Module1

Organizational Decision Making

Presented by,
Irene Joseph
 Definition
 Nature of decision making:
•decision characteristics
•types of decisions.
 Decision making process
 Problems in decision making process:
•misunderstanding a situation
•rushing the decision making process.
 Improving decision making process:
•Improving the roles of individual
•structured group decision making
process.
 Techniques of decision making.
 Models of Individual decision making:
•Classical decision making models
•Behavioral decision making models,
•Individual decision making process.
Managing Decision making

Why decision making ?

• Decisions need to be made about
which goals to pursue and the means
to make these goals a reality.
• how to structure the organization, how
to motivate organizational members, • decision making is key to four
and what to do when organizational
performance does not measure up to
management functions-
expectation. planning, organizing, directing
• Decisions may involve allocating
and controlling.
resources, appointing people,
investing capital, or introducing new
products.
• Decision making - primary
responsibilities of a manager
DEFINITION
• Decision making is the process of identifying a set of feasible alternatives
and from these choosing a course of action.

• Decisions are judgements that directly affect a course of action.

Eg: decision making while choosing a degree program from a set of

alternatives in course and college.
Three-phase model of decision making
• Henry Mintzberg and some of his colleagues (1976)
NATURE OF DECISION MAKING:
DECISION CHARACTERISTICS,
TYPES OF DECISIONS.
Decision making is the lifeblood of organization and very essence of
management.
• hiring and firing
• product specifications
• return on investment
• the problem employee
Some managers confront decisions rationally and coolly, others decide
impulsively or only use the part of the information available.
Some people avoid making decisions consciously; however even
passive people have a philosophy about how they will confront
problems. This passive, problem avoidance approach to decision
making is a decision itself- to run away from problems rather than
rationally select alternatives.
• Managers and others called on to make decisions on behalf of the
organization often find themselves confronting decisions about hiring
and firing, marketing strategies, plant location and new technologies.
• Each of these decisions is usually embedded in a sea of uncertainty,
risk, conflict, organizational politics and lack of clear definition.
Choice making

Decision making

Problem solving
The occasions that give rise to the need for decision.

1. A current state of affairs may fall short of a goal or an ideal.

2. A problem or crisis may arise
3. Managers may want to take advantage of an opportunity.
4. To maintain the status quo - to preserve a high sales volume, to
maintain suppliers’ contentment, to keep a consultant and so on.
5. Proactive in nature- carrying an entrepreneurial role, managers create
new opportunities and ventures for their organizations.
DECISION CHARACTERISTICS
1. Conditions of certainty, risk and uncertainty
2. Problem structure
nature of the existing state, of the desired state and of the means/
methods that can resolve the problem confronting the organization.

• Structured problem

• Unstructured
problem
3. Conflict
• Psychological in nature

intra- individual conflict

interpersonal conflict
• 4. Politics
politics in decision making represents the use of power to achieve
and/or protect one’s self-interests in the presence of other interest
groups.
It often involves attempts to overcome an opponent by building
coalitions, bargaining, trading support across issues at different points in
time, working to achieve key positions and controlling resources in an
effort to outmanoeuvre the opposition.
TYPES OF DECISIONS
1. Means vs. ends decisions
Decisions may be about how to achieve goals (the means) or about the
goals themselves (the ends).
Means decisions: concern procedures or actions undertaken to achieve
particular goals- how a goal is to be reached.
End decisions: those decisions that focus on the goals (outcomes) that
are to be pursued.
2. Decision levels
Managers make decisions that affect various levels of the organization -Broadest
level, Intermediate level, Narrower level

Broadest
Strategic decision
level
Intermediate
Managerial decision
level

Narrower level Operating decision

3. Programmed vs nonprogrammed decisions
Programmed decisions
• deal frequently occurring situations. Nonprogrammed decisions
• problems are structured • generally made in unique or
• In programmed decisions, novel situations
managers make a decision only
once, the program is created.
• deal with unstructured problems
Subsequently, the program itself
specifies procedures to follow when
similar circumstances arise. The
creation of these routines results in
the formulation of rules, procedures
and policies.
4. other type of decisions

Functional Job Job context

decisions content decisions
decisions
DECISION MAKING PROCESS
The decision making process can be described in four approaches:
1. Systematic approach
2. Contingency approach
3. Muddling through
4. Typical managerial practices
1. Systematic approach
Step 1: Recognizing the need for a decision: problem
sensitivity, definition and understanding
• A manager may sense something is wrong but cannot describe the
problem yet. Sometimes people identify problems automatically.

