Dicision Making

Organizational
Behavior, 8e
Schermerhorn, Hunt, and
Osborn
Prepared by
Michael K. McCuddy
Valparaiso University
John Wiley & Sons, Inc.
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Organizational Behavior: Chapter 17
Chapter 17
Decision Making
Study questions.
How are decisions made in organizations?
What are the useful decision making models?
How do intuition, judgment, and creativity
affect decision making?
How can the decision-making process be
managed?
How do technology, culture, and ethics
influence decision making?
How are decisions made

in organizations?
Decision making.
The process of choosing a course of action for
dealing with a problem or opportunity.

in organizations?
Steps in systematic decision making.
Recognize and define the problem or opportunity.
Identify and analyze alternative courses of action, and
estimate their effects on the problem or opportunity.

Choose a preferred course of action.
Implement the preferred course of action.
Evaluate the results and follow up as necessary.

in organizations?
The systematic decision-making process
may not be followed where substantial

change occurs and many new technologies
prevail.
Novel decision techniques may yield
superior performance in certain situations.
Ethical consequences of decision making
must be considered.

in organizations?
Decision environments include:
Certain environments.
Risk environments.
Uncertain environments.

in organizations?
Certain environments.
Exist when information is sufficient to predict
the results of each alternative in advance of

implementation.
Certainty is the ideal problem solving and
decision making environment.

in organizations?
Risk environments.
Exist when decision makers lack complete
certainty regarding the outcomes of various

courses of action, but they can assign
probabilities of occurrence.
Probabilities can be assigned through
objective statistical procedures or personal

intuition.

in organizations?
Uncertain environments.
Exist when managers have so little
information that they cannot even assign

probabilities to various alternatives and
possible outcomes.
Uncertainty forces decision makers to rely on
individual and group creativity to succeed in
problem solving.
10

in organizations?
Uncertain environments cont.
Also characterized by rapidly changing:
External conditions.
Information technology requirements.
Personnel influencing problem and choice
definitions.
These rapid changes are also called organized
anarchy.
11

in organizations?
Types of decisions.
Programmed decisions.
Involve routine problems that arise regularly and
can be addressed through standard responses.
Nonprogrammed decisions.
Involve nonroutine problems that require solutions
specifically tailored to the situation at hand

12
What are the useful

decision making models?
Classical decision theory.
Views the decision maker as acting in a world
of complete certainty.
Behavioral decision theory.

Accepts a world with bounded rationality and
views the decision maker as acting only in

terms of what he/she perceives about a given
situation.
13
What are the useful

Classical decision theory.
The classical decision maker:
Faces a clearly defined problem.
Knows all possible action alternatives and their
consequences.
Chooses the optimum alternative.
Is often used as a model of how managers
should make decisions.

14
What are the useful

Behavioral decision theory.
Recognizes that human beings operate with:
Cognitive limitations.
Bounded rationality.
The behavioral decision maker:

Faces a problem that is not clearly defined.
Has limited knowledge of possible action
alternatives and their consequences.
Chooses a satisfactory alternative.
15
What are the useful

Classical decision theory:
May not fit well in a chaotic world.
Can be used toward the bottom of many firms,
even most high-tech firms.
Behavioral decision theory:

Fits with a chaotic world of uncertain
conditions and limited information.

Encourages satisficing decision making.
16
What are the useful

The garbage can model.
A model of decision making that views
problems, solutions, participants, and choice

situations as mixed together in the garbage
can of the organization.
In stable settings, behavioral decision theory may
be more appropriate.
In dynamic settings, the garbage model may be
more appropriate.
17
What are the useful

Implications of the garbage can model.
Choice making and implementation may be
done by different individuals.

Because of interpretation, there is a risk that the
actual implementation does not exactly match the

choice.
Many problems go unsolved.

18
What are the useful

Decision making realities.
Managers face complex choice processes.
Decision making information may not be
available.
Bounded rationality and cognitive limitations
affect the way people define problems,
identify alternatives, and choose preferred
solutions.
19
What are the useful

Decision making realities cont.
Most decision making in organizations goes
beyond step-by-step rational choice.
Most decision making in organizations falls
somewhere between the highly rational and
the highly chaotic.
Decisions must be made under risk and
uncertainty.
20
What are the useful

Decision making realities cont.
Decisions must be made to solve nonroutine
problems.
Decisions must must be made under time
pressures and information limitations.
Decisions should be ethical.
21
How do intuition, judgment, and

creativity affect decision making?
Intuition.
The ability to know or recognize quickly and
readily the possibilities of a given situation.

A key element of decision making under risk
and uncertainty.
22

Judgmental heuristics.
Simplifying strategies or rules of thumb
used to make decisions.

Makes it easier to to deal with uncertainty and
limited information.
Can lead to systematic errors that affect the
quality and/or ethics of decisions.

23

Types of heuristics.
Availability heuristic bases a decision on recent
events relating to the situation at hand.

Representativeness heuristic bases a decision on
similarities between the situation at hand and
stereotypes of similar occurrences.
Anchoring and adjustment heuristic bases a
decision on incremental adjustments to an initial value
determined by historical precedent or some reference
point.
24

General judgmental biases in decision
making.
Confirmation trap.
The tendency to seek confirmation for what is
already thought to be true and to not search for
disconfirming information.
Hindsight trap.
The tendency to overestimate the degree to which
an event that has already taken place could have
been predicted.
25

Creativity factors.
Creativity in decision making involves the
development of unique and novel responses to

problems and opportunities.
Creativity is especially important in a dynamic
environment full of nonroutine problems.

