Ch06 Decision Making

CHAPTER 6
Effective Managerial
Decision Making
Pamela S. Lewis
Stephen H. Goodman
Patricia M. Fandt
Copyright 2004 by South-Western, a division of Thomson Learning.
All rights reserved.
Slides Prepared by
Zulema Seguel
Learning Objectives
slide 1 of 2
1. Describe the nature of the decisionmaking process and explain each of its
seven steps.
2. Describe the rational-economic model
of decision making.
3. Discuss the behavioral decision model
and its related concepts of bounded
rationality, intuition, satisficing, and
escalation of commitment.
Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.
50
Learning Objectives
slide 2 of 2
4. Describe the participative approach to

decision making.
5. Discuss the advantages and
disadvantages of group decision
making.
6. Explain the various techniques used to
improve group decision making.
50
Decision Making Defined

The process through which managers
identify and resolve problems and
capitalize on opportunities.
50
Seven Steps
in the Decision-Making Process
Identifying opportunities and diagnosing problems
Identifying objectives
Generating alternatives
Evaluating alternatives
Reaching decisions
Choosing implementation strategies
Monitoring and evaluating
50
Step 1:
Identifying Opportunities & Diagnosing Problems
The first step in the decision making

process is the clear identification of
opportunities or the diagnosis of problems
that require a decision.
An assessment of opportunities and
problems will only be as accurate as the
information on which it is based.
50
Step 2: Identifying Objectives

Objectives reflect the results the organization
wants to attain. Also called targets, standards or
ends.
The quantity and quality of the desired results
should be specified, for these aspects will
ultimately guide the decision maker in selecting
the appropriate course of action.
Objectives can be measured on a variety of
dimensions (monetary units, output per hour, %
of defects, etc.) and whether the objectives are
long-term versus short-term.
50
Step 3: Generating Alternatives

Once an opportunity has been identified
or a problem diagnosed correctly, a
manager develops various ways to solve
the problem and achieve objectives.
The alternatives can be standard and
obvious as well as innovative and unique.
50
Step 4: Evaluating Alternatives

Determining the value or adequacy of the
alternatives generated.
Predetermined decision criteria may be
used in the evaluation process.
Quality desired
Anticipated costs
Benefits
Uncertainties
Risks
50
Step 5: Reaching Decisions

Decision making is commonly associated
with making a final choice.
Although choosing an alternative would
seem to be a straightforward proposition,
in reality the choice is rarely clear-cut.
10 50
Step 6:
Choosing Implementation Strategies
The bridge between reaching a decision
and evaluating the results.
The keys to effective implementation are:
Sensitivity to those who will be affected
by the decision.
Proper planning and consideration of the
resources necessary to carry out the
decision.
11 50
Planning for Implementation

Determine how things will look when the
decision is fully operational.
Draw up a chronological schedule of the
activities and tasks that must be carried out to
make the decision fully operational.
List the resources and activities required to
implement each activity or task.
Estimate the time needed for each activity or
task
Assign responsibility for each activity or task to
specific individuals.
12 50
Step 7: Monitoring and Evaluating

No decision-making process is complete
until the impact of the decision has been
evaluated.
Managers must observe the impact of the
decision as objectively as possible and
take further corrective action if it
becomes necessary.
13 50
Models of Decision Making

Rational-Economic
Model
Behavioral Decision
Model
14 50
Rational-Economic Model
A prescriptive framework of how a
decision should be made that assumes
managers have completely accurate
information.
Concentrates on how decisions should be
made, not on how they actually are made
15 50
Assumptions of Rational-Economic Model

Managers have perfect information.
Managers attempt to accomplish objectives that are
known and agreed upon and have an extensive list of
alternatives to choose from.
Managers are rational, systematic, and logical in
assessing alternatives and their associated
probabilities.
Managers work in the best interests of their
organizations.
Ethical decisions do not arise in the decision-making
process.
16 50
Drawbacks of the
Rational-Economic Model slide 1 of 2
In practice, the model may not always be
a realistic depiction of decision
environments and managerial behavior.
Leaders rarely have access to perfect
information.
Even if perfect information was available,
decision makers are limited in their ability to
comprehend and process vast amounts of
information.
17 50
Drawbacks of the
Rational-Economic Model slide 2 of 2
Decision makers seldom have adequate
knowledge about future consequences of
alternatives.
Personal factors such as fatigue, emotions,
attitudes, motives of behaviors intervene to
prevent a decision maker from always acting
in a completely rational manner.
Individual culture and ethical values will
influence the decision process.
18 50
Models of Decision Making