• Detecting symptoms

• Decomposition
Decision makers employ several guidelines to assist them in
understanding the decision situation

1. They differentiate between events and the language used to describe the
event.
2. Managers must identify whether the available information is fact or opinion
and they must evaluate the degree of certainty that surrounds the problem.
3. Determine the underlying cause rather than placing blame or giving credit.
4. Effective decision makers look for several causes.
6. Decision makers are encouraged to be specific.
Step 2: Generating alternative solution

• Decision makers must first specify the goals they hope to achieve and once they
determine the goals, they can search for alternative means of reaching them.
• Alternative solutions generally fall into two category

Existing solution

Custom solution
Step 3: Evaluating alternatives

• Research, experimentation and drawing on experience are common tools for this step of the
decision process.
• Managers estimate how well each alternative meets the organization’s goals and
objectives.
• As a part of this process, decision makers focus on the strengths and weaknesses, pros and
cons, and latent and manifest consequences of each alternative.
• In addition, it is important to evaluate their feasibility.

Step 3 of the decision-making process usually eliminates some alternatives.

Step 4: Choosing an Alternative

• the final stage in the decision process involves making judgments and
choices.
• Quantitative (queuing models & break-even analysis ) and qualitative
tools (delphi, synetics, and nominal group technique) often help
managers select the most favored alternative.
• Three decision criteria are optimizing, maximizing, and satisficing.
Many organizational decisions are made by compromising and achieving
consensus." Touching base with the boss and/or colleagues is commonplace. This is
particularly true where there is a high level of task interdependence (that is, where a
decision made in one area impacts other areas of the organization because of the
way tasks are tied together). Consensus-based decisions are difficult to make.
Frequently these decisions are governed by emotion and personal opinions instead
of rational thought.
Contingency approaches
1. Thompson and Tudin model
2. Decision tree
Thompson and Tudin model

• Two critical situational conditions guide the selection of a decision

strategy: preferences about outcomes and belief about causation.

Thus, Thompson and Tudin advise that a decision maker ask two questions:
(1) Is there agreement about the outcome that will result from the decision
we are about to make?
(2) Is there agreement about the processes we should use to achieve our
goal?
These two questions give rise to four very different decision situations that
work groups face.
• Thompson and Tudin's contingency model suggests that managers
must be flexible in their approaches to decision making. Under some
conditions, they will make the decisions and direct others. At other
times, they will look to experts to make decisions and provide the
needed direction. Still other conditions will call for any number of
group decision processes.
2. Decision tree

• . Decision tree approach was developed by Victor Vroom, Philip Yeton

and Arthur Jago.

• Their decision tree technique helps managers "decide how to decide."

That is, it is a tool that helps managers decide the extent to which their
group should be involved in making decisions.
• Most managers have their own way of involving (or not involving
their employees in planning and decision making, which form a
continuum.
Managers (team leaders) should analyze each situation and then select
an approach that best fits it. The decision tree model helps managers
select the appropriate amount of employee involvement in the decision-
making process. They described five approaches:

1. Autocratic I (AI): A manager makes plans and decisions alone, without any input from employees.
2. Autocratic II (AII): A manager asks for information from employees, who may or may not be informed
as to why they are being asked. The manager then makes the plans and decisions alone.
3. Consultative I (CI): A manager shares the situation with the group and asks each individual member for
information and an evaluation of the problem. No group meetings are held. The manager makes the plans
and decisions alone.
4. Consultative II (CII): A manager shares the situation with the group and asks them for information and
an evaluation of the problem. The manager makes the plans and decisions alone.
5. Group (G): A manager shares the situation with the group and asks them for information and an
evaluation of the problem. The manager accepts and implements the plan or decision agreed on by the
group.
• Decision trees help managers find the best style for a particular
situation. After managers answer a specified set of questions, they
follow the decision tree to one of its many branches.

• The appropriate degree of employee participation in the decision-

making process revolves around the nature of the problem, the
required level of decision quality, and the importance of having
employees commit to the decision.
• As shown in the figure these decisions are answered in terms of "high/low" or
"yes/no."

• The model calls for "group decision making" when the importance of (a) the
quality of the decision is low, (b) subordinate commitment to the decision is
high, and (c) If you were to make the decision by yourself, it is reasonably
certain that your subordinates would not be committed to the decision.