26

Stages in the creative thinking process.
Preparation.
Concentration.
Incubation.
Illumination
Verification.
27
How can the decision-making

process be managed?
Choosing problems to address.
Ask and answer the following questions:
Is the problem easy to deal with?
Might the problem resolve itself?
Is this my decision to make?
Is this a solvable problem within the context of the
organization?
28

process be managed?
Reasons for decision making failure.
Managers too often copy others choices and
try to sell them to subordinates.

Managers tend to emphasize problems and
solutions rather than successful

implementation.
Managers use participation too infrequently.
29

process be managed?
Deciding who should participate.
Authority decisions.
Made by the manager or team leader without involving other
people and by using information that he/she possesses.
Consultative decisions.
Made by one individual after seeking input from group
members.
Group decisions.
Made by all members of the group.
30

process be managed?
Vroom, Yetton, and Jago decision making
framework.
Decision-making method used should fit the problem.
In choosing among individual, consultative, or group
methods, managers should analyze:

Quality requirements.
Availability and location of relevant information.
Commitments required to implement decision.
Available time.
31

process be managed?
Knowing when to quit eliminating
escalating commitments
Escalating commitment reflects the
continuation and renewed efforts on a

previously chosen course of action even when
feedback suggests that it is failing.
Eliminating escalating commitment requires
self-discipline to admit mistakes and change
direction.
32

Increasingly complex problems and
opportunities face decision makers in

organizations due to various workplace
trends.
These workplace trends are changing the
who, when, where, and how of decision

making.
33

Information technology and decision making.
Artificial intelligence.
The study of how computers can be programmed to think
like human beings.

Will allow computers to displace many decision makers.
Expert systems that support decision making by
following either-or rules to make deductions.
34

Information technology and decision
making cont.
Fuzzy logic and neural networks that reason
inductively.
Computer support for decision making.
The Internet.
Company intranets.
Decision support software to facilitate virtual
teamwork.
35

Information technology and decision
making cont.
Information technology does not deal with
issues raised by the garbage can model.
36

Cultural factors and decision making.
Culture is the way in which a group of people solves
problems.
North American culture stresses decisiveness, speed,
and the individual selection of alternatives.
Other cultures place less emphasis on individual
choice than on developing implementations that work.
The most important impact of culture on decision
making concerns which issues are elevated to the
status of problems solvable with the firm.
37

Ethical issues and decision making.
Ethical dilemma.
A situation in which a person must decide whether
or not to do something that, although personally or
organizationally beneficial, may be considered
unethical and perhaps illegal.
Ethical dilemmas are often associated with:
Risk and uncertainty.
Nonroutine problem situations.
38

Ethical decision-making checklist.
Is my action legal?
Is it right?
Is it beneficial?
How would I feel if my family found out
about this?
How would I feel if my decision were printed
in the local newspaper?
39

Suggestions for integrating ethical decision
making into the firm.

Develop a code of ethics and follow it.
Establish procedures for reporting violations.
Involve employees in identifying ethical issues.
Monitor ethical performance.
Reward ethical behavior.
Publicize ethical efforts.
40

Implications of ethics for decision making.
Morality is involved in:
Choosing problems.
Deciding who should be involved in making
decisions.
Estimating the impacts of decision alternatives.
Selecting an alternative for implementation.
Moral conduct does not arise from after-the-
fact embarrassment.
41

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Organizational

Organizational Behavior: Chapter 17

How are decisions made

dealing with a problem or opportunity.

Organizational Behavior: Chapter 17

How are decisions made

estimate their effects on the problem or opportunity.

How are decisions made

may not be followed where substantial

How are decisions made

Organizational Behavior: Chapter 17

How are decisions made

the results of each alternative in advance of

decision making environment.

Organizational Behavior: Chapter 17

How are decisions made

certainty regarding the outcomes of various

objective statistical procedures or personal

How are decisions made

information that they cannot even assign

How are decisions made

How are decisions made

can be addressed through standard responses.

specifically tailored to the situation at hand

What are the useful

Behavioral decision theory.

views the decision maker as acting only in

What are the useful

should make decisions.

What are the useful

The behavioral decision maker:

What are the useful

even most high-tech firms.

Behavioral decision theory:

conditions and limited information.

What are the useful

problems, solutions, participants, and choice

What are the useful

done by different individuals.

actual implementation does not exactly match the

Many problems go unsolved.

What are the useful

What are the useful

What are the useful

Organizational Behavior: Chapter 17

How do intuition, judgment, and

readily the possibilities of a given situation.

Organizational Behavior: Chapter 17

How do intuition, judgment, and

used to make decisions.

quality and/or ethics of decisions.

How do intuition, judgment, and

events relating to the situation at hand.

How do intuition, judgment, and

How do intuition, judgment, and

development of unique and novel responses to

environment full of nonroutine problems.

How do intuition, judgment, and

Organizational Behavior: Chapter 17

How can the decision-making

How can the decision-making

try to sell them to subordinates.

solutions rather than successful

How can the decision-making