Decision making

 Page 1


Chapter Twenty 
Decision making 
 
Objectives: 
To develop an understanding of: 
?  Types of Decisions 
?  Decision making process 
?  Behavioral Influences on Decision Making 
?  Different Decision  Making  Styles  
?   Group Decision Making 
?   Creativity in group decision-making. 
? Types  Of  Organizational  Decision  Making  Processes 
? Contingency  Framework  For  Using  Decision  Models  
? Tools for Decision-Making 
? A Systematic Approach to Decision Making 
? Organizational  Constraints 
? Cultural  Differences  in  Decision  Making  
 
 
Introduction 
Quality of the decisions that managers make is the yardstick of effectiveness. Management is decision 
making; however, decision-making is also fundamentally a people process. 
Types of Decisions 
 Two primary types of decisions: 
  1. Programmed—repetitive and routine with a definite procedure for handling them. It 
is handled through rules and standard operating procedures without expending 
substantial resources and more recently, via mathematical models. 
Page 2


Chapter Twenty 
Decision making 
 
Objectives: 
To develop an understanding of: 
?  Types of Decisions 
?  Decision making process 
?  Behavioral Influences on Decision Making 
?  Different Decision  Making  Styles  
?   Group Decision Making 
?   Creativity in group decision-making. 
? Types  Of  Organizational  Decision  Making  Processes 
? Contingency  Framework  For  Using  Decision  Models  
? Tools for Decision-Making 
? A Systematic Approach to Decision Making 
? Organizational  Constraints 
? Cultural  Differences  in  Decision  Making  
 
 
Introduction 
Quality of the decisions that managers make is the yardstick of effectiveness. Management is decision 
making; however, decision-making is also fundamentally a people process. 
Types of Decisions 
 Two primary types of decisions: 
  1. Programmed—repetitive and routine with a definite procedure for handling them. It 
is handled through rules and standard operating procedures without expending 
substantial resources and more recently, via mathematical models. 
  2. Non-programmed—novel and unstructured with no established procedure for 
handling the problem. It is characterized by an absence of procedures because the 
problem is unique or complex and very important. It requires special treatment and is 
usually handled via general problem-solving processes, judgment, intuition and 
creativity. Advancements in improving non-programmed decision-making have not 
been as great as for programmed decisions  
  Managerial decision-making: 
  1. Top management focuses on non-programmed decision-making, 
  2. First-level managers focus on programmed decision-making. 
  3. Middle managers focus mostly on programmed decision making. 
 If top management focuses on programmed decision-making then organizational planning is 
neglected, short-run control is overemphasized and delegation of authority is insufficient. 
Decision making process 
A Rational Decision Making Process 
 Decisions are the means to certain ends. They are the organizational mechanisms that attempt to 
achieve a desired state. Decisions are organizational responses to problems and outcomes 
of a dynamic process. 
Steps in Rational Decision Making Process 
1. Establishing specific goals and objectives and measuring results- 
Objectives specify desired decision outcomes and serve as guidelines in the decision process. 
2. Problem identification and definition-The problem comes to light when a gap exists between 
performance levels specified by organizational objectives and actual levels.  
Types of problems: 
i. Opportunities—these must be found. 
ii. Crisis—problems of this kind find the manager. 
iii. Routine problems. 
Defining the problem is hindered by three factors: 
i. Perceptual problems—information (especially negative) is often selectively perceived which 
distorts its true meaning. 
Page 3


Chapter Twenty 
Decision making 
 
Objectives: 
To develop an understanding of: 
?  Types of Decisions 
?  Decision making process 
?  Behavioral Influences on Decision Making 
?  Different Decision  Making  Styles  
?   Group Decision Making 
?   Creativity in group decision-making. 
? Types  Of  Organizational  Decision  Making  Processes 
? Contingency  Framework  For  Using  Decision  Models  
? Tools for Decision-Making 
? A Systematic Approach to Decision Making 
? Organizational  Constraints 
? Cultural  Differences  in  Decision  Making  
 
