Principles of Management

Management Process: P-O-L-C

Topic 4
DECISION MAKING

Lecture: MSc. Giang Nguyen

Learning Programme
Topic Session topic Indicative reading (core text)

1 Topic 1. An introduction to management concepts and theories Ch1 & 2

2 Topic 2. Organization and environment Ch3, Ch4 & Ch8
3 Topic 3. Planning Ch5 & Ch6
4 Topic 4. Decision making Ch7
5 Topic 5. Organizational Structure and design Ch8
6 Topic 6. Human Resource Management Ch9
7 Topic 7. Motivating employees Ch12
8 Topic 8. Power, Influence and Leadership Ch14
9 Topic 9. Organizational communication Ch15
10 Topic 10. Controlling Ch16

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Core text: Kinicki, Angelo & Williams, Brian K. (2013). Management, a practical introduction. (6th Ed.). McGraw-Hill

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 LEARNING OUTCOMES
ØDescribe decision making process.

ØDescribe the types of decisions & decision-making conditions managers

face.

ØExplain the three approaches managers can use to make decisions.

ØDiscuss decision making styles.

ØDiscuss group decision making.

ØDiscuss how to overcome barriers to decision making. 3

CONTENTS
1 Decision and decision making

2 Kinds of Decision making

3 Making ethical decisions

4 Decision making styles

5 Overcoming barriers to decision making

6 Group decision making

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1. Decision and Decision Making
A decision is a choice made from among available alternatives

Decision making is the process of identifying and choosing alternative

courses of actions

Example of a manager’s decisions

Middle- and lower-

Top manager level manager
• Organization’s goals • Weekly/monthly
• Where to locate production
manufacturing schedules
facilities? • Pay raises decisions
• What new market to
move into?
• What
products/services to
offer?

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 Decisions in the Management
Functions

2. Kinds of Decision making

Decision
making

Rational Non-rational
Decision Decision
making making

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 2.1. Rational Decision making

❖ Rational Model of Decision ❖ The Rational Model is based

Making – also called the classical
model explains how managers
should make decisions; it assumes
managers will make logical
decisions that will be optimum in
furthering the organization’s best
interests.
on unrealistic assumptions:
• Complete information, no
uncertainty,
• Logical, unemotional analysis,
• Best decision for the
organization.

The Four Steps in Rational Decision

Making

Stage 1 Stage 2 Stage 3 Stage 4

Identify the Think up Evaluate Implement &

problem or alternative alternatives & evaluate the
opportunity solutions select a solution
solution chosen

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 Stage 1
Identify the
problem or
opportunity

Diagnosis: analyzing
Problems: difficulties that
underlying causes
inhibit the achievement
of goals

Opportunities: situations that

present possibilities for exceeding
existing goals

Stage 2
Think up
alternative
solutions

❖ For a repetitive decision ❖ For unfamiliar decision

— the alternative will be — the more creative and
easy and obvious innovative the
alternative, the better

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 Stage 3
Evaluate
alternatives
& select a
solution

❖ Is solution ethical? ❖ Is solution feasible?

❖ Is solution ultimately effective?

Stage 4
Implement
& evaluate
the
solution
chosen

❖ Successful ❖ Evaluation – you

Implementation – need to follow up
you need to: and evaluate the
❖ Plan Carefully results of the
❖ Be Sensitive to decision and take
those affected action

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 Stage 4
Implement
& evaluate
the
solution
chosen

❖ Evaluation – Taking Action

1) Give it more time
2) Change it slightly
3) Try another alternative
4) Start over

Employee Stage 1: : Identify the

turnover problem or Opportunity
increased by 5%

Need permission of
corporate headquarters,
HR department: 1. Increasing wages
establishes new wage 2. Increasing benefits Stage 2: Think up
Stage 4: Implement alternatives
and evaluate structure 3. Changing working
6 months later turnover solutions
solution standards
dropped to its previous
level

Increasing benefits: not

feasible. Increasing
wages/changing working Stage 3: Evaluate
standards: satisfy alternatives
Changing hiring standards: & select a solution
time-consuming 16
Increase wages chosen

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 2.2. Non- rational decision making

▰ Decision making is nearly always uncertain and risky, making it

difficult for managers to make optimal decisions.
▰ Descriptive rather than prescriptive: They describe how managers
actually make decisions rather than how they should.
▰Three nonrational models:
Ø(l) satisficing
Ø(2) incremental
Ø(3) intuition

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3.2.1. Bounded Rationality & the

Satisficing Model
“The ability of decision makers to be rational is limited by numerous
constraints”
▰complexity
▰time and money
Satisficing model:
▰cognitive capacity seek alternatives until
▰values they find one that is
▰skills satisfactory, not optimal
▰habits, unconscious reflexes
▰Information...

