Decision Making in an Organization

1. Marie Tokpah
2. Paul Y. Paye
3. Stephen F. Nagbe
Reporters/Discussants

Topic Outline:
• What is decision –making?
• Importance of Decision-Making
to Organization
• Theories of Decision-Making
• Types of Decision – making
• Decision-Making Process
• Tool and Techniques to improve
decision-making
• Biases and Errors in Decision-
Making
• Conclusion

• Making choices from among two or more alternatives. For
example, determining the goals of organizations, what types
of products or services to offer, deciding financing options,
and locating a plant are decisions that must be made by top
management. Thus, in order to arrive at the best decision on
such programs, various options must be examined and
analyzed (Robbins & Judge,2010, p.36).
• Carpenter, Bauer, & Erdogan(2010) as well propounded that
decision-making also requires making choices among
alternative courses of actions and inaction. Therefore, they
argued that in order to maximize effectiveness at work it
would entail increasing effectiveness in decision-making.
What is Decision-Making?

Importance of Decision -Making
Management theorists agree that decision
making is one of the most important—if not the
most important—of all management activities
(Drucker, 2010; Mintzberg, 2008; Simon, 1997). It is
important to note, however, that not only managers
make decisions in organizations, but also employees
at every level in an organization participate in
decision-making as well. The late management
consultant put it this way, “Most discussions of
decision making assume that only senior executives
make decisions . This is a dangerous mistake .
Making sound decisions is a crucial skill at every level
in the organization.” (Drucker, 2009, p. 27).
Source: Lunenburg (2011)

Relating to our
own experience, for
example, we could
make similar argument
that the political,
social, and economic
problems we face
today as a nation and
people are results of
bad decisions in the
past.
Importance of Decision -Making
The downfall of American corporate giants like Enron & Worldcom
in which the former lost almost US$60 billion dollars is a classic example
of unwise decision (Carpenter, Bauer, & Erdogan,2010, p.281).

Theories of Decision Making
Rationale
Comprehensive
Model
The
Incremental
Theory
Mixed
Scanning

The Rational Comprehensive Model
The rational comprehensive model is based
on the reasoning of economists,
mathematicians, and psychologists. It assumes
that the decision maker can identify the
problem, that the decision maker's goals,
values, and objectives are clear and ranked in
accord with their importance, that alternative
ways of addressing the problem are considered,
that the cost and benefits or advantages and
disadvantages of each alternative are
investigated, that alternatives and their
consequences can be compared with other
alternatives, and that the decision maker will
choose the alternative that maximizes the
attainment of his or her goals, values, and
objectives.
Source: http://www.unc.edu/~wfarrell/SOWO%20874/Readings/decisiontheory.pdf

The Incremental Theory
Source: Miclat (2004) Planning Models as cited by Bitonio (2013)
• Decisions are constructed by a mixture of
"intuition, experience, rules of