Chapter 7
The Manager as
Decision Maker
7-1
Learning Objectives
1.
2.
3.
4.
Explain the difference between programmed and nonprogrammed decisions.
Describe the classical and administrative models of decision
making and the decision characteristics of risk, uncertainty,
and ambiguity.
Describe the six steps that managers should take to make the
best decisions.
Define heuristics and describe four cognitive biases that are
used by people which can lead to poor decisions.
7-2
Learning Objectives
5.
6.
Identify the advantages and disadvantages of group decision
making and describe techniques to improve it.
Describe a learning organization and its role in improving
organizational decision making.
7-3
Decision Making

Decision making is the process of identifying
problems and opportunities and then resolving
them. Requires effort before and after choice


Visits to several colleges and searching for
information about various colleges
Once Auburn is chosen, plan move and work to
succeed
7-4
Types of Decisions
Programmed decisions
 situations that occur often enough to enable
decision rules to be developed.




Problem is well defined and clearly understood
Standard response to a routine problem
In organizations, structured rules or standard operating
procedures are developed for programmed decisions
Example: expense reports, college admissions decisions
7-5
Types of Decisions
Nonprogrammed decisions
 are made in response to situations that are unusual,
and involve unpredictable opportunities or threats.




Past decisions are not very helpful
There is not a clearly correct alternative
High level managers typically face nonprogrammed
decisions
Examples: which areas of business to expand, choice of
colleges to apply for admission
7-6
Classical Model
 Earliest model of decision processes
 Describes logical and rational decision
processes
 Decisions are made based on the
organization’s best economic interests
 Defines how decisions should be made –
not necessarily how they are made
7-7
Decision Process
in the Classical Model
7-8
Assumptions of the Classical Model




Accomplishes goals that are known and agreed
upon.
Attempts to gather complete information so that
all alternatives are known.
Decision makers agree on criteria to evaluate
alternatives and priorities
Decision maker is rational and uses logic.
7-9
Administrative Model
by James March and Herbert Simon
 Model of decision processes based on how
managers actually make decisions
 Does not assume completely logical and
rational decision processes
 More realistic model for non-programmed
decisions.
7-10
Administrative Model
Principal concepts in the administrative model

bounded rationality: means that people have limits
or boundaries on how rational they can be.


Managers tend to construct simple models and identify
the essential features of a problem
Managers can behave rationally within the simplified
model
7-11
Administrative Model
Principal concepts in the administrative model

Incomplete information: managers have
incomplete information because of risk, uncertainty,
ambiguity, and time




Risk
Uncertainty
Ambiguity
Time constraints – there is neither time or money to
search for all possible alternatives
7-12
Administrative Model
Incomplete information:

Risk



decision has clear-cut goals.
Managers know possible outcomes - good information is
available .
The outcomes for the alternatives are known but subject to
chance – the outcome may be unsuccessful.
7-13
Administrative Model
Incomplete information:

Uncertainty



managers know which goals they wish to achieve.
Information about alternatives is incomplete
Outcome for alternatives is incomplete – difficult to
measure risk.
7-14
Administrative Model
Incomplete information:

Ambiguity



possible to interpret information in multiple ways
alternatives are difficult to define.
information about outcomes is unavailable.
7-15
Administrative Model
Principal concepts in the administrative model

satisficing: means that decision makers choose the
first solution alternative that satisfies minimal
decision criteria.



Decide on the “good enough” solution
Don’t process large amounts of information to find the
optimal solution
Review alternatives only until a sufficient alternative is
found
7-16
Cognitive Biases in Decision Making
Heuristics means that people use judgmental shortcuts
or rules of thumb in making decisions



To avoid information overload
Base judgments on information that is readily available
Assess situation based on intuition (past practice and
experience with a problem or decision situation)
7-17
Cognitive Biases in Decision Making
Four particular sources of bias that lead to poor
decisions are
7-18
Cognitive Biases in Decision Making
Prior-Hypothesis Bias


tend to see and use information that is consistent with
prior beliefs
Tend to ignore contradictory or conflicting information
7-19
Cognitive Biases in Decision Making
Representativeness Bias


Tend to generalize from a small sample
Too much weight given to vivid events
Illusion of Control

Overestimate your ability to control events
7-20
Cognitive Biases in Decision Making
Escalating Commitment


When there are indications that the project is failing, even
more resources are committed in an effort to salvage the
situation
“Gotta know when to fold’em”
7-21
Steps in Decision-Making Process
7-22
Making Effective Decisions
1. Recognize Need for Decision
Problems
Organizational performance fall short of goals
Opportunities
Possibility of increasing performance beyond current
levels
Scanning the environment
Look at both internal information (sales reports,
quality reports, etc.) and external environment
(competition, socio-cultural, etc.)
7-23
Making Effective Decisions
2. Generate Alternatives
•
With programmed decisions, alternatives are usually
easily identified and available within procedures
•
For decisions with conditions of uncertainty, may
develop one or two solutions which suffice.
•
Limited searches for alternatives is a primary reason
for unsuccessful decisions (that bounded rationality
problem)
3. Evaluate Alternatives
•
•
Be aware of decision biases in making decisions –
use of cognitive biases
Manager’s risk propensity will influence analysis
7-24
Making Effective Decisions
4. Choose Among Alternatives
5. Implement Chosen Alternative
•
•
Similar to implementation under strategic planning – must
provide leadership to implement alternatives
Make required changes in structure, human resources,
reward systems, marketing, product development, etc.
6. Learn from Feedback
•
•
Continuously evaluate decision to determine if goals are
being achieved. Beware problem of escalating
commitment
May solve problems or work on opportunities by making
7-25
incremental improvements
Group Decision Making
Decisions in the business world are most often made by
groups
Advantages of group decisions
•Diversity of experience and viewpoints
•Generate more alternatives
•Increased acceptance to decision
7-26
Group Decision Making
Decisions in the business world are most often made by
groups
Problems with group decision making
•Takes time to bring group together and groups take
longer to reach a decision
•Groups can be dominated by a few members
•There can be increased pressures to conform - one form
of this pressure is referred to as groupthink
7-27
Groupthink – Irving Janis
Groupthink can occur in highly cohesive groups where
the group’s desire to maintain agreement overrides
realistic evaluation of alternatives
The film Groupthink by CRM Films looks at the
characteristics of groupthink and factors which may prevent
it.
James Essar identifies eight symptoms of groupthink. The
more symptoms a group exhibits, the higher probability that
groupthink can occur.
7-28
Copyright : Philip Jones Griffiths / Magnum Photos
USA. 1988. Roger BOISJOLY with a section of an o-ring seal, the type which failed and caused the Challenger Space Shuttle
disaster in 1986. From original feature : USA. Utah. Roger BOISJOLY. (NASA: Challenger) by Philip Jones Griffiths
7-29
Groupthink – CRM Films
Symptoms of Groupthink
Overestimation by the Group
Illusion of invulnerability
Inherent morality of the group
Closed Mindedness
Rationalization
Stereotypes of Outsiders
7-30
Groupthink – CRM Films
Symptoms of Groupthink
Pressure toward Uniformity
Self censorship
Direct Pressure on members who disagree
Mind Guarding
Illusion of unanimity
7-31
Groupthink – CRM Films
Steps Toward Preventing Groupthink
Open Climate
Avoid Insulation of Group
Critical Evaluators
Leaders Avoid Being Directive
7-32