decision making organization theory lecture

organization theory

1. What Are Decisions?

2. Decisions are a means to achieve some result or to solve
some problem.

3. The Nature of Managerial
Decision Making

4. Opportunities and Threats in the internal and external
environment impact decision making.
Decision making in response to opportunities occurs when
managers search for ways to improve organizational
performance to benefit customers, employees, and other
stakeholders.
Decision making in response to threats occurs when events
inside or outside an organization adversely affect
organizational performance and managers search for ways to
increase performance without making costly mistakes.

5. Types of Decisions

6. SOP
•Standard Operating Procedures

7. All managers must make decisions. Decisions can be broken down into two
different types: Programmed and Non-programmed decisions.
Programmed Decisions cover situations in
which specific procedures have been developed
for repetitive and routine problems.
During their daily operations managers face a
great number of programmed decisions.
Programmed decisions are typically handled
through rules, standard operating procedures,
and the structure of the organization.
Middle and first-level managers are typically
concerned with programmed decisions.
Non-programmed Decisions are required for
unique, complex management problems.
Non-programmed decisions are typically
handled through a general problem-solving
process, judgement, intuition, and creativity.
Top management is typically concerned with
non-programmed decisions.

8. The Decision Making Process

9. Whenever possible, it is best to follow a Rational Decision
Making Process, which is a seven step sequential process.
1.Establish goals and measure results.
2.Identify and analyze the problem(s).
3.Develop alternative solutions.
4.Evaluate alternatives.
5.Select the best solution.
6.Implement the decision.
7.Follow up and evaluate the decision.

11. Decision Making Process:
Establish Goals and Measure Results
Goals are long-term achievements or outcomes a department or organization
wants to accomplish.
When goals are properly established, they dictate what results are to be achieved and
what decisions are to be made that are consistent with the goals.
Managers, individuals, and teams should be well acquainted with setting, observing,
and achieving goals.

12. Decision Making Process:
Identify and Analyze Problem(s)
Decisions routinely revolve around problems.
The magnitude of a problem is measured by the gap between the level of performance
specified in an organization’s goals and objectives and the level of performance that is
actually attained.
Several factors make it difficult to identify a problem.
Individual feelings or perceptions of a problem.
Defining problems in terms of solutions and jumping to conclusions.
Failure to identify the true cause of a problem.

13. Decision Making Process:
Identify and Analyze Problem(s) - continued
All problems are not created equal, and managers need to decide which
problems need immediate attention.
Determining problem significance involves consideration of three issues: urgency,
impact, and growth tendency.
Urgency relates to time, and how critical the time pressure is.
Impact describes the seriousness of the problem’s effects.
Growth tendency addresses future considerations of the problem.
A critical part of effective decision making is determining problem significance.

14. Decision Making Process:
Develop Alternative Solutions
Before a decision is made, feasible alternatives should be developed, and
potential consequences of the alternatives should be considered.
Alternative solutions are discovered through a search process that involves
investigating internal and external environments to gain information that can be
developed into possible alternative solutions.
One obstacle to problem solving is the ability of managers to identify alternative
solutions. Some managers may be either too single-minded or too close to the problem
to view it with a fresh perspective.

15. Decision Making Process:
Evaluate Alternative Solutions
Alternatives must be evaluated and compared once they are identified.
Managers use four criteria to evaluate alternative solutions:
Legality – Does the alternative violate any
domestic or international laws? Does it
comply with government or industry
regulations?
Ethics – Does the alternative harm any
stakeholder groups? Does it comply with the
organization’s corporate code of ethics?
Feasibility – Does the alternative have the
best cost-benefit analysis?
Practicality – Does the alternative fit within
the capabilities and resources of the
organization without jeopardizing other
projects or operations?

16. •funnel Gates

17. Decision Making Process:
Evaluate Alternative Solutions - continued
The alternative-outcome relationships is based on three conditions:
Certainty – The decision maker has complete knowledge of the probability of the
outcome of each alternative.
Uncertainty – The decision maker has absolutely no knowledge of the probability
of the outcome of each alternative.
Risk – The decision maker has some probable estimate of the outcomes of each
alternative.
The degree of certainty in decision making is expressed as risk, and probability
expresses the degree of risk.

