MG4031 Week 06 Lecture 02 Decision Making Approaches PDF

MG4031 Wk.06 Lec.02 Decision Making Approaches: The Concept of Rationality: Rationality refers to a process that’s perfectly logical, the managers gather information objectively, evaluate evidence, consider the alternatives and then make choices with the best outcomes. It assumes that four conditi...

MG4031 Wk.06 Lec.02 Decision Making Approaches: The Concept of Rationality: Rationality refers to a process that’s perfectly logical, the managers gather information objectively, evaluate evidence, consider the alternatives and then make choices with the best outcomes. It assumes that four conditions are fulfilled: 1. There’s perfect knowledge of the problem, goals and alternatives 2. There’s perfect knowledge of consequences 3. Managers can objectively evaluate the consequences 4. Managers have a well-structured and definite set of procedures that allow them to make optimum decisions in the firm’s best economic interests Few decisions are made in a completely rational manner. It is ideal but often not attainable. Bounded Rationality (Herbet Simon): Decisions taken by managers are bounded by limited mental capacity, emotions and environmental factors over which they have no control. They rarely take ideal decisions with the best possible outcomes, instead, they use intuition and judgement. It acknowledges that managers seek to satisfice, settle for an alternative that’s satisfactory, rather than search for the optimal. This may occur if the manager rushes the decision-making process. It also recognises that managers may not have full and complete information and that they may have trouble processing it. It concentrates on how managers actually behave, that they will seek to satisfice rather than to maximise. The Political Model: Concentrates on the impact of organisational politics on decision- making. Power (the ability to influence others) has five main types in an organisational setting: 1. Legitimate power from their position in the organisation’s hierarchy. 2. Reward power from their ability to withhold rewards from others. 3. Expert power from their expert knowledge and information that they have. It is often hidden if they feel they will not be rewarded for sharing it. 4. Referent power from their charisma/identity developed. 5. Coercive power from emotional/physical threats to ensure compliance. Coalitions are formed based on the combined power of a group; this adds another element to the decision-making process, as each has its own ideas and values, often conflicting with others. Negotiations and compromises will therefore feature strongly. The political model recognises that there are many other factors at work when making decisions. Escalation of Commitment: Concentrates on why people continue to pursue a failing course of action, not on how decisions are made. Escalation of commitment is often attributed to self-justification and a feeling of personal responsibility over the decision. This often happens as a result of trying to recoup sunk costs and because of confirmation bias. An organisation needs to be able to recognise when a decision is failing and should be abandoned. Group Vs. Individual Decision-Making: Advantages of Group Decision Disadvantages of Group Decision Making Making → Allows a greater number of → It takes longer. perspectives and → They can be indecisive and seek to approaches to be satisfice. Group displacement is when considered, increasing the new goals replace original ones. number of alternatives. → People can dominate groups → They can generally process a → They often have to compromise, leading to larger amount of information. worse decisions. The levelling effect is → A greater number of people when an individual’s opinion is brought will understand why the into line with the average quality of the decision was made if it was group’s thinking. made by a group, helping → Groupthink (Janis’s ‘72): A mode of with implementation. thinking that people engage in when → It allows people to be more deeply involved in a cohesive group, when involved and gives a sense of members’ striving for unanimity override ownership, improving their motivation to realistically appraise commitment. alternative courses of action. Members are → Less co-ordination and incapable of making rational decisions. communication are needed There’s overestimation of the group, close- when implementing. mindedness, and pressure towards uniformity. Factors Favouring Individual Decision Factors Favouring Group Decision Making: Making: Little time Creativity is needed Decision is unimportant to many Data is held by many Manager has all data needed Acceptance of the solution by the group Some members are likely to is important dominate  Conflict is likely Understanding of the solution is People attend too many important meetings The problem is complex and needs a Data is confidential broad range of knowledge Group members aren’t fully Manager wants to build commitment qualified More risk taking is involved Manger is dominant Better understanding of group Decision doesn’t affect group members is needed directly Group is responsible for the decision Manager wants feedback on ideas Improving Group Decision-Making: Brainstorming (Alex F. Osborn): Using the brain creatively to solve a problem. When people interact in a more relaxed and less constrained setting, they will generate more creative ideas. It is solely concerned with idea generation. The Delphi Group Technique: A panel of experts is formed to examine a problem. Rather than physically meeting, they’re kept apart so social/psychological pressures associated with group behaviour don’t influence them. They are asked to complete a questionnaire; the co-ordinator then summarises the findings and members are asked to complete another questionnaire to re-evaluate earlier points. It assumes that the range of responses will narrow to produce a general consensus. Useful when experts are physically dispersed, anonymity is needed or when there is difficulty communicating among members. However, it reduces direct interaction among members. Nominal Grouping: It doesn’t allow a free association of ideas; it tries to restrict verbal interaction and can be used at many other stages of the decision-making process apart form idea generation. Members are given a problem and asked to think of ideas individually. They then present it on a flip chart, followed by a period of discussion, building on the ideas. After, members privately rank the ideas until a solution is found. This method overcomes differences between members in terms of power and prestige. However, its structure may limit creativity, and it is costly and time consuming. References: Notes based on MG4031 Lecture Slides and Modern Management: Theory and Practice for Students in Ireland (5th Ed.) - Tiernan S. and Morley, M.J. Chapter 5.