded Rationality Intuitive Decision Creative Decision
  11. 11. Types of Decision-Making Carpenter, Bauer, & Erdogan(2010) outlined the followings: Programmed Decision-Straight-forward, mundane, and less thoughtful everyday decisions. Decisions on the kind of clothes to wear, food to eat daily, including recurring customers’ complaints are examples of such decisions.
  12. 12. Rational Decision-involves series of steps decision makers would consider if goal of such decisions is to maximize the decision’s outcomes. Types of Decision-Making
  13. 13. Bounded Rationality Decision -Helps managers in their decision making process to limit their search in a manageable way for alternatives. For example, as a recent graduate from college in search of a job in your area of study, you would save yourself the time and headache if you focus on a particular geographic area, and also accepting the first available offer. That kind of decision-making technique is what is considered as bounded rationality decision-making. Types of Decision-Making
  14. 14. Types of Decision-Making Intuitive Decision-Making - Arriving at decision without conscious reasoning. For example, if pressed against times, limited resources, adverse circumstances, challenging situations, and quick outcomes, intuitive decision- making would be the right choice. In other words, decisions taken in times of emergencies and under unanticipated conditions facilitated by logical guesses could be described as intuitive decision- making as well.
  15. 15. Types of Decision-Making Creative Decision-Making-Involves decisions surrounding generation of new imaginative ideas. Developed against the background of organizations becoming flatter in structures and competitive, leaders and their organizations are obliged to be creative and innovative in decisions regarding cost-saving strategies, and new ways of doing business. For example, as a manager if you want your organization to still afloat of the competition in Liberia, you need to think on how best to improve customer services.
  16. 16. Decision-Making Process A. Identify the problem-For example, you have an old dilapidated car and you want replace it with a new one. B. Establish decision criteria-what factors to consider when purchasing the new car. For instance, passenger accommodation, car’s color, special features, fuel economy, safety issue, price, etc. are some criteria you want to take into account C. Generate Alternatives-What are the available options you have at your disposal? Do you actually want a car with CD Player or would one with radio suffice? How about comfort, relaxation, or class?
  17. 17. Decision-Making Process D. Develop problem with that particular car, it is unlikely that you buy the same model and make of such car in future decision on car. E. Choose the best Alternative-If you are someone who loves comfort, relaxation, or class, then a higher-priced car could be your best alternative rather settling for anything less. F. Implement the Decision-Execute your decision by buying the car, and if in the instance, you develop problem with that particular car, it is unlikely that you buy the same model and make of such car in future decision on car.
  18. 18. Tools & Techniques to Improve Decision-Making Robbins & Judge(2010) named two types: Brainstorming- Fosters creativity by encouraging every member of the group to be part of the decision-making process rather than conforming to the pressure from it. For example, as a members of team on a particular class project, adopting the brainstorming technique of decision-making would everyone of us a chance to make individual contributions to that .project Brainstorming
  19. 19. Nominal Group Technique-Restricts discussion or interpersonal communication during decision-making process. It takes into account the following steps: • Members meet as group, and before any discussion, each member is asked to individually jolt down his or her points/ideas • Each member presents his or her ideas or points until all ideas or points have been presented and recorded • Group then discusses ideas for clarity and evaluation • Each group member silently and independently rank-order the ideas or points until the points or ideas with the higher raking aggregate becomes the decision of group. Nominal Group Technique
  20. 20. Moreover, , Carpenter, Bauer, & Erdogan(2010) suggested the below listed techniques: Delphi Technique- Group provides written responses to questionnaires instead of coming together to take a particular decision. Usually such questionnaires are loaded with questions that ask respondents to provide answers to broad range of questions such as stating the problem, outlining objectives, or proposing a solution. The first questions provide basis to frame subsequent questions, with the process ending as the group reaches consensus. This technique is often use in decision-making practices to generate best practice from experts. Delphi Technique
  21. 21. Majority Rule Technique Additionally, Carpenter, Bauer, & Erdogan(2010) suggested the below listed techniques: Majority Rule Technique-Refers to a decision-making where each member of the group is given a single vote, and the option that receives the greatest number of votes is selected. Popularity of this technique is grounded in the fact that it is simple, speedy, easy, and fair in terms of representation.