18. Decision Making Process:
Evaluate Alternative Solutions - continued
When evaluating alternative solutions, two cautions should be kept in mind:
The phase of the decision making process must be kept separate and distinct
from the previous step, identifying solutions.
Be wary of solutions that are evaluated as being “perfect.”
It can be useful to assign someone to the role of devil’s advocate if a solution seems to
have no drawbacks or there is unanimous agreement on a course of action.
A devil’s advocate is an appointed critic of proposed group actions whose role is
to uncover underlying issues with the prevailing direction of the group.

19. Decision Making Process:
Select the Best Solution
The purpose of selecting the best solution is to achieve a predetermined
objective.
A decision is not an end in itself, but a means to an end.
Decision making is a dynamic process, not just an act of choosing.
Optimal solutions are often impossible, because managers cannot possibly know all of
the available alternatives, the consequences of each alternative, and probability of
occurrence of these consequences.
Rather than be an optimizer, a manager should be a satisfier, selecting the alternative
that meets an acceptable standard.

20. Decision Making Process:
Implement the Decision
A decision must be effectively implemented to achieve the objective for which it
was made.
Implementation is more important than the choice of alternative since a “good
decision” can be negated by poor implementation.
Managers need to choose good solutions and communicate effectively throughout the
decision making process with possibly affected stakeholders.

21. Decision Making Process:
Evaluate the Decision
It is important to assess both the outcome of the decision and the process by which the
decision was made once it has been entirely implemented. This is done by:
Evaluating Outcomes by referencing key metrics associated with the intended outcome or
objective. This allows managers to develop insights into the quality of a decision.
When decision outcomes are not clearly measurable or have unclear results, managers may
attribute good outcomes to their actions and bad outcomes to factors beyond their control.
Appraising the Process of decision making is necessary in order to make continuous
improvements to decision making in the future.
The appraising process consists of asking a series of questions whose answers will lead to
improvements.

22. Decision Making Process:
Evaluate the Decision – continued
Incomplete Information / Analysis Paralysis
Managers often have a limited or incomplete view of the problems and
opportunities they encounter, which can lead to issues in choosing solutions.
With incomplete information, managers must make decisions based on bounded
rationality.
Bounded rationality assumes that decision making is not a perfectly rational
process, but rather one that is fraught with constraints and limitations.
Decisions based on a bounded rationality approach are not optimal, but are
deemed acceptable or satisfactory given the circumstances.

23. Decision Making Process:
Evaluate the Decision – continued
Time Pressure and Uncertainty
Decisions are often made impulsively when they coincide with intense time pressure
and uncertainty.
Decisions that are made very quickly often result in decisions being made before
important questions are asked.
Effective decisions result from combining systematic and intuitive approaches to
decision making.

24. Gathering and
Assimilating Input

25. The key to making great decisions is to:
Learn how to assimilate large amounts of information (inputs).
Explore a variety of ideas.
Draw on a diverse array of experience.
Managers must make the best decisions they can with the information they have
available to them, all while balancing logic and emotion.

26. The Assimilation of Information
Assimilation of information involves collecting a broad assortment of inputs efficiently
as to not slow down the decision making process.
Assimilating input is categorized into a hierarchy and filtered for quality and quantity.
These inputs include:
•Gut Instinct – An emotional filter that has no hard
analytical support, but in the absence of other
filters may be all a manager has to go on.
•Data – Disparate facts, statistics, or random inputs
that when taken in isolation, hold little value.
Decisions based solely on data can lead to flawed
decisions.
•Information – Derived from a collection of
processed data where context and meaning have
been added to disparate facts which allow for a
more thorough analysis.
•Knowledge – Information that has been refined by
analysis by being tested and/or validated.
Knowledge is actionable and accurate, because
proof of concept exists.

