BUS208: Principles of Management

8a. List the steps in the management decision-making process

Decision making is choosing among alternative courses of action, including inaction. There are different types of decisions, ranging from automatic, programmed decisions to more intensive nonprogrammed decisions. Structured decision-making processes include rational decision making, bounded rationality, intuitive, and creative decision making. Each of these can be useful, depending on the circumstances and the problem that needs to be solved.

 

The Rational Decision-Making Model

The rational decision-making model describes a series of steps that decision-makers should consider if their goal is to maximize the quality of their outcomes. In other words, if you want to make sure you make the best choice, going through the formal steps of the rational decision-making model may make sense.

 

The Bounded Rationality Decision-Making Model

The bounded rationality model of decision making recognizes the limitations of our decision-making processes. According to this model, individuals knowingly limit their options to a manageable set and choose the best alternative without conducting an exhaustive search for alternatives. An important part of the bounded rationality approach is the tendency to satisfice, which refers to accepting the first alternative that meets your minimum criteria. Satisficing is like rational decision making, but it differs in that rather than choosing the best choice and maximizing the potential outcome, the decision-maker saves time and effort by accepting the first alternative that meets the minimum threshold.

 

The Intuitive Decision-Making Model

The intuitive decision-making model has emerged as an important decision-making model. It refers to arriving at decisions without conscious reasoning. When we recognize that managers often need to make decisions under challenging circumstances with time pressures, constraints, a great deal of uncertainty, highly visible and high-stakes outcomes, and within changing conditions, it makes sense that they would not have the time to formally work through all the steps of the rational decision-making model.

 

The Creative Decision-Making Model

The five steps to creative decision-making are like the previous decision-making models in some keys ways. All the models include problem identification, which is the step in which the need for problem-solving becomes apparent. If you do not recognize that you have a problem, it is impossible to solve it. Immersion is the step in which the decision-maker thinks about the problem consciously and gathers information. The key to success in creative decision making is having or acquiring expertise in the area being studied. Then, incubation occurs. During incubation, the individual sets the problem aside and does not think about it for a while. Currently, the brain is working on the problem unconsciously. Then comes illumination or the insight moment, when the solution to the problem becomes apparent to the person, usually when it is least expected (the "eureka" moment). Finally, the verification and application stage happen when the decision-maker consciously verifies the feasibility of the solution and implements the decision.

 

The Creative Decision-Making Process

1. Problem Recognition
2. Immersion
3. Incubation
4. Illumination
5. Verification and Application

 

Dimensions of Creativity

Researchers focus on three factors to evaluate the level of creativity in the decision-making process. Fluency refers to the number of ideas a person can generate. Flexibility refers to how different the ideas are from one another. If you can generate several distinct solutions to a problem, your decision-making process is high on flexibility. Originality refers to an idea's uniqueness.

 

 

The Benefits of Framing a Decision

Framing a decision allows for a full examination of all the issues, options, and available information that can contribute to making a good decision, and framing a decision sets the groundwork for making good choices. The process helps you address the questions necessary for making the most effective decision. Without framing a decision, choices might be made in haste or based on past decisions. The chances of success become reduced because the strategies for reaching the desired outcomes are not fully examined. There are many benefits to framing a decision in preparation for the actual decision-making process.

Framing enables all participants to take the time to examine the full range of available options and to explore the potential risks and benefits of each alternative. An effective framing process will ensure that multiple points of view are examined, that biases toward a specific decision be eliminated through the evaluation of concrete data, and that the tendency toward avoiding negative information be removed. Framing a decision also allows you to use information from past decisions, prioritize actions, develop timelines, recognize anticipated outcomes, identify potential pitfalls, determine qualified personnel, and identify appropriate resources.

The following list includes questions that should be considered in an effective framing process.

