Ch 6-Slides

Chapter 6
Making Decisions
and Solving Problems
Microsoft clip art photos reprinted with permission from Microsoft Corporation.

Copyright © Houghton Mifflin Company. All rights reserved. 6 | 2
Chapter Objectives
1. Specify at least five sources of decision
complexity, and explain the three decision
traps: framing, escalation of commitment, and
overconfidence.
2. Discuss why programmed and non-
programmed decisions require different
decision-making procedures and distinguish
between the two types of knowledge in
knowledge management.
3. Summarize the advantages and disadvantages
of group decision making.

Chapter Objectives (cont’d)
4. Define creativity, and identify five of the ten
“mental locks” that can inhibit creativity.
5. List and explain the four basic steps in the
creative problem-solving process, and
describe how causes of problems can be
tracked down with fishbone diagrams.

Challenges for
Decision Makers
• Decision Making
– The process of identifying and choosing alternative
courses of action to meet the demands of a situation.
• Trends in Decision Making
– The pace of decision making is
accelerating: managers report
making more decisions and
having less time to make them.
• Complex streams of decisions
• Sources of decision complexity
• Perceptual and behavioral
decision traps

Challenges for
Decision Makers (cont’d)
• Dealing with Complex Streams of Decisions
– Multiple criteria to be satisfied by a decision.
– Intangibles that often determine decision
alternatives.
– Risk and uncertainty about decision alternatives.
– Long-term implications of the effects of the choice
of a particular alternative.
– Interdisciplinary input increases the number of
persons to be consulted before a decision is made.

Challenges for
Decision Makers (cont’d)
• Dealing with Complex Streams of Decisions
(cont’d)
– Pooled decision making increases the number
of persons playing a part in the decision process.
– Value judgments by differing participants in
the process create disagreement over whether a
decision is right or wrong, good or bad, and
ethical or unethical.
– Unintended consequences occur because the
results of purposeful actions cannot always be
predicted.

Figure 6.1 Sources of Complexity for
Today’s Managerial Decision Makers

Avoiding Perceptual and
Behavioral Decision Traps
• Framing Error
– The way in which information is presented
influences one’s interpretation of it, which, in turn,
may alter a decision based on the information.
• Escalation of Commitment
– Continuing on a course of action that locks a
person into losing position—“Throwing good
money after bad.”
• Overconfidence
– Believing too much in one’s own capabilities.

Source: Adapted from discussion in Barry M. Staw and Jerry Ross, “Understanding Behavior in Escalation Situations,”
Science, 246 (October 13, 1989): 216-220.
Figure 6.2 Why Escalation of
Commitment Is So Common

“The good news is that our
sales are now increasing at
the same rate as our product
defects.”
Framing Error

“We bet the company on the
success of this product. If we
don’t put twenty million bucks
more into this project, we will
look like fools to our investors.”
Escalation of Commitment

“No problem, I’m not that
busy at the moment. I can
do that for you now!!!”
Overconfidence

Making Decisions
• Types of Decisions
– Programmed decisions: repetitive and routine
decisions.
• Decision’s rule identifies
the situation and specifies
how the decision will be
made.
– Nonprogrammed decisions
• Decisions made in complex
and nonroutine situations.
Problem hasn’t arisen before.
It is difficult to define problem’s nature and
structure.
Problem is important and requires a unique
solution.

Decisions, Decisions
• Programmed Decision Example:
– Your car engine doesn’t start when you turn the
ignition key the first time. You turn the key a second
time and the engine starts.
• Nonprogrammer Decision Example:
– It’s the early morning after the late-evening
homecoming game celebration and the telephone in
your apartment rings. It’s your parents in town for a
surprise visit. You… (after the initial panic subsides).

Making Decisions (cont’d)
• Nonprogrammer decisions—questions to ask:
– What decision needs to be made?
– When does it have to be made?
– Who will decide?
– Who needs to be consulted?
– Who will ratify or veto the decision?
– Who will need to be informed?

A General
Decision-Making Model
• Rational (Logical) Decision Model Steps
– Scanning the situation answers the question, “ How
do I know a decision should be made?” Answers may
include because of:
• Receipt of authoritative communications from superiors.
• Cases referred for decision by subordinates.
• Cases originating from the manager.
– Classify the decision as routine, apply the appropriate
decision rule; as nonprogrammed, begin
comprehensive problem solving.
– Monitor and follow-up as necessary.

