MG4031 Decision Making PDF

MG4031 Management Principles Decision Making Reading: Chapter 5, Modern Management, pages 151- 170  Learning Objectives To distinguish different types of decisions and identify the characteristics of managerial decision making To introduc...

MG4031 Management Principles Decision Making Reading: Chapter 5, Modern Management, pages 151- 170  Learning Objectives To distinguish different types of decisions and identify the characteristics of managerial decision making To introduce the decision-making process: problem identification and diagnosis; identifying alternatives; evaluating alternatives; choice of alternative; implementation; and evaluation. To understand the barriers to effective decision making To understand the most popular approaches to decision making: the rational model; bounded rationality; escalation of commitment; and the political model To introduce Group Decision Making and Groupthink  Decision Making “The selection of a particular course of action from among alternatives” Decision making takes place at all levels of the organisation and is therefore a central part of a manager’s role Integrally linked to planning Two main types of decisions Programmed & Non-Programmed Characteristics of Managerial Decision Making Programmed Decisions Non-Programmed Decisions Well structured Poorly structured Routine New Information available Little information Taken at lower levels Taken at higher levels Short time frame Long time frame Decision rules and set Judgement and Creativity procedures used used  Decision Making Conditions Certainty Risk Uncertainty The Decision-Making Process Barriers to Making Good Decisions Psychological barriers Biases that interfere with objective rationality Illusion of control - a belief that one can influence events even when one has no control over what will happen Discount the future - weigh short- term costs and benefits more heavily than longer-term costs and benefits Barriers to Making Good Decisions Time pressure barriers Today’s economy places a premium on acting quickly and keeping pace In order to make timely and high-quality decisions one must: Focus on real-time information Involve people more effectively and efficiently Rely on trusted experts Take a realistic view of conflict  Approaches to Decision Making Research identifies different models and conditions which underpin the decision- making process, four in particular: 1 The Rational Model 2 Bounded Rationality 3 The Political model 4 Escalation of Commitment  1. The Rational Model Decisions are consistent and value-maximizing and are made against background of “perfect” information. Assumptions of Rationality – Manager would: Be objective and logical Carefully define a problem Have a clear and specific goal Select the alternative that maximises the likelihood of achieving the goal Make decision in the firm’s best economic interests Managerial decision making seldom meets all the tests  2. Bounded Rationality Model In the current environment managers seldom make decisions under conditions of certainty Managers have to apply a less than perfect form of rationality Intuition and judgement are required Managers are sometimes unable to handle large amounts of complex information Concentrates on how managers actually behave in practice when making decisions and recognises limitations  3. Political Model The political model concentrates on the impact of organisational politics on decision making Recognises that politics and power play an important role in the decision making process Sources of Power in Organisations Legitimate Reward Expert Coercive  4. Escalation of Commitment Model Concentrates on why people continue to pursue a failing course of action? Commitment to a poor decision often escalates after the initial decision has been made Often attributed to self-justification/ preservation and a feeling of personal responsibility for a decision Causes of Escalation of Commitment Sunk Cost Confirmation Bias Causes people to continue to invest in a After committing to a choice, people are far more project hoping that it will eventually turn likely to notice and overweight evidence that around when it is no longer anticipated to do supports their decision and ignore and so. The more resources that have been underweight evidence that does not. Confirmation invested, the more likely the decision maker is bias can therefore cause decision makers to to escalate commitment. escalate commitment to bad decisions.  Group versus Individual Decision Making The basic idea behind group decision making is the notion that two heads are better than one Diversity of groups facilitate better quality decisions Advantages Disadvantages 1. Larger pool of information 1. One person dominates 2. More perspectives and Satisficing rather than approaches maximizing resulting from the levelling effect 4. Group decisions can take longer 3. Intellectual stimulation 3. Goal displacement – new goals replace original goals 4. People understand the 4. Group decisions can take decision and are likely to longer commit to it  The Phenomenon of Groupthink Janis’s (1972) Theory of Groupthink – a distorted style of thinking that renders group members incapable of making rational decisions Exists in an ultra-cohesive in- group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action 15 Three Characteristics of Groupthink Overestimation of the group (illusions of invulnerability, illusions of morality) Close-mindedness (stereotypes about the out-group) Pressures toward uniformity (self- censorship, the illusion of unanimity, direct pressure on dissenters). 16  Improving Group Decision Making Three main techniques for improving group decision making Brainstorming Delphi Technique Nominal Grouping A group problem- Panel of Experts, anonymous to Structured small group discussion to solving method that each other formed to examine a reach consensus. Members given a involves the problem. They are sent a problem and asked to to generate spontaneous questionnaire. A co-Ordinator ideas individually with no discussion. contribution of summarises the findings and The ideas then get presented and creative ideas and then a new questionnaire is discusses. After the discussion, solutions without distributed to re-evaluate points. members privately rank the ideas. evaluation, choice or Presumed that the range of Generation of ideas and discussion implementation. responses will narrow over time proceed in these cycles until solution to eventually produce a is identified. consensus. Thank you