• Autocratic decision making, for example, would be called for when the
importance of (a) the quality of the decision is low, and (b) group commitment
to the decision is low.
Muddling through

• According to Charles E. Lindblom, it is common to observe decision

making that represents small adjustments to the status quo. Decision
makers engage in a limited search for a small number of alternatives,
undertake very little experimentation, and avoid risk taking and
producing large effects. Tomorrow's actions are the result of small
shifts from what is being done today. This is the incremental approach
to decision making. Lindblom refers to this process as "muddling
through."
Typical managerial practices

• Many managers don't follow the systematic four-step approach discussed earlier.
Many behaviors are not conscious in nature; instead, they are driven by habit.

• Some of the great researchers and entrepreneurs seem to “just know” when the
time is right-they are able to “seize the moment.” This is the "art of management."
It is not that they haven't thought through the issues at hand, it is just that the
decision appears to arise "from out of the blue," often while they are doing
something totally unrelated.

• The vast majority of managers need to be able to diagnose the situations that they
face, to judge the importance of a decision, and to determine whether to decide
systematically or allow instinct to carry the day
Disadvantage of systematic approach:

• Despite the fact that a systematic approach to decision making is widely known to
be effective. The process is marked by frequent interruptions, delays, and periods
of acceleration. Failures due to undesired results and poor planning frequently
force a return to earlier stages of the process.
PROBLEMS IN DECISION MAKING PROCESS
• misunderstand a situation
• rush the decision process
• wrong decision-making approach.
• Other problems
Misunderstanding a situation

• If the information is incomplete or organized poorly

• Concrete vs abstract information. Abstract information is more
difficult to identify, it frequently goes unnoticed, and problems that
appear through abstract signals.
• Perceptions
• Information processing
• Symptoms of the problem vs problem itself
Rushing the decision making process

• The results are inadequately defined problems, limited searches for

and development of possible solutions, and inadequately evaluated
courses of action.

• "half the decisions in organizations fail," because decision makers

"limit the search for alternatives and use power to implement their
plans.“

• many decision makers collapse the alternative generation and

evaluation phases of the decision-making process into a single step.
Other problems

• Group think

• Risky shifts

• Conformity pressure

• Group polarization

• Collective entrapment
Collective entrapment
Collective entrapment is the tendency for groups to cling stubbornly to
unsuccessful decisions or policies even in the face of overwhelming
evidence that the decisions are bad ones. Entrapment (sometimes known
as sunk costs or escalation of commitment) also occurs at the individual
level. Psychological entrapment phenomenon refers to a faulty decision
making process whereby individuals escalate their commitment to a
previously chosen, though failing, course of action.
IMPROVING DECISION
MAKING PROCESS
• Improving the roles of the individuals
• Structured group decision making
• Organizational learning
Improving the roles of the individuals

• use heterogeneous groups

• use a devil's advocate
• Most organizations and control-oriented managers, perhaps quite unintentionally,
have reward and penalty systems that discourage employees from identifying
occasions to make decisions. Changing into involvement-oriented systems, can
develop an internal environment that makes it safe for members to pursue new ideas.

• Training organization members in systematic decision making, providing them with

the tools for collecting the necessary information, and allowing adequate time for
decision making go a long way toward improving decisions.
Structured group decision making process

• Group decision making, after all, takes people away from their jobs, and
meetings are frequently a waste of time versus Groups can significantly
enhance the quality of decisions.

• There are a number of group processes/dynamics (for example, social

loafing, groupthink) that those who use groups and teams need to
manage and several structured group processes, such as the delphi and
nominal group techniques capture the “assets of group decision making”
Organizational learning

• Organizational learning is the process by which organizations gain

new knowledge and insights that lead to modifications in behavior and
action. Cross-functional discussions encourage organizational
learning.“
• Differing from Individual learning, organizational learning occurs
through shared insights, knowledge, and mental models.
• Organizational learning refers to expanded capacity to produce new
and improved results. Organizational learning consists of identifying
and using ideas from other organizations, developing ideas within the
organization, and regularly monitoring organizational events.
TECHNIQUES OF DECISION MAKING
• A “fair” approach to decision making demands that parameters for
judging alternatives should be explicitly developed before, and not
after, the alternatives are generated.