Rational-Economic
Model
Behavioral Decision
Model
19 50
Behavioral Decision Model
slide 1 of 2
Unlike the rational-economic model, the

behavioral decision-making model
acknowledges human limitations that
make rational decisions difficult to
achieve.
The behavioral decision model suggests
that a persons cognitive ability to process
information is limited.
20 50
Behavioral Decision Model
slide 2 of 2
The model suggests that managers usually

attempt to behave rationally within their
limited perception of a situation.
However, most organizational situations are
so complex that managers are forced to view
problems within sharply restricted bounds.
Thus, the managers behavior can be
considered rational, but only in terms of their
simplified view of the problem.
21 50
Concepts Important
to the Decision Model
slide 1 of 2
Bounded Rationality
Recognizes that people are limited by
organizational constraints such as time,
information, resources, and their own mental
capabilities.
Intuition
An unconscious analysis based on past
experience.
22 50
Concepts Important
to the Decision Model
slide 2 of 2
Satisficing
The search and acceptance of something that
is satisfactory rather than perfect or optimal.
Escalation of Commitment
The tendency to increase commitment to a
previously selected course of action beyond
the level that would be expected if the
manager followed an effective decisionmaking process.
23 50
Quality Decision Making

Vigilance can make a good decision more
likely.
Vigilance means being concerned for and
attentive to the correct decision-making
procedures.
24 50
Procedures for
Vigilant Decision Makers
slide 1 of 3
Survey the full range of objectives to be

fulfilled and identify the values and qualities
implicated by the choices.
Thoroughly canvass a wide range of alternative
courses of action. This in the idea-gathering
process, which should be separate from idea
evaluation.
Carefully weigh whatever they know about the
costs and risks of both the negative and positive
consequences that could flow from each
alternative.
25 50
Procedures for
slide 2 of 3
Intensively search for new high-quality

information relevant to further evaluation of the
alternatives.
Assimilate and take into account any new
advice of information to which they are exposed
even when the information or advice does not
support the course of action initially preferred.
Reexamine all the possible consequences of all
known alternatives before making a final
choice, including those originally regarded as
unacceptable.
26 50
Procedures for
slide 3 of 3
Making detailed provisions for

implementing or executing the chosen
course of action.
Give special attention to contingency plans
that might be required if various known risks
materialize.
27 50
Group Considerations in Decision Making

Group decision making is
becoming more common as
organizations focus on
improving customer service
and push decision making
to lower levels.
28 50
Participative Models:
Vroom and Yetton Model
Helps managers determine when group
decision making is appropriate.
The model postulates that there are five
decision-making styles arranged along a
continuum.
The decision methods become progressively
more participative as one moves from the
highly autocratic style (AI) to the group style
(GII), where the manager allows the group to
decide.
29 50
Vroom and Yetton Decision Styles

Lightly
autocratic
AI
AII
CI
CII
Highly
democratic
A = Autocratic
C = Consultative
G = Group
GII
30 50

Lightly
autocratic
AI
AII
CI
The manager solves the

decision problem alone using
information available at the
time.
CII
Highly
democratic
GII
31 50

Lightly
autocratic
AI
AII
CI

decision problem alone after
obtaining necessary
information from
subordinates.
CII
Highly
democratic
GII
32 50

Lightly
autocratic
AI
AII
CI

decision problem after
obtaining ideas and suggestions
from subordinates individually.
The decision may or may not
reflect their council.
CII
Highly
democratic
GII
33 50

Lightly
autocratic
AI
AII
CI

decision problem after
obtaining ideas and suggestions
from subordinates as a group.
The decision may or may not
reflect their council.
CII
Highly
democratic
GII
34 50

Lightly
autocratic
AI
AII
CI
CII
Highly
democratic
The group analyzes the problem,

identifies and evaluates
alternatives, and makes a
decision. The manager acts as a
coordinator of the group of
subordinates and accepts and
implements any solution that has
the support of the group
GII
35 50
Participative Models:
Vroom and Jago Model
The nature of the decision itself determines the
appropriate degree of participation and they
provide diagnostic questions to help managers
select the appropriate level.
A participative decision style is desirable:
When subordinates have useful information and
share the organizations goals.
When subordinates commitment to the decision
is essential.
When timeliness is not crucial.
When conflict is unlikely.
36 50
Impact of Group Size

on Participative Decision Making
In general, as group size increases:
The leader becomes more psychologically
distant from the other members.
The demands on the leaders time and attention
are greater
The groups tolerance of direction from the
leader is greater, and the teams decision
making becomes more centralized.
The atmosphere is less friendly, less personal
and, in general, less satisfying.
Rules and procedures become more formalized.
37 50
Advantages of Group Decision Making