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 3.2.2. The Incremental Model

“Managers take small, short-term steps to alleviate a problem rather than

steps that will accomplish a long-term solution”

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3.2.3. The Intuition Model

▰ Making a choice without the use of conscious thought or logical

inference
▰ Based on:
ØExpertise: holistic hunch
ØFeelings: automated experience

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 3. Making Ethical Decisions

❖ Companies use decision trees (graphs of decisions and their possible

consequences that are used to crate a plan to reach a goal) to help them reach
ethical decisions

When using a decision tree, managers should ask:

❖ Is the proposed action legal?
❖ If yes, does the proposed action maximize shareholder value?
❖ If yes, is the proposed action ethical?
❖ If no, would it be ethical not to take the proposed action?

Making Ethical Decisions

The Ethical Decision Tree:

What’s The Right Thing To Do?

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 4. Decision making Styles

“A decision making style reflects the combination of how an individual

perceives and responds to information”

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4. Decision making Styles

High
the extent to which
a person has a
high need for
structure or control
in his or her life

Low
Value orientation
the extent to which a person focuses on either
task and technical concerns or people and social
concerns when making decisions 24

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 4. Decision making Styles
Directive style: Low tolerance for ambiguilty + task oriented
▰ Efficient, Logical, practical and systematic
▰ action-oriented and decisive
▰ like to focus on facts
▰ exercise power and control, focus on the short run

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4. Decision making Styles

Analytical: High tolerance for ambiguilty + task oriented
▰ a tendency to overanalyze a situation
▰ consider more information and alternatives
Conceptual: High tolerance for ambiguilty + people oriented
▰ take a broad perspective to problem solving
▰ adopt long term perspective, rely on intuition and discussions with
others to acquire information

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 4. Decision making Styles
Behavioral: low tolerance for ambiguilty + people oriented
▰ the most people oriented
▰ work well with others
▰ enjoy social interaction
▰ a tendency to avoid conflict and to be concerned about others.

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Example

4 real estate vice-presidents of Hearts Development, who have been given

the task of finding a solution to a huge corporate problem. The firm has
acquired a massive amount of undeveloped land right outside New York
City. A decision has to be made regarding what the firm should build
on the undeveloped land.

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 Which decision making style is
used?
John does not ask for outside opinions, he believes that a shopping mall is
the best type of development for the land. He is going to present this
decision to the CEO, based on the fact that he believes this is the best
solution. He has built malls in the past, and will not consider any other
options.

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Which decision making style is

used?
Susie gathered her team together and presented the issue of the
undeveloped land scenario. She gave the team all of the key information
she had acquired during her research. Susie and her team spent the day
brainstorming different alternatives for the plot of land and evaluated
each one. No idea was eliminated, and the team decided to choose a
higher-risk plan, which could result in a financial windfall for the
company. Susie and her team will propose an amusement park based on a
Mafia theme. The team made conceptual sketches of the Mob Hit Roller
Coaster and the Cement Block Slides.

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 Which decision making style is
used?
Arthur researched the land and tried to survey the area to determine what
exactly would benefit the area. His research was not completed by the
time he presented to the CEO, but he was able to support his idea with
facts. Arthur thought that a planned retirement community with a
clubhouse and golf course was the best decision. He based this on data
that showed an aging population and the need for retirement homes.

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Which decision making style is

used?
David gather all the team members and consult their opinions and listen
carefully to their justifications. He the made decision by using the opinion
that all the team members agreed. He avoided conflicts when discussing.

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 QUIZ

WHICH STYLE OF DECISION MAKING

DO YOU HAVE?