 
Introduction 
Quality of the decisions that managers make is the yardstick of effectiveness. Management is decision 
making; however, decision-making is also fundamentally a people process. 
Types of Decisions 
 Two primary types of decisions: 
  1. Programmed—repetitive and routine with a definite procedure for handling them. It 
is handled through rules and standard operating procedures without expending 
substantial resources and more recently, via mathematical models. 
  2. Non-programmed—novel and unstructured with no established procedure for 
handling the problem. It is characterized by an absence of procedures because the 
problem is unique or complex and very important. It requires special treatment and is 
usually handled via general problem-solving processes, judgment, intuition and 
creativity. Advancements in improving non-programmed decision-making have not 
been as great as for programmed decisions  
  Managerial decision-making: 
  1. Top management focuses on non-programmed decision-making, 
  2. First-level managers focus on programmed decision-making. 
  3. Middle managers focus mostly on programmed decision making. 
 If top management focuses on programmed decision-making then organizational planning is 
neglected, short-run control is overemphasized and delegation of authority is insufficient. 
Decision making process 
A Rational Decision Making Process 
 Decisions are the means to certain ends. They are the organizational mechanisms that attempt to 
achieve a desired state. Decisions are organizational responses to problems and outcomes 
of a dynamic process. 
Steps in Rational Decision Making Process 
1. Establishing specific goals and objectives and measuring results- 
Objectives specify desired decision outcomes and serve as guidelines in the decision process. 
2. Problem identification and definition-The problem comes to light when a gap exists between 
performance levels specified by organizational objectives and actual levels.  
Types of problems: 
i. Opportunities—these must be found. 
ii. Crisis—problems of this kind find the manager. 
iii. Routine problems. 
Defining the problem is hindered by three factors: 
i. Perceptual problems—information (especially negative) is often selectively perceived which 
distorts its true meaning. 
ii. Defining problems in terms of solutions—i.e., jumping to conclusions 
iii. Identifying symptoms as the problem     
3. Establishing priorities-Scarce resources demand that managers deal with problems in order of 
significance. 
Significance determined by: i. Urgency—time pressure. ii. Impact—seriousness of the problem's effects. 
iii. Growth tendency—future considerations. 
4. Consideration of causes—the search for causes often leads to a new and better problem 
statement. 
5. Development of alternative solutions—a search process constrained by time and cost factors. 
6. Evaluation of alternative solutions— It should be:  
 a. Guided by objectives (step 1). 
 b. Assessed in terms of its potentially favorable and negative outcomes. 
 c. The alternative-outcome relationship is based on three possible considerations: 
   i. Certainty—you have complete knowledge of the probability of each 
alternative's outcome.   
   ii. Uncertainty—you have no knowledge of the probability. 
   iii. Risk—you have some probabilistic estimate of the outcomes of each alternative.  
This is the most common situation. 
7. Solution selection: With multiple objectives, often the objectives can't be optimized 
simultaneously; with two objectives, one is optimized, the other is sub-optimized. Situations exist where 
attaining an organizational objective is done at the expense of a societal objective. In managerial 
decision-making, optimal decisions are often impossible.  Instead of an optimizer, the decision maker is 
a satisfier, selecting the alternative that meets an acceptable standard. 
8. Implementation: It usually involves people. Decisions must be transformed into behavior. 
9. Follow-up-Involves periodically measuring the decision results (comparing to planned results 
specified by the objectives) and acting to reduce/eliminate the desired-actual results 
gap. 
Actions can include:  
i. Changing implementation. ii. Changing the implementation strategy.  
Page 4


Chapter Twenty 
Decision making 
 
Objectives: 
To develop an understanding of: 
?  Types of Decisions 
?  Decision making process 
?  Behavioral Influences on Decision Making 
?  Different Decision  Making  Styles  
?   Group Decision Making 
?   Creativity in group decision-making. 
? Types  Of  Organizational  Decision  Making  Processes 
? Contingency  Framework  For  Using  Decision  Models  
? Tools for Decision-Making 
? A Systematic Approach to Decision Making 
? Organizational  Constraints 
? Cultural  Differences  in  Decision  Making  
 