Experience and expertise of several
individuals available.
More information, data, and facts
accumulated.
Problems viewed from several perspectives.
Higher member satisfaction.
Greater acceptance and commitment to
decisions.
38 50
Disadvantages of Group Decision Making

Greater time requirement
Minority domination
Compromise
Concern for individual rather than group
goals
Social pressure to conform
Groupthink
39 50
What is Groupthink?
An agreement-at-any-cost mentality that
results in ineffective group decision
making.
40 50
Characteristics of Groupthink
Illusions of invulnerability
Collective rationalization
Belief in the morality of group decisions
Self-censorship
Illusion of unanimity in decision making
Pressure on members who express
arguments
41 50
Types of Defective Groupthink Decisions

Incomplete survey of alternatives
Incomplete survey of goals
Failure to examine risks of preferred
decisions
Poor information search
Failure to reappraise alternatives
Failure to develop contingency plans
42 50
Techniques for
Quality in Group Decision Making
Brainstorming
Nominal Group Technique
Delphi Technique
Devils Advocacy Approach
Dialectical Inquiry
43 50
Brainstorming
A technique used to enhance creativity
that encourages group members to
generate as many novel ideas as possible
on a given topic without evaluating them.
44 50
Rules of Brainstorming
Freewheeling is encouraged.
Group members will not criticize ideas as
they are being generated.
Quality is encouraged.
The wilder the ideas the better.
Piggyback on previously stated ideas.
No ideas are evaluated until after all
alternatives are generated.
45 50
Nominal Group Technique (NGT)

A structured process designed to stimulate
creative group decision making where
agreement is lacking or the members have
incomplete knowledge concerning the
nature of the problem.
46 50
Delphi Technique
Uses experts to make predictions and
forecasts about future events without
meeting face-to-face.
47 50
Devils Advocacy & Dialectical Inquiry

Devils Advocacy
An individual or subgroup appointed to
critique a proposed course of action and
identify problems to consider before the
decision is final.
Dialectical Inquiry
Approaches a decision from two opposite
points and structures a debate between
conflicting views.
48 50
Implications for Leaders:

Decision Making slide 1 of 2
Be committed to the decision-making
process; use it, and let data, not emotions,
drive decisions.
Seek employees input before you make key
decisions.
Believe in, foster, and support group
decision making in the organization.
Believe that the best way to improve the
quality of decisions is to ask and listen to
employees who are doing the work.
49 50
Implications for Leaders:

Decision Making slide 2 of 2
Seek and use high-quality information.
Avoid top-down power-oriented
decision making wherever possible.
Encourage decision-making creativity
through risk taking, and be tolerant of
honest mistakes.
Develop an open atmosphere that
encourages organizational members to
offer and accept feedback.
50 50

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CHAPTER 6

4. Describe the participative approach to

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Decision Making Defined

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

The first step in the decision making

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Step 2: Identifying Objectives

Step 3: Generating Alternatives

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Step 4: Evaluating Alternatives

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Step 5: Reaching Decisions

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Planning for Implementation

Step 7: Monitoring and Evaluating

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Models of Decision Making

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Assumptions of Rational-Economic Model

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Models of Decision Making

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Behavioral Decision Model

Unlike the rational-economic model, the

Behavioral Decision Model

The model suggests that managers usually

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Quality Decision Making

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Survey the full range of objectives to be

Intensively search for new high-quality

Making detailed provisions for

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Group Considerations in Decision Making

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Vroom and Yetton Decision Styles

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Vroom and Yetton Decision Styles

The manager solves the

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Vroom and Yetton Decision Styles

The manager solves the

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Vroom and Yetton Decision Styles

The manager solves the

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Vroom and Yetton Decision Styles

The manager solves the

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Vroom and Yetton Decision Styles

The group analyzes the problem,

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Impact of Group Size

Advantages of Group Decision Making

Disadvantages of Group Decision Making

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Types of Defective Groupthink Decisions

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Nominal Group Technique (NGT)