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QUIZ

Q1. I enjoy jobs that are:

A. Technical & well defined

B. Have considerable variety

C. Allow independent action

D. Involve people

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 QUIZ

Q2. I communicate best with others:

A. In a direct, one to one basis

B. In writing

C. By having a group discussion

D. In a formal meeting

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QUIZ

Q3. When I am not sure of what to do I:

A. Rely on intuition

B. Search for facts

C. Look for a compromise

D. Wait before making a decision

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 QUIZ

Q4. When I am under stress I:

A. Become anxious

B. Concentrate on the problem

C. Become frustrated

D. Am forgetful

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QUIZ

Q5. I dislike (the most):

A. Losing control

B. Boring work

C. Following rules

D. Being rejected

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 QUIZ

Q6. Whenever possible I avoid:

A. Long debates

B. Incomplete work

C. Using numbers or formulas

D. Conflict with others

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QUIZ

Q7. When time is important I:

A. Decide and act quickly
B. Follow plans and priorities
C. Refuse to be pressured
D. Seek guidance or support

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 QUIZ

Q8. In social settings I generally:

A. Speak with others

B. Think about what is being said

C. Observe what is going on

D. Listen to the conversation

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5. Overcoming barriers to decision

making
Three effective reactions
▰Importance - “How high priority is this situation?”
▰Credibility - “How believable is the information about the situation?”
▰Urgency - “How quickly must I act on the information about the
situation?”

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 6. Group Decision Making
Advantages
▰ Greater pool of knowledge
▰ Different perspectives
▰ Intellectual stimulation
▰ Better understanding of decision rationale
▰ Deeper commitment to the decision

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6. Group Decision Making

Disadvantages
▰A few people dominate or intimidate
▰Groupthink (occurs when group members strive to agree for the sake of
unanimity and thus avoid accurately assessing the decision situation)
▰Satisficing
▰Goal displacement

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Group Decision Making techniques
1. BRAINSTORMING
v for increasing
creativity

2. Nominal group 3. Delphi groups

v for generating v for consensus of
ideas experts

4. Computer-
aided decision
making
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Group Decision Making techniques

1. Brainstorming:
▰Members are asked to silently generate ideas or solutions, which are
then collected (without identifying contributors) and written on board or
flip chart.
▰Critique and evaluate alternatives

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 Group Decision Making Techniques
2. Nominal group
▰Members write down as many ideas as possible
▰Ideas are listed in a blackboard, discussed, voted in a secret ballot

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Group Decision Making Techniques

3. Delphi groups
▰ used physically dispersed experts who fill out questionnaires to
anonymously generate ideas
▰Judgements are combined and in effect averaged to achieve a consensus
of expert opinion

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Group Decision Making Techniques
4. Computer-aided decision making
▰Chauffeur-driven systems – for push-button consensus: ask participants
to answer predetermined questions on electronic keypads or dials
▰Group-driven systems – for anonymous networking: participants type
their comments, reactions, evaluations on their individual computer
keyboards

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Question

Bill has been a manager for 14 years. He has seen many different situations
with his employees. He often makes decisions without really thinking about
them. This is called __________.
A. Intuition
B. Satisficing
C. Bounded rationality
D. Unbounded rationality

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 Question

Which of the following is not one of the four styles of decision making?
A) directive
B) behavioral
C) analytical
D) reactive

Question

Which type of manager is the most people oriented?

A) directive
B) conceptual
C) analytical
D) behavioral

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 Question

Which of the following is not true of group decision making?

A) it is more efficient
B) group size affects decision quality
C) groups are more confident of the decision
D) knowledge is important

Question

Which of the problem solving techniques is useful when managers want to

generate as many new ideas or alternatives as possible?
A) nominal group technique
B) delphi technique
C) brainstorming
D) computer-aided decision making

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 Question

Bill is supportive of his employees and prefers to have verbal conversations

rather than written memos. His style is:
A. Analytical
B. Behavioral
C. Conceptual
D. Directive

Terms to Know
▰decision ▰unstructured problems ▰Intimidate
▰decision-making process ▰nonprogrammed decisions ▰Brainstorming
▰alternative ▰certainty ▰Alleviate
▰routine ▰risk ▰Decision rationale
▰rational decision making ▰uncertainty ▰Commitment
▰bounded rationality ▰Tolerance ▰Satisficing
▰satisficing ▰Ambiguilty ▰Unconscious
▰escalation of commitment ▰directive style ▰Dominate
▰intuitive decision making ▰analytical style
▰structured problems ▰conceptual style
▰programmed decision ▰behavioral style
▰Procedure ▰Perspective
▰policy ▰Optimum
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