 
Introduction 
Quality of the decisions that managers make is the yardstick of effectiveness. Management is decision 
making; however, decision-making is also fundamentally a people process. 
Types of Decisions 
 Two primary types of decisions: 
  1. Programmed—repetitive and routine with a definite procedure for handling them. It 
is handled through rules and standard operating procedures without expending 
substantial resources and more recently, via mathematical models. 
  2. Non-programmed—novel and unstructured with no established procedure for 
handling the problem. It is characterized by an absence of procedures because the 
problem is unique or complex and very important. It requires special treatment and is 
usually handled via general problem-solving processes, judgment, intuition and 
creativity. Advancements in improving non-programmed decision-making have not 
been as great as for programmed decisions  
  Managerial decision-making: 
  1. Top management focuses on non-programmed decision-making, 
  2. First-level managers focus on programmed decision-making. 
  3. Middle managers focus mostly on programmed decision making. 
 If top management focuses on programmed decision-making then organizational planning is 
neglected, short-run control is overemphasized and delegation of authority is insufficient. 
Decision making process 
A Rational Decision Making Process 
 Decisions are the means to certain ends. They are the organizational mechanisms that attempt to 
achieve a desired state. Decisions are organizational responses to problems and outcomes 
of a dynamic process. 
Steps in Rational Decision Making Process 
1. Establishing specific goals and objectives and measuring results- 
Objectives specify desired decision outcomes and serve as guidelines in the decision process. 
2. Problem identification and definition-The problem comes to light when a gap exists between 
performance levels specified by organizational objectives and actual levels.  
Types of problems: 
i. Opportunities—these must be found. 
ii. Crisis—problems of this kind find the manager. 
iii. Routine problems. 
Defining the problem is hindered by three factors: 
i. Perceptual problems—information (especially negative) is often selectively perceived which 
distorts its true meaning. 
ii. Defining problems in terms of solutions—i.e., jumping to conclusions 
iii. Identifying symptoms as the problem     
3. Establishing priorities-Scarce resources demand that managers deal with problems in order of 
significance. 
Significance determined by: i. Urgency—time pressure. ii. Impact—seriousness of the problem's effects. 
iii. Growth tendency—future considerations. 
4. Consideration of causes—the search for causes often leads to a new and better problem 
statement. 
5. Development of alternative solutions—a search process constrained by time and cost factors. 
6. Evaluation of alternative solutions— It should be:  
 a. Guided by objectives (step 1). 
 b. Assessed in terms of its potentially favorable and negative outcomes. 
 c. The alternative-outcome relationship is based on three possible considerations: 
   i. Certainty—you have complete knowledge of the probability of each 
alternative's outcome.   
   ii. Uncertainty—you have no knowledge of the probability. 
   iii. Risk—you have some probabilistic estimate of the outcomes of each alternative.  
This is the most common situation. 
7. Solution selection: With multiple objectives, often the objectives can't be optimized 
simultaneously; with two objectives, one is optimized, the other is sub-optimized. Situations exist where 
attaining an organizational objective is done at the expense of a societal objective. In managerial 
decision-making, optimal decisions are often impossible.  Instead of an optimizer, the decision maker is 
a satisfier, selecting the alternative that meets an acceptable standard. 
8. Implementation: It usually involves people. Decisions must be transformed into behavior. 
9. Follow-up-Involves periodically measuring the decision results (comparing to planned results 
specified by the objectives) and acting to reduce/eliminate the desired-actual results 
gap. 
Actions can include:  
i. Changing implementation. ii. Changing the implementation strategy.  
iii. Changing the objective (it's unrealistic). iv. Changing the decision c and/or d (reactivate the entire 
decision process). 
Alternatives to Rational Decision Making-Decision makers do not always follow the letter of decision-
making. Time pressures, incomplete information, limited human resources, and many other factors are 
involved. Herbert Simon called this approach to decision-making, Bounded Rationality. Within the 
concept there is also selective perception.In this approach, the following assumptions are made:  i. 
Decision makers rarely have all the information they need or want. ii. Decision makers are not aware of 
all possible alternatives and cannot predict consequences. iii. Early alternatives and solutions are quickly 
adopted because of constraints and limitations. iv. The organization’s goals constrain decision-making. v. 
Conflicting goals of different constituents can restrict decisions, forcing a compromise solution. 
Sometimes managers make decisions based on a ‘gut’ feeling or intuition.  Intuitive decision-making 
occurs frequently because of high levels of uncertainty, there is no history or past experience to draw 
on, time pressure is intense, and there can be an excessive number of alternatives to examine. 
Behavioral Influences on Decision Making 
 A. Values: Values are the guidelines used when confronting a situation that requires a choice. 
Values are acquired early in life and exert a profound influence on the decision-making 
process, influencing: 
   a. Establishing objectives (making value judgments about selecting opportunities 
and assigning priorities). 
   b. Developing alternatives (making value judgments about selecting opportunities 
and assigning priorities). 
   c. Selecting an alternative. 
   d. Implementing (values influence means chosen). 
   e. Evaluating and control (value judgments affect corrective action taken). 
B. Propensity for risk: A personality characteristic that strongly influences decision-making by 
affecting selection of objectives, and alternative evaluation and selection. Decision is 
affected by whether potential outcomes are characterized in terms of losses or gains, which 
in turn depends on how the decision maker "frames" the decision. 
 C. Potential for dissonance-Cognitive dissonance theory—asserts that often 
inconsistency/disharmony exists among the decision maker's attitudes, beliefs and values 
after a decision is made—a conflict between what he/she know/believes and what was 
done. Anxiety occurs and intensifies when the decision is important, involves a number of 
foregone alternatives, involve foregone alternatives with many favorable features. 
  Rather than admit the mistake, the decision maker often reduces dissonance by: 
Page 5