  22. 22. Group Decision Support System-Is another form of technique that utilizes interactive computer-based systems that combines communication and decision technologies to enable groups make informed decisions. The strength of this technique lies in its effectiveness to foster information-sharing within groups in virtual business’ environment. Group Decision Support System
  23. 23. Decision Trees-Is another decision-making style that utilizes diagram in which “yes or no” questions lead decision makers to address additional questions until they reach the end of the tree. The significance of such diagrammatic decision-making technique is that it avoids bias errors. It further guides decision makers in predetermining alternatives while maintaining consistency in following one course of action as conditions present themselves. Decision Trees
  24. 24. Biases and Errors in Decision-Making Since most decisions tend to be bias and error prone, improving the process is very vital . Robbins & Judge(2010) described some common biases and errors that underlie decision-making: Overconfidence Bias-A tendency by which an individual feels overconfident that their response to a particular question is, for example, 70% correct when in reality the answer provided is just 50% correct. The cause of such overconfidence of decision or judgment is due to weaknesses in intellectual and interpersonal abilities of leaders within organization as research found.
  25. 25. Anchoring Bias- Another tendency of managers to settle on first information instead of allowing subsequent information to be factored into the decision- making exercise. Such biases often suffice in area of negotiation when one’s ability to ignore a situation is compromised. Confirmation Bias-Occurs hen managers seek information that reaffirms their past choices and overlook those information that provides counterviews. In order word, managers prefer information that confirmed their preconceived views instead of those that challenge them in critical and skeptical ways.
  26. 26. Availability Bias Availability Bias-Tendency for manager to base judgment or decision information that is readily available. Statistically, for example, there are more car accidents as research found as oppose to plane crashes. However, the media seems to emphasize plane crashes instead of car accidents, which tends to overstate the risk of flying and understate rate of driving. In order words, vivid or recurrence emotions tend to cloud managers’ memories leading them to overstate unlikely happenings.
  27. 27. Escalation of Commitment-A practice in which a manager escalates a commitment when making decision. Even though, for example, someone would know very well that a situation is not working, but they project an impression out there as if things are fine. Such escalation of commitment often takes place in dating relationship, in which one partner feeling the pinch that such relationship is not working but still makes commitment to move it to the next level. Escalation of Commitment
  28. 28. Hindsight Bias-An attitude that suffices that managers tend to falsely believe, even though the outcome of a situation has already been known, but act as if such outcome has been accurately predicted by them. Biases and Errors in Decision-Making In short, hindsight bias holds that “What is clear in hindsight is rarely clear before the fact” as underscored by Malcolm Gladwell and emphasized in(Robbins & Judge, 2010, p. 40).
  29. 29. Conclusion • Decision-making is making best choices among two or more alternatives • Sound decision-making is important since most decisions by managers tend to fail. • Problems are not always clearly defined. Problems have to be formulated in a way which enables people to make decisions about them. Decision makers must have vast amounts of information in order to make use of the rational comprehensive decision-making. Incremental decision-making is remedial, not holistically-devised or future-oriented technique while Etzioni’s approach is not very specific about how mixed scanning could be used in practice.
  30. 30. Conclusion • There are several models of decision-making that are vital to the understanding of managers. • The decision-making process needs to be improved at all times; thus, several tools and techniques are available to managers. • There are several biases and errors that inhabit the decision-making process, of which managers should be cognizant.
  31. 31. References Carpenter, M., Bauer, T. & Erdogan, B.(2010). Principles of management-Version 1.1. Flat World Knowledge, Inc.,NY Robbins, S. P. & Judge, T.A.(2010). Essentials of organizational behavior. Prentice Hall, NJ Fred C. Lunenburg (2011) Decision Making in Organizations. International Journal of Management, Business and Administration Vol, 15 Nov 1, 2011. Sam Houston State University Josefina B. Bitonio (2013) Planning Models http://www.slideshare.net/jobitonio/planning-models-24267069 Theories of Decision Making . http://www.unc.edu/wfarrell/SOWO%20874/Readings/decisiontheo ry.pdf

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