1. What problem needs to be solved?
2. What market conditions exist?
3. What limits are we facing?
4. What is the timing for making this decision?
5. Do other decisions need to be made before this one?
6. What is the cost of making the wrong decision?
7. How will we evaluate the effectiveness of our decision?
8. What information do we have?
9. What information do we need?
10. Are there emotional implications for the decision?
11. Who will be impacted by this decision?
12. What factors are flexible?
13. What factors are fixed?
14. Can our process result in more than one decision?
15. Can it result in an if/then scenario?

 

Mistakes in the Framing Decision Process

While all processes are developed with good intentions, mistakes can occur. The biggest mistake companies make is to not do the framing process at all. By not taking the time to engage in this important process, an organization can run the risk of rash decisions that are not properly thought-out. Additionally, framing processes offer the chance to explore all potential solutions. Other factors that can help ensure that mistakes are avoided during the framing process include ensuring that current and reliable data is being used, including a wide range of different viewpoints, avoiding biases in determining expected outcomes, ignoring negative opinions, and neglecting to question unknowns.

Framing a decision is the first step in the decision-making process. There are many benefits to framing a decision, including using past information, identifying potential pitfalls, selecting qualified personnel and vendors, and identifying potential outcomes. Some considerations in an effective decision framing process include defining the problem, evaluating market conditions, exploring limits, identifying time frames, evaluating decision effectiveness, and addressing if/then scenarios. The language used in questions for the framing decision process can impact the outcome. The biggest mistake that a company can make is not engaging in the decision framing process. Biases and pre-determined opinions about a potential decision can hurt the process and the decision itself. Organizations should ensure an unbiased approach to the questions asked during the decision framing process.

 

8b. Apply the concepts of decision-making within a business situation

Decision making can also be classified into three categories based on the level at which they occur. Strategic decisions set the course of an organization. Tactical decisions are decisions about how things will get done. Operational decisions are decisions that employees make each day to run the organization.

Choosing the right decision-making approach will make you more effective at work and improve your ability to carry out all the P-O-L-C functions. Which decision-making model should I use?

 

Understanding decision-making traps can help you avoid and manage them. Some common traps to be aware of are:

1. Overconfidence bias can cause you to ignore obvious information.
2. Hindsight bias can similarly cause a person to incorrectly believe in their ability to predict events.
3. Anchoring and framing biases show the importance of how problems or alternatives are presented in influencing one's decision.
4. Escalation of commitment demonstrates how individuals' desire for consistency or to avoid admitting a mistake can cause them to continue to invest in a decision that is not prudent.

There are trade-offs between making decisions alone and within a group. Groups have a greater diversity of experiences and ideas than individuals, but they also have potential process losses such as groupthink. Groupthink can be avoided by recognizing the eight symptoms discussed. Finally, there are various tools and techniques available for making more effective decisions in groups, including the Nominal Group Technique, Delphi Technique, majority rule, consensus, GDSS, and decision trees. Understanding the link between managing teams and making decisions is an important aspect of a manager's leading function.

 

 

Groupthink

Groupthink is a group pressure phenomenon that increases the risk of the group making flawed decisions by leading to reduced mental efficiency, reality testing, and moral judgment. Groupthink is characterized by eight symptoms that include:

1. Illusion of invulnerability shared by most or all of the group members that creates excessive optimism and encourages them to take extreme risks.
2. Collective rationalizations where members downplay negative information or warnings that might cause them to reconsider their assumptions.
3. An unquestioned belief in the group's inherent morality may incline members to ignore their actions' ethical or moral consequences.
4. Stereotyped views of out-groups are seen when groups discount rivals' abilities to make effective responses.
5. Direct pressure on any member who expresses strong arguments against any of the group's stereotypes, illusions, or commitments.
6. Self-censorship when members of the group minimize their own doubts and counterarguments.
7. Illusions of unanimity based on self-censorship and direct pressure on the group; the lack of dissent is viewed as unanimity.
8. The emergence of self-appointed mindguards where one or more members protect the group from information that runs counter to the group's assumptions and course of action.

