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Organizational Behavior: Solutions for Management
Paul D. Sweeney, University of Central Florida
Dean B. McFarlin, University of Dayton
Effective Decision-Making

Chapter Outline

  1. Effective Decision Making--Decision-making is defined as the process of evaluating two or more options in order to reach the best possible outcome.
    1. Decision-making is both a process and a definable outcome.
    2. Decision-making is comprised of many steps:
      • Perception of events
      • Interpretation
      • Option generation
      • Evaluation
    3. Researchers and managers alike are interested in situations in which there are at least two plausible ways to go.
    4. Time constraints and monetary factors can lead to making less than optimal decisions.
  2. What Makes For A Good Decision? A good decision includes such aspects as quality, timeliness, and acceptance.
    1. A good decision is a quality decision.
      • The actual outcome itself determines whether the decision was a good one or not.
    2. Timeliness refers to making a decision within a useful time frame.
    3. Acceptability refers to the decision being understood and accepted by those involved.
  3. How Do Individuals Make Decisions? There are at least three different approaches to making decisions. Often all three approaches are used simultaneously.
    1. Rational-Economic Approaches:
      • Some decisions are made using quantitative models.
      • These rational-economic models assist managers to combine information to make the most optimal decision.
      1. Information-processing methods:
        • Information-processing models focus on the quality and extent of information that goes into a decision.
        • Other forms of the information-processing model include expert systems.
      2. Decision-choice/expected-value models:
        • Decision-choice models: analytic approach that specifies the optimal use of information.
        • This approach focuses on the decision options themselves rather than the information that goes into the decision.
        • The expected-value model requires that managers know specific values and probabilities about outcomes.
      3. General quantitative models:
        • Analytic and systemic
    2. The Administrative Decision-Making Model:The administrative model sheds light on what managers actually do in decision-making.
      1. Bounded rationality: principle that recognizes the restrictions that make us less than perfect decision makers
      2. Three main processes by which an administrative decision maker proceeds:
        • People do not conduct an exhaustive or even near complete search of possible solutions to a business problem.
        • We evaluate those choices using a number of shortcuts we have developed over time.
        • Decisions are often made in a satisficing way.
        • Satisficing involves choosing the first option that meets the minimal set of criteria we have set up.
    3. The Nonanalytic Approach:
      1. This is a third class of decision methods, which has only a thin veneer of rationality.
        • Managers can use scripts to make decisions.
        • Scripts are agreed upon and common ways of interacting, perceiving, and deciding.
        • An organizational policy is quite a bit like a script.
  4. Why Don't People Make Good Decisions? It is suggested that an administrative decision is the more practical of the choices available.
    1. Situational Factors:
      • In many cases poor decision-making can be traced to situational factors.
      • Time
      • Political considerations
      • Organizational culture
      • Cross-cultural constraints
    2. Decision Styles: A more common cause of ineffective decision-making is the style used or not used when approaching the problem.
      1. Four different decision-making styles:
        • Directive style: refers to those who do not mess with lots of information.
        • Behavioral style: refers to those who are very attuned to how their decisions impact others involved.
        • Analytic style: characteristic of those who can approach decisions in a very rational way.
        • Conceptual style: sees the "big picture" and wants the larger view.
    3. Overreliance on Heuristic Thinking: At times the use of shortcuts called heuristics can produce problems.
      1. The representativeness heuristic: The representativeness heuristic states we choose options that have the appearance of being correct.
      2. The conjunction fallacy:
        • The conjunction fallacy is a cousin of base rate heuristics such as representativeness.
      3. Regression to the mean:
        • Unusual and odd events tend to grab our attention and influence decision-making as demonstrated by conjunction fallacy and overreliance on concrete instances.
        • Regression to the mean represents another heuristic.
      4. The framing heuristic: is the glass half empty or half full?
        • Framing is another heuristic that probably we have all used at some time or another.
        • Framing refers to the tendency to make a decision based on the form or manner in which information is pitched.
      5. Anchoring: how much do you want to pay for this car? Anchoring is another heuristic that refers to the tendency for our judgments to be unduly affected by the starting point of a decision.
    4. Throwing Good Money After Bad - The Escalation of Commitment:
      1. What is it?
        • The escalation-of-commitment phenomenon is the tendency among decision makers to continue with a losing proposition.
      1. Why does escalation occur?
        • Part of this answer has to do with the framing heuristic.
        • Part of the answer has to do the fact that people are more willing to take risks to avoid losses than they are to secure gains, which describes an escalation situation.
      1. What can be done about escalation?
        • At the onset of the project, set clear and measurable goals that must be met if further investment is to be made.
        • Set total limits in advance and stick to them.
        • Sunk costs should be ignored.
        • Control the situation so that decision makers are not ego-involved in the project.
  5. Five General Suggestions to Improve Decision Making While decision-making can have many possible errors, we should not be intimidated.
    1. Five suggestions to improve decision making:
      • Try to move through the decision-making steps.
      • Try analyzing and categorizing how speedy decisions have been made.
      • If a decision feels strange, consult your ethics office.
      • Be aware of biases in the decision process.
      • If good decision are made but not implemented, consider changing decision style.
  6. Group Decision Making (GDM)
    1. What Groups Offer? Many organizations have turned to the use of groups to help in the decision-making process.
      1. Groups allow for a pooling of resources.
      2. When assigned correctly, members can be divided up to work on tasks for which they are especially suited.
      3. The larger the group the greater the chance for diversity and its possibility of more creative decisions.
    2. Drawbacks to GDM:
      • Groups take longer time than individuals to arrive at a decision.
      • Members may try to put themselves into to many areas at a time.
      • Increased opportunity for conflict.
  7. Avoiding Groupthink
    1. What is Groupthink and What are the Symptoms to Watch for?
      1. Groupthink refers to a situation in which the pressures for cohesion and togetherness act to remove all pluses typically offered by group decision-making.
      2. Symptoms of groupthink:
        • Invulnerability
        • Rationalization
        • Morality of actions
        • Stereotyped view of opposition
        • Pressure for conformity
        • Self-censorship
        • The illusion of unanimity
        • The presence of mindguards
    2. The Effects of Groupthink:
      1. Groupthink results in a biased and limited search for possible solutions and alternatives.
      2. Decisions are rarely reexamined.
      3. Little, if any, consideration is given to problems that could occur after the decision is implemented.
    3. How to Overcome Groupthink:
      • Each member of the group should be encouraged to voice objections and doubts.
      • Create two different subgroups.
      • Have an outside consultant come in especially on expensive or important decisions.
      • The group should be encouraged to rethink their decision and try to uncover flaws.
  8. Overcoming GDM Obstacles
    1. Brainstorming:
      • Designed to increase creative ideas.
      • Usually involves 5 to 12 people.
      • Four rules to follow:
      • Do not criticize.
      • Encourage freewheeling.
      • The goal is a large number of ideas.
      • Encourage piggybacking.
    2. The Nominal Group and Delphi Techniques:
      1. Nominal group technique: tries to further separate the generation of ideas from their evaluation.
      2. This method leads to the selection of a preferred solution.
      3. This technique has a good success rate and many firms have adopted it in some form.
      4. The Delphi technique: similar to nominal group technique but it takes the separation of idea generation and evaluation one step further.
      5. Groups do not meet face-to-face in the Delphi technique.
      6. Ideas are gathered through anonymous questionnaires.




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