Figure 6.3 A
General-Decision
Making Model

A General
Decision-Making Model (cont’d)
• Knowledge Management (KM): A Tool for
Improving the Quality of Decisions
– Developing a system to improve the creation and
sharing of knowledge critical for decision making.
– Tacit knowledge: personal, intuitive, and
undocumented private information.
– Explicit knowledge: readily sharable public
information in verbal, textual, visual, or numerical
form.

Source: Adapted from discussion in Kiujiro Nonaka, “The Knowledge-Creating Company,” Harvard Business Review on Knowledge Management,
(Boston: Harvard Business School Publishing, 1998), pp. 21-45; and Roy Lubit, “Tacit Knowledge and Knowledge Management:
The Key to Sustainable Competitive Advantage,” Organizational Dynamics, 29 (winter 2001): 164-178.
Figure 6.4 Key Dimensions of
Knowledge Management (KM)

A General
Decision-Making Model (cont’d)
• Improving the Flow of Knowledge
– The flow of constructive tacit knowledge between
coworkers is a priority.
– Knowing what you know, what you don’t know, and
how to find what you know yields better and more
timely decisions.

Groups and Decision Making
• Group Involvement in
Decisions
– Analyzing the problem
– Identifying components
of the situation
– Estimating components
of the situation
– Designing alternatives
– Choosing an alternative

Managerial Creativity
• What is Creativity?
– It is the reorganization of experience
into new configurations.
– A function of knowledge,
imagination, and evaluation
• Three domains of creativity
– Art (ah!) as in beauty
– Discovery (aha!) as in enlightenment.
– Humor (haha!) as in joyful pleasure.

Learning to Be More Creative:
Mental Locks That Stifle Creativity
• Looking for the “right”
answer.
• Always trying to be
logical.
• Strictly following the
rules.
• Insist on being
practical.
• Avoiding ambiguity.
• Fearing and avoiding
failure.
• Forgetting how to
play.
• Becoming too
specialized.
• Not wanting to look
foolish.
• Saying “I’m not
creative.”

Creative Problem Solving
• Problem Solving
– The conscious process of closing the gap between
actual and desired situations.
• Steps in Managerial Problem-Solving
– Identifying the problem
– Generating alternative solutions
– Selecting a solution
– Implementing and evaluating the solution

Figure 6.5
The Problem-Solving Process

Problem Solving (cont’d)
• Identifying The Problem
– Involves asking the right questions.
• What Is a Problem?
– Defined by the gap between actual and desired state
of affairs.
• Stumbling Blocks for Problem Finders
– Defining the problem according to a possible solution.
– Focusing on narrow, low-priority areas.
– Diagnosing problems in terms of their symptoms
rather than causes.

• Causes
– The variable(s) responsible for the problem.
• Pinpointing Causes with Fishbone Diagrams
– A TQM process improvement tool that shows
possible problem causes and their interactive
relationships.

Fishbone Diagram

Fishbone Diagrams
• Diagram the following problem:
– Flooding periodically severely damages low-rent
housing constructed in the flood plain of a river that
runs through a large city located on an island. The
houses are insured through a flood insurance
program provided by the national government.
• What is the problem?
• What are the variables causing the problem
and how do they relate to one another?

• Generating Alternative Solutions
– Brainstorming
– Free association
– Edisonian
– Attribute listing
– Scientific method
– Creative Leap

• Selecting a Solution
– Resolving the problem
• Satisfice: to settle for a solution that is good enough
rather than the best possible.
– Solving the problem
• Optimize: systematically identifying the solution with
the best combination of benefits.
– Dissolving the problem
• Change the situation in which the problem occurs so
that the problem (and the conditions that cause it) no
longer exists.

Creative Problem Solving (cont’d)
• Implementing and Evaluating the Solution
– Effective and efficient resolution removes the gap
between actual and desired states.
– If problem persists, recycling through the problem-
solving steps becomes necessary.
• Trying other feasible solutions.
• Redefining the problem and beginning the problem-
solving cycle again.
– The end result is continuous improvement.

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