PART II: Planning 4 Chapter 4 Foundations of Decision Making Copyright © 2005 Prentice Hall, Inc. All rights reserved. PowerPoint Presentation by Charlie Cook The University of West Alabama Learning Outcomes After reading this chapter, I will be able to: 1. Describe the steps in the decision-making process. 2. Identify the assumptions of the rational decisionmaking model. 3. Explain the limits to rationality. 4. Define certainty, risk, and uncertainty as they relate to decision making. 5. Describe the actions of the bounded-rational decision maker. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–2 Learning Outcomes (cont’d) After reading this chapter, I will be able to: 6. Identify the two types of decision problems and the two types of decisions that are used to solve them. 7. Define heuristics and explain how they affect the decision-making process. 8. Identify four decision-making styles. 9. Describe the advantages and disadvantages of group decisions. 10. Explain three techniques for improving group decision making. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–3 Decision-making • Decision-making process A set of eight steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution • Problem A discrepancy between an existing and a desired state of affairs • Decision criteria Factors that are relevant in a decision Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–4 Examples of Planning-Function Decisions What are the organization’s long-term objectives? What strategies will best achieve those objectives? What should the organization’s short-term objectives be? What is the most efficient means of completing tasks? What might the competition be considering? What budgets are needed to complete department tasks? How difficult should individual goals be? Exhibit 4.1 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–5 The Decision-Making Process Exhibit 4.2 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–6 Criteria and Weight in Car-Buying Decision (Scale of 1 to 10) CRITERION WEIGHT Price 10 Interior comfort 8 Durability 5 Repair record 5 Performance 3 Handling 1 Exhibit 4.3 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–7 Assessment of Car Alternatives Exhibit 4.4 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–8 Weighting of Vehicles (Assessment Criteria X Criteria Weight) Exhibit 4.5 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–9 Decision-making (cont’d) • Decision implementation Putting a decision into action; includes conveying the decision to the persons who will be affected by it and getting their commitment to it. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–10 Making Decisions: The Rational Model • Certainty The implication that the outcome of every possible alternative is known. • Uncertainty A condition under which there is not full knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined. • Risk The probability that a particular outcome will result from a given decision. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–11 Assumptions of Rationality Exhibit 4.6 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–12 What Is Creative Potential? • Expertise Understanding, abilities, knowledge, proficiencies, necessary in the field of creative endeavor. • Creative-thinking skills The personality characteristics associated with creativity, the ability to use analogies, as well as the talent to see the familiar in a different light. • Intrinsic task motivation The desire to work on something because it’s interesting, involving, exciting, satisfying, or personally challenging. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–13 Three Elements of Creativity Creativity The ability to produce novel and useful ideas Source: T. M. Amabile. “Motivating Creativity in Organizations,” Califormia Management Review (Fall 1997), p. 43. Copyright © 1997, by The Regents of the University of California. Reprinted by permission of the Regents. Copyright © 2005 Prentice Hall, Inc. All rights reserved. Exhibit 4.7 4–14 Making Decisions: The Rational Model • Rational Describes choices that are consistent and valuemaximizing within specified constraints. • Bounded rationality (Herbert Simon) Behavior that is rational within the parameters of a simplified model that captures the essential features of a problem. • Satisfice Making a “good enough” decision: choosing the firstidentified alternative that satisfactorily and sufficiently solves the problem. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–15 Common Decision-making Errors • Heuristics: Using judgmental shortcuts Availability heuristic The tendency to base judgments on information that is readily available. Representative heuristic The tendency to base judgments of probability on things (objects or events) that are familiar Escalation of commitment An increased commitment to a previous decision despite negative information about the decision’s present outcomes. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–16 How Do Problems Differ? • Well-structured problems Straightforward, familiar, easily defined problems • Ill-structured problems New problems in which information is ambiguous or incomplete • Programmed decision A repetitive decision that can be handled by a routine approach • Nonprogrammed decisions Decisions that must be custom-made to solve unique and nonrecurring problems Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–17 Programmed Decision-Making Aids • Policy A general guide that establishes parameters for making decisions about recurring problems. • Procedure A series of interrelated sequential steps that can be used to respond to a well-structured problem (policy implementation). • Rule An explicit statement that tells managers what they ought or ought not to do (limits on procedural actions). Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–18 Types of Problems, Types of Decisions, and Level in the Organization Exhibit 4.8 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–19 Technology And Decision Making • Expert systems Software that acts like an expert in analyzing and solving ill-structured problems Use specialized knowledge about a particular problem area rather than general knowledge Use qualitative reasoning rather than numerical calculations Perform at a level of competence higher than that of nonexpert humans. • Neural networks Software that is designed to imitate the structure of brain cells and connections among them Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–20 Decision Making: Styles • Directive style Characterizes the low tolerance for ambiguity and a rational way of thinking of individuals who are logical and efficient and typically make fast decisions that focus on the short term. • Analytic style Characterizes the high tolerance for ambiguity combined with a rational way of thinking of individuals who prefer to have complete information before making a decision. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–21 Decision Making: Styles (cont’d) • Conceptual style Individuals who tend to be very broad in outlook, to look at many alternatives, and to focus on the long run and often look for creative solutions. • Behavioral style Individuals who think intuitively but have a low tolerance for uncertainty; they work well with others, are open to suggestions, and are concerned about the individuals who work for them. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–22 Decision-Making Styles Exhibit 4.9 Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–23 Group Decision Making • Advantages Make more accurate decisions Provides more complete information Offers a greater diversity of experiences and perspectives Generates more alternatives Increases acceptance of a solution Increases the legitimacy of a decision. Copyright © 2005 Prentice Hall, Inc. All rights reserved. • Disadvantages Is more time-consuming and less efficient Minority domination can influence decision process Increased pressures to conform to the group’s mindset (groupthink) Ambiguous responsibility for the outcomes of decisions 4–24 When Are Groups Most Effective? • Creativity Groups tend to be more creative than individuals. • Acceptance of the final solution Groups help increase the acceptance of decisions. • Effectiveness of group decision making Groups of five to seven members are optimal for decision process speed and quality. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–25 Improving Group Decision Making • Brainstorming An idea-generating process that encourages alternatives while withholding criticism. • Nominal group technique A decision-making technique in which group members are physically present but operate independently. • Electronic meeting A type of nominal group technique in which participants are linked by computer. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–26 Web Links • Visit the Robbins/DeCenzo companion Website At www.prenhall.com/robbins for this chapter’s Internet resources, including chapter quiz and student PowerPoints. • Diversity Perspectives Log onto www.prenhall.com/onekey and take the role of the foundation director trying to turn a potentially “bad” committee into a “good” one. • Enhancing Your Skill in Ethical Decision Making Log onto www.prenhall.com/onekey and get ready to enhance your skill in ethical decision making. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–27 Video Case Application The Management Picture: Quick Takes Video 1 Insert Video Link Here (Size to this window) Copyright © 2005 Prentice Hall, Inc. All rights reserved. 4–28