To avoid groupthink, groups should:

1. Discuss the symptoms of groupthink and how to avoid them.
2. Assign a rotating devil's advocate to every meeting.
3. Invite experts or qualified colleagues who are not part of the core decision-making group to attend meetings, and get reactions from outsiders regularly and share these with the group.
4. Encourage a culture of difference where different ideas are valued.
5. Debate the ethical implications of the decisions and potential solutions being considered.

Individuals should:

1. Monitor their own behavior for signs of groupthink and modify behavior if needed.
2. Check themselves for self-censorship.
3. Carefully avoid mindguard behaviors.
4. Avoid putting pressure on other group members to conform.
5. Remind members of the ground rules for avoiding groupthink if they get off track.

Group leaders should:

1. Break the group into two subgroups from time to time.
2. Have more than one group work on the same problem if time and resources allow it. This makes sense for highly critical decisions.
3. Remain impartial and refrain from stating preferences at the outset of decisions.
4. Set a tone of encouraging critical evaluations throughout deliberations.
5. Create an anonymous feedback channel where all group members can contribute if desired.

 

Tools and Techniques for Better Decision Making

Nominal Group Technique (NGT) was developed to help with group decision making by ensuring that all members participate fully. It is used to structure group meetings when members are grappling with problem solving or idea generation. Following the four-step NGT helps to ensure that all members participate fully and avoids groupthink. It follows four steps:

1. Each member of the group engages in a period of independently and silently writing down ideas.
2. The group goes in order around the room to gather all the ideas that were generated. This goes on until all the ideas are shared.
3. A discussion takes place around each idea, and members ask for clarification and make evaluative statements.
4. individuals vote for their favorite ideas by using either ranking or rating techniques.

Delphi Technique (DT) is unique because it is a group process using written responses to a series of questionnaires instead of physically bringing individuals together to make a decision.

1. The first questionnaire asks individuals to respond to a broad question, such as stating the problem, outlining objectives, or proposing solutions.
2. Each subsequent questionnaire is built from the information gathered in the previous one.
3. The process ends when the group reaches a consensus. Facilitators can decide whether to keep responses anonymous.
4. This process is often used to generate best practices from experts.

Majority rule refers to a decision-making rule where each member of the group is given a single vote and the option that receives the greatest number of votes is selected. This technique has remained popular because of its simplicity, speed, ease of use, and representational fairness. Research also supports majority rule as an effective decision-making technique.

Consensus is another decision-making rule that groups may use when the goal is to gain support for an idea or plan of action. While consensus tends to take longer, it may make sense when support is needed to enact the plan. The process works by discussing the issues, generating a proposal, calling for consensus, and then discussing any concerns. If concerns still exist, the proposal is modified to accommodate them. These steps are repeated until consensus is reached. This decision-making rule is inclusive, participatory, cooperative, and democratic.

Group Decision Support Systems (GDSS) are interactive computer-based systems that are able to combine communication and decision technologies to help groups make better decisions. Organizations know that having effective knowledge management systems to share information is important. Research shows that a GDSS can actually improve the output of group collaborative work through higher information sharing.

Decision Trees are diagrams in which answers to yes or no questions lead decision-makers to address additional questions until they reach the end of the tree. Decision trees are helpful in avoiding errors such as framing bias. Decision trees tend to guide the decision-maker to a predetermined alternative and ensure consistency of decision making.

If the decision is important, conducting a premortem to anticipate what might go wrong is a good idea. When a decision is going to involve others, being proactive in getting them to buy in before the decision is made helps the process. Understanding that you can spot and avoid decision-making traps is important in helping make you a more effective manager. The premortem technique allows groups to truly delve into "what if" scenarios. The following six-step premortem process is used to increase your team's chance of success.

1. The planning team comes up with a plan outline, such as the launching of a new product.
2. The group is then told to imagine looking into a crystal ball and seeing that the new product failed miserably. They then write down all the reasons they can imagine that might have led to this failure.
3. Each team member shares items from their list until all the potential problems have been identified.
4. The list is reviewed for additional ideas.
5. The issues are sorted into categories in the search for themes.
6. The plan should then be revised to correct the flaws and avoid these potential problems.