Chapter Twenty 
Decision making 
 
Objectives: 
To develop an understanding of: 
?  Types of Decisions 
?  Decision making process 
?  Behavioral Influences on Decision Making 
?  Different Decision  Making  Styles  
?   Group Decision Making 
?   Creativity in group decision-making. 
? Types  Of  Organizational  Decision  Making  Processes 
? Contingency  Framework  For  Using  Decision  Models  
? Tools for Decision-Making 
? A Systematic Approach to Decision Making 
? Organizational  Constraints 
? Cultural  Differences  in  Decision  Making  
 
 
Introduction 
Quality of the decisions that managers make is the yardstick of effectiveness. Management is decision 
making; however, decision-making is also fundamentally a people process. 
Types of Decisions 
 Two primary types of decisions: 
  1. Programmed—repetitive and routine with a definite procedure for handling them. It 
is handled through rules and standard operating procedures without expending 
substantial resources and more recently, via mathematical models. 
  2. Non-programmed—novel and unstructured with no established procedure for 
handling the problem. It is characterized by an absence of procedures because the 
problem is unique or complex and very important. It requires special treatment and is 
usually handled via general problem-solving processes, judgment, intuition and 
creativity. Advancements in improving non-programmed decision-making have not 
been as great as for programmed decisions  
  Managerial decision-making: 
  1. Top management focuses on non-programmed decision-making, 
  2. First-level managers focus on programmed decision-making. 
  3. Middle managers focus mostly on programmed decision making. 
 If top management focuses on programmed decision-making then organizational planning is 
neglected, short-run control is overemphasized and delegation of authority is insufficient. 
Decision making process 
A Rational Decision Making Process 
 Decisions are the means to certain ends. They are the organizational mechanisms that attempt to 
achieve a desired state. Decisions are organizational responses to problems and outcomes 
of a dynamic process. 
Steps in Rational Decision Making Process 
1. Establishing specific goals and objectives and measuring results- 
Objectives specify desired decision outcomes and serve as guidelines in the decision process. 
2. Problem identification and definition-The problem comes to light when a gap exists between 
performance levels specified by organizational objectives and actual levels.  
Types of problems: 
i. Opportunities—these must be found. 
ii. Crisis—problems of this kind find the manager. 
iii. Routine problems. 
Defining the problem is hindered by three factors: 
i. Perceptual problems—information (especially negative) is often selectively perceived which 
distorts its true meaning. 
ii. Defining problems in terms of solutions—i.e., jumping to conclusions 
iii. Identifying symptoms as the problem     
3. Establishing priorities-Scarce resources demand that managers deal with problems in order of 
significance. 
Significance determined by: i. Urgency—time pressure. ii. Impact—seriousness of the problem's effects. 
iii. Growth tendency—future considerations. 
4. Consideration of causes—the search for causes often leads to a new and better problem 
statement. 
5. Development of alternative solutions—a search process constrained by time and cost factors. 
6. Evaluation of alternative solutions— It should be:  
 a. Guided by objectives (step 1). 
 b. Assessed in terms of its potentially favorable and negative outcomes. 
 c. The alternative-outcome relationship is based on three possible considerations: 
   i. Certainty—you have complete knowledge of the probability of each 
alternative's outcome.   
   ii. Uncertainty—you have no knowledge of the probability. 
   iii. Risk—you have some probabilistic estimate of the outcomes of each alternative.  
This is the most common situation. 
7. Solution selection: With multiple objectives, often the objectives can't be optimized 
simultaneously; with two objectives, one is optimized, the other is sub-optimized. Situations exist where 
attaining an organizational objective is done at the expense of a societal objective. In managerial 
decision-making, optimal decisions are often impossible.  Instead of an optimizer, the decision maker is 
a satisfier, selecting the alternative that meets an acceptable standard. 
8. Implementation: It usually involves people. Decisions must be transformed into behavior. 
9. Follow-up-Involves periodically measuring the decision results (comparing to planned results 
specified by the objectives) and acting to reduce/eliminate the desired-actual results 