• This dissociation of criteria from the alternative-generation phase will

improve the chances of coming up with a reasonably sufficient number
of alternatives. The importance of generating a “reasonable” number
of alternatives will be understood by the simple realization that the
quality of a decision can be no better than the quality of the
alternatives that have been identified.
Four means of generating alternatives are particularly well known.
These are

• brainstorming
• synectics
• nominal group technique
• Delphi decision making techniques.
Brainstorming

developed by Alex F. Osborn.

Brainstorming is based on the premise that when people interact in a free and
uninhibited atmosphere, they will generate creative ideas.

As part of the process, group members are asked to develop as many potential solutions
as possible. The members may be part of the same firm or outside experts. The
objective is to generate a large number of ideas with the notion that the greater the
number of ideas produced, the greater the probability of finding an acceptable solution.
A one-hour brainstorming session is likely to produce 50 to 150 ideas.
Some of the principles governing brainstorming are as follows:

• Ideas generated through brainstorming should not be criticized.

• Out-of-the-box ideas are welcome.

• A large number of ideas should emerge after the process.

• Group members should contribute positively towards the improvement

of ideas.
Synectics

developed by William J. J. Gordon

The basic objective of synectics is to stimulate novel alternatives through the joining together
of distinct and apparently irrelevant ideas.

• A synectics group led by an experienced group leader reviews problem by using techniques
such as role plays and use of analogies, paradoxes, and metaphors. The objective is to use
novel ideas to stimulate thought processes. In most cases, a technical expert is present to
assist the group in evaluating the feasibility of their ideas. Therefore, unlike brainstorming
where the judgement of ideas is withheld until all the ideas have been generated, in synectics,
ideas are evaluated from time to time because of the presence of the technical expert.
Nominal Group Technique:

developed by Andra Delbecq and Andrew van de Ven

Nominal group technique does not rely on free association of ideas, and it purposefully attempts to reduce
verbal interactions. It involves the following stages:

1. Group members from different backgrounds are brought together and familiarized with a problem.

2. At first, each group member works alone and writes down solutions to the given problem, and after 15
minutes, ideas are shared and recorded on a blackboard.

3. After each idea is recorded, the group members discuss and evaluate the various alternatives.

4. Each member votes by ranking the ideas in the order of their perceived importance. A final secret ballot
is conducted after a brief discussion of the vote.
Delphi Technique:

• This is the technique of decision making which does not require experts to be present
at the same venue while the decision is taken.

• In the process of Delphi decision making, a central coordinator sends out a

questionnaire to the experts who are remotely located from each other. He then
collects the information and makes a summary report of the same and sends it across
to the experts. The experts rank the alternatives generated and send it back to the
coordinator who then tabulates the entire result. This technique is helpful in
generating a lot of viable alternatives to a problem without the need for these experts
to have a face-to-face meeting.
Other techniques of decision making are:

• Dialectical inquiry and devil’s advocacy

• Autonomous work group
• Collective bargaining
• Junior board
• Scanlon plan
• Suggestion box
• Rules of thumb
MODELS OF INDIVIDUAL DECISION MAKING
 Classical (rational/economic/ econologic) decision making models
Decision makers as rational in behavior, as dealing with objective and verifiable
facts, and as economically motivated. They depict decision makers as completely
informed, as infinitely sensitive, and, therefore, as making decisions under conditions
of objective rationality. By knowing all possible alternatives and their probable
consequences, decision makers rationally select the "one best" alternative by
following the decision-making process. This classical decision-making model
discounts as unnecessary the effects of the attitudes, emotions, or personal
preferences of the decision maker.

Based on the assumption that when faced with a problem, individuals are aware of all
the alternatives and they are also aware of the outcome of each of the alternatives.
This model is based on the classical economic theory and contends that the decision
makers are completely rational in their approach.
Given the assumptions of the rational model, it is highly unrealistic. It is
not humanly possible to be rationally aware of all the alternatives to
solve a problem and neither is it possible to have definite information
about the outcomes of each of the alternatives. There are time
constraints and limited power of information processing available to the
human mind. Though this model represents a useful prescription as to
how decisions should be made, it does not adequately portray how
decisions are actually made.
Decision rationality
The most often used definition of rationality in decision making is that it is a
means to an end. If appropriate means are chosen to reach desired ends, the
decision is said to be rational. It is very difficult to separate means from ends
because an apparent end may be only a means for some future end. This idea
is commonly referred to as the means-ends chain or hierarchy. Simon points
out that "the means end hierarchy is seldom an integrated, completely
connected chain.
Behavioral (administrative) decision making models

• The field of behavioral decision making was mainly developed outside

the mainstream of organizational behavior theory and research by
cognitive psychologists and decision theorists in economics and
information science.
classical decision theory Behavioral decision theory

• Assumption of rationality and • Individuals have cognitive limitations

and, because of the complexity of
certainty organizations and the world in general,
they must act under uncertainty and
often ambiguous and incomplete
information.
• Decision makers cannot possibly be
• Decision makers are aware of all aware of all consequences for each
possible alternatives, alternative, or of their probabilities of
occurring.