27. Behavioral Influences on
Decision Making

28. Four behavioral factors influence decision making:
Values
Risk Orientation
Dissonance
Ego

29. Behavioral Influences on Decision Making:
Values
Values are the guidelines and beliefs a person uses when confronted with
a situation in which a choice must be made.
Values have the following influence on the decision making process:
•Establishing Objectives – Making value
judgments regarding the selection of
opportunities and the assignment of priorities.
•Developing Alternatives – Making value
judgements about the various possibilities.
•Choosing an Alternative – The values of the
decision maker influence which alternative is
chosen.
•Implementing a Decision – Value judgements are
necessary in choosing the means for
implementation.
•Evaluation and Control – Judgements cannot be
avoided when corrective action is taken.

30. Behavioral Influences on Decision Making:
Values - continued
The most cited explanations as to why decision makers make
unethical choices are:
They feel pressured to perform well.
They feel pressure to be competitive.
It is the norm to hide research and survey information.
There is a lack of accountability for problems.
Cost is valued over safety whenever there is a choice.
Many decisions have an ethical dimension that requires thought,
reflection, caution, and attention.

31. Behavioral Influences on Decision Making:
Risk Orientation
A decision maker who is willing to take risks will establish different
objectives, evaluate alternatives differently, and select different
alternatives than one who is afraid to take risks.
The tendency to take risk is affected by whether potential outcomes are
characterized in terms of losses or gains, based on what is called framing,
or the decision maker’s perception.

32. Behavioral Influences on Decision Making:
Dissonance
Cognitive dissonance is a state of anxiety that occurs when there
is a conflict among an individual’s various cognitions after a
decision has been made.
Decision makers often have greater anxiety following a decision if one of
the following conditions exist:
The decision is an important one psychologically or financially.
There are a number of foregone alternatives.
The forgone alternatives have many favorable features.
Post-decision dissonance will be present among many decision makers,
especially those at higher levels in the organization.

33. Behavioral Influences on Decision Making:
Dissonance – continued
Dissonance can be reduced by admitting when a mistake has been
made.
Many individuals are reluctant to admit to making a wrong decision, and
instead use one of the following methods to reduce their dissonance:
Seek information that supports the wisdom of their decision.
Selectively perceive (distort) information in a way that supports
their decision.
Adopt a less favorable view of the forgone alternatives.
Minimize the importance of the negative aspects of the decision
and exaggerate the importance of positive aspects.

34. Behavioral Influences on Decision Making:
Ego
Decision makers, by way of position, power, and authority, are
prone to developing egos or feelings of self-importance and
superiority.
Decision making can become unilateral and impulsive rather than
collaborative and systematic if a manager is looking to merely boost
his/her ego.
Ego can cause a loss in objectivity, as it drives a decision maker to
become overly invested in a decision.

35. Individual vs Group
Decision Making

36. Decision making is often times achieved through committees,
teams, task forces, and other kinds of groups within an
organization.
Groups usually take more time to reach a decision than individuals do, however
group decisions often times have better results.

37. Negative Influences of Group Decisions
Group decisions can be negatively influenced by the following
factors:
Pressure to conform to what the majority is thinking.
The influence of a dominant personality type in the group.
Some participants come to believe they are experts in the problem
area.

38. Groups and Nonprogrammed Decisions
Nonprogrammed decisions appear to be better suited for group decision
making. The following points regarding nonprogrammed group decision
making can be made:
Groups are probably superior to individuals in establishing goals and
objectives, because of the greater amount of knowledge available to
groups.
Groups are better at identifying causes and developing alternative
solutions, because of the wider range of viewpoints that typically exist.
Group interaction often leads to a group decision that is more likely to be
accepted because of participation of those affected by its consequences.
Implementation and follow-up of a decision typically is the responsibility of
an individual manager, even if a group was responsible for the decision
that was made.

39. Creativity in Group
Decision Making

40. Creativity is the process by which an individual, group, or team
produces novel and useful ideas to solve a problem or capture an
opportunity.
There is a need for creativity to solve problems and seize opportunities,
because nearly all decisions involve some degree of risk.
In organizations using creativity and moving away from logical, linear, or “in the
box” thinking is called lateral thinking.