gap. 
Actions can include:  
i. Changing implementation. ii. Changing the implementation strategy.  
iii. Changing the objective (it's unrealistic). iv. Changing the decision c and/or d (reactivate the entire 
decision process). 
Alternatives to Rational Decision Making-Decision makers do not always follow the letter of decision-
making. Time pressures, incomplete information, limited human resources, and many other factors are 
involved. Herbert Simon called this approach to decision-making, Bounded Rationality. Within the 
concept there is also selective perception.In this approach, the following assumptions are made:  i. 
Decision makers rarely have all the information they need or want. ii. Decision makers are not aware of 
all possible alternatives and cannot predict consequences. iii. Early alternatives and solutions are quickly 
adopted because of constraints and limitations. iv. The organization’s goals constrain decision-making. v. 
Conflicting goals of different constituents can restrict decisions, forcing a compromise solution. 
Sometimes managers make decisions based on a ‘gut’ feeling or intuition.  Intuitive decision-making 
occurs frequently because of high levels of uncertainty, there is no history or past experience to draw 
on, time pressure is intense, and there can be an excessive number of alternatives to examine. 
Behavioral Influences on Decision Making 
 A. Values: Values are the guidelines used when confronting a situation that requires a choice. 
Values are acquired early in life and exert a profound influence on the decision-making 
process, influencing: 
   a. Establishing objectives (making value judgments about selecting opportunities 
and assigning priorities). 
   b. Developing alternatives (making value judgments about selecting opportunities 
and assigning priorities). 
   c. Selecting an alternative. 
   d. Implementing (values influence means chosen). 
   e. Evaluating and control (value judgments affect corrective action taken). 
B. Propensity for risk: A personality characteristic that strongly influences decision-making by 
affecting selection of objectives, and alternative evaluation and selection. Decision is 
affected by whether potential outcomes are characterized in terms of losses or gains, which 
in turn depends on how the decision maker "frames" the decision. 
 C. Potential for dissonance-Cognitive dissonance theory—asserts that often 
inconsistency/disharmony exists among the decision maker's attitudes, beliefs and values 
after a decision is made—a conflict between what he/she know/believes and what was 
done. Anxiety occurs and intensifies when the decision is important, involves a number of 
foregone alternatives, involve foregone alternatives with many favorable features. 
  Rather than admit the mistake, the decision maker often reduces dissonance by: 
   a. Seeking information that supports the decision. 
   b. Distorting other information to support the decision. 
   c. Adopting a less favorable view of the foregone alternatives. 
   d. Underestimating the importance of negative aspects and exaggerate the 
importance of positive aspects. 
D. Escalation of commitment. It refers to an increasing commitment to a previous decision 
when a "rational" decision maker would withdraw. This "loss of objectivity" results from: 
a. A need to turn a losing or poor decision into a winning or good decision. 
b. Excessive ego involvement; threatens self-esteem. 
c. Peer pressure; makes it difficult to reverse a course of action publicly supported 
in the past. 
 E. Culture, not behavior alone, influences the decision maker 
 
Different  Decision  Making  Styles  
All individuals bring their style to the decision making process. Research has found that there are four 
broad types of styles:  
 (1) Directive: fast decisions; focus on short term  
 (2) Analytic: careful analysis; and tackle all types of problems  
 (3)  Conceptual:  Creative solutions; long range focus  
 (4) Behavioural:  Team working; conflict avoidance 
The four styles emerge from the premise that people differ along two broad dimensions :  
    (a) Way of thinking : (i)  logical rational, serial way of thinking, (ii) Creative, intuitive, holistic 
(b)Tolerance for ambiguity : Some people are uncomfortable with broad overlapping, and blurred 
boundary issues; they have a need for structure, compartments and interconnections. 
Whilst some are quite comfortable with situations with ambiguous and overlapping 
components, and can process many thoughts at the same time.  
? People using the Directive style have low tolerance for ambiguity.  
? People of analytic style have a much greater tolerance for ambiguity.