• Decision makers should make • Most decision makers actually choose

the first satisfactory solution that they
decisions that meet the greatest identify. That is, they "satisfice.
number of criteria.
Behavioral (administrative) decision making models

The different models of behavioral decision making are as follows:

1. Social model of decision making
2. Bounded rationality model
Social model of decision making
Sigmund Freud presented humans as bundles of feelings, emotions, and instincts, with their behavior guided largely by their
unconscious desires. Obviously, if this were an accurate description, people would not be capable of making effective
decisions. Furthermore, social pressures and influences may cause managers to make irrational decisions. The well-known
conformity experiment by Solomon Asch demonstrates human irrationality.

There seems to be a tendency on the part of many decision makers to stick with a bad decision alternative, even when it is
unlikely that things can be turned around. Staw and Rossis have identified four major reasons why this phenomenon of
escalation of commitment might happen:

1. Project characteristics.

2. Psychological determinants.

3. Social forces.

4. Organizational determinants.

Certainly, the completely irrational person depicted by Freud is too extreme to consider. But human behavior can and does
play in management decision making.
Bounded Rationality Model or Administrative Man

This model assumes that people are bounded by certain constraints most of the time, and though they may seek the best
solution, they usually settle for much less because the decisions they confront typically demand greater information-
processing capabilities than they possess. They seek a kind of bounded (or limited) rationality in decisions. These
constraints force a decision maker to be less than completely rational.

The concept of bounded rationality attempts to describe decision-making processes in terms of three mechanisms: Step-by-
step selection of alternatives , Heuristics , Satisfaction. Based on these three assumptions about decision makers, it is
possible to outline the decision-making process as seen from the standpoint of the bounded rationality model.

1. Define the problem to be solved.

2. Employ heuristics to narrow problem space to a single promising alternative.

3. After identifying a feasible alternative, evaluate it to determine its acceptability.

4. If the identified alternative is acceptable, implement the solution.

5. Following implementation, evaluate the ease with which goal was (or was not) attained and raise or lower the level of
aspiration accordingly on future decisions of this type.
 Well managed model/ garbage can/ non - decision making
model
• Peters and Waterman

• Garbage Can Model proposes that very often, the process of decision making is not as sequential and methodical as has
been proposed by earlier models. Sometimes it is haphazard, confusing, and unpredictable. In a garbage can model,
decisions are random and unsystematic. This model assumes an organization to be like a garbage can in which the
problems, solutions, choices, players, and opportunities move around randomly. If these factors happen to confront and
connect, the decision is made. The exact process consists of finding the right solution to the right problem at the right
time among the right players.

• This kind of decision making may be required at the time of crisis when enough information is not available and the
decision is required to be taken without wasting time. It also diverts our attention to the fact that not all the decisions are
taken in a logical, step-by-step, systematic manner. In today’s environment, with fast-paced situations, managers may be
required to take quick decisions with the help of this model.
INDIVIDUAL DECISION MAKING PROCESS.
Individual decision making process.
• Cognitive Attributes

intelligence, learning, remembering, and thinking

ability to engage in inductive and deductive

reasoning, to deal in the abstract, to handle
information, and to generate ideas

problem recognition, comprehension, and diagnosis;

the storage, retrieval, and assimilation of information
for the development of alternative solutions, and the
capability of storing, retrieving, and processing
information for the evaluation of alternatives
Personality Attributes

Personality and motivational attributes affect decision making style (speed with
which decisions are made, the level of risk taking, and the level of confidence)

• high propensity toward risk

• dogmatic personalities
• impatient and competitive v/s calm, reflective personalities
• tolerance for ambiguity

Low tolerance for ambiguity Problem avoiders

Intermediate tolerance for ambiguity Problem solvers

High tolerance for ambiguity Problem seekers