41. Creative Decision Maker Characteristics
Creative decision makers share some common characteristics such
as:
•Perseverance – They stay longer attacking
problems.
•Risk-taking Propensity – They take
moderate to high risks and stay away from
extreme risks.
•Openness – They are open to new
experiences and are willing to try new
approaches.
•Tolerance and Ambiguity – They can
tolerate a lack of structure, some lack of
clarity, and not having complete information,
data, and answers.

42. Techniques for Stimulating
Group Creativity

43. There are several techniques, that when properly utilized can
increase the creative capacity of a group in generating ideas,
understanding problems, and reaching better decisions. Those
techniques include:
Brainstorming
Electronic Brainstorming
Delphi Method
Nominal Group Technique
Group Passing Technique

44. Group Creativity Techniques:
Brainstorming
Brainstorming is the generating of ideas in a group through
noncritical discussion.
Brainstorming has been found to combine expertise with out-of-the-box
thinking to enhance the creative output of a group.
Brainstorming requires:
A thorough understanding of the problem or opportunity.
A set of ground rules that define acceptable conduct of the group
while being flexible enough to enable creativity.

45. Group Creativity Techniques:
Brainstorming - continued
Poorly managed brainstorming sessions can stifle creativity
if the following basic rules are not observed:
•There are no dumb ideas – All ideas, no
matter how extreme or bizarre, should be
brought forward to maximize involvement of
the entire team.
•No ideas are to be criticized – All ideas
belong to the group rather than to any one
individual.
•Use ideas to build on others – Out-of-the-
box thinking lends creativity to ideas by
combining and extending upon them.
•Seek quantity over quality – The more
ideas that are generated, the greater the
chance of finding a creative solution to the
problem or opportunity.

46. Group Creativity Techniques:
Brainstorming - continued
Brainstorming also can include some negative aspects which
include:
•Social Loafing – Team members can at
times not work as hard mentally or physically
as they would alone.
•Conformity – Team members that are afraid
their ideas might be looked upon critically
may be less likely to provide innovative and
creative suggestions.
•Idea Production Blocking – When a team
member has to wait their turn to provide a
creative idea that idea could be forgotten or
lead the individual to not pay attention to
other ideas presented.
•Downward Norm Setting – A brainstorming
session that is not well managed, the lowest
performing members can often pull down
the overall performance of the entire team.

47. Group Creativity Techniques:
Brainstorming
Problems associated with brainstorming can be minimized by:
Setting specific goals for the teams to achieve.
Providing meaningful incentives for teams that perform well.
Having a skilled facilitator manage the process.

48. Group Creativity Techniques:
Electronic Brainstorming
Electronic brainstorming is a computerized version of the face-to-
face technique conducted via email.
Electronic brainstorming eliminates many of the problems inherent in face-to-face
brainstorming and enables more individuals to participate.
Electronic brainstorming results in ideas that can be archived electronically and
retrieved later for further discussion.

49. Group Creativity Techniques:
Delphi Method
The Delphi Method is used to determine the extent to which
members of a group agree or disagree about a problem so they
can achieve a consensus.
The Delphi Method involves a series of questionnaires that are
distributed to group members who anonymously reply and receive
feedback through a statistical representation of the groups response.
Strengths of the Delphi method include the ability to tap into a wide
range of expertise by involving a large group, and resistance to “group
think” as feedback is given anonymously.
A weakness of the Delphi method is the time involved to administer the
series of questionnaires and the inability to deal with differing opinions.

50. Group Creativity Techniques:
Nominal Group Technique
The nominal group technique is used to generate a ranked list of
idea by having participants write down their ideas anonymously,
engage in a structured discussion about them, and then rank/vote
on the best ideas.
The nominal group technique encourages all participants to have an
equal say in the process and arrive at a consensus quickly.

51. Group Creativity Techniques:
Group Passing Technique
In the group passing technique each member of a group writes
down one idea and then passes the idea to the next person to add
additional thoughts.
The process of group passing is continued until each team member
receives their original idea back.
The group passing technique helps to improve collaboration and
generates a large quantity of ideas.