© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1
Chapter Objectives
 Specify at least five sources of decision complexity for
modern managers.
 Explain what a condition of risk is and what managers
can do to cope with it.
 Define and discuss the three decision traps: framing,
escalation of commitment, and overconfidence.
 Discuss why programmed and nonprogrammed
decisions require different decision-making
procedures and distinguish between the two types of
knowledge in knowledge management.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2
Chapter Objectives (cont’d)
 Explain the need for a contingency approach to group-
aided decision making.
 Identify and describe five of the ten “mental locks”
that can inhibit creativity.
 List and explain the four basic steps in the creative
problem-solving process.
 Describe how causes of problems can be tracked down
with fishbone diagrams.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3
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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4
Challenges for Decision Makers
(cont’d)
 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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5
Challenges for Decision Makers
(cont’d)
 Dealing with Complex Streams of Decisions (cont’d)
 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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6
Figure 8.1: Sources of Complexity for
Today’s Managerial Decision Makers
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
7
Coping with Uncertainty
 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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8
Figure 8.2: The Relationship
Between Uncertainty and Confidence
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
9
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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10
Table 8.1: How to Sharpen your Intuition
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
11
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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12
Figure 8.3: Why Escalation of Commitment
Is So Common
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
13
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


© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
14
Making Decisions
(cont’d)
 Types of Decisions (cont’d)
 Nonprogrammed decisions

Decisions made in complex and nonroutine 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?
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
15
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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
16
Figure 8.4:
General
DecisionMaking
Model
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
17
A General Decision-Making Model
(cont’d)
 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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18
Figure 8.5: Key Dimensions of
Knowledge Management (KM)
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
19
A General Decision-Making Model
(cont’d)
 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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
20
A General Decision-Making Model
(cont’d)
Improving the Flow of Knowledge
 Organization cultures
 Participative management
 Training
 Virtual teams
 Communication
 Transformational
 Empowerment
leadership
 Mentoring
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
21
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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
22
Group-Aided Decision Making:
A Contingency Perspective
(cont’d)
 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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
23
Table 8.2: Advantages-Disadvantages of Group-Aided
Decision Making and Problem Solving
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
24
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.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
25
Figure 8.6: The
ProblemSolving Process
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
26
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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
27
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”
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
28
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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
29
Creative Problem Solving
(cont’d)
 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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
30
Creative Problem Solving
(cont’d)
 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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
31
Creative Problem Solving
(cont’d)
 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
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
32
Creative Problem Solving
(cont’d)
 Implementing and Evaluating the Solution
 Effective and efficient resolution removes the
difference between actual and desired states.
 If problem persists, recycling through the problemsolving steps becomes necessary.


Trying other feasible solutions
Redefining the problem and beginning the problem-solving
cycle again
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33
Summary
 Decision making is a fundamental part of
management because it requires choosing among
alternative courses of action.
 Managers must learn to assess the degree of certainty
in a situation—whether conditions are certain, risky, or
uncertain.
 Researchers have identified three perceptual and
behavioral decision traps that can undermine the
quality of decisions: framing error, escalation of
commitment, and overconfidence.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
34
Summary
(cont’d)
 Decisions, generally, are either programmed or non-
programmed.
 Managers may choose to bring other people into
virtually every aspect of the decision-making process.
 Creativity requires the proper combination of
knowledge, imagination, and evaluation to reorganize
experience into new configurations.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
35
Summary
(cont’d)
 The creative problem-solving process consists of four
steps: (1) identifying the problem, (2) generating
alternative solutions, (3) selecting a solution, and (4)
implementing and evaluating the solution.
 A clear and concise statement of the problem forms
the “head” of the fishbone skeleton.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
36
Terms to Understand
 Decision making
 Law of unintended









consequences
Condition of certainty
Condition of risk
Objective probabilities
Subjective probabilities
Condition of uncertainty
Framing error
Escalation of commitment
Programmed decisions
Decision rule











Knowledge management
Tacit knowledge
Explicit knowledge
Collaborative computing
Creativity
Problem solving
Problem
Causes
Satisfice
Optimize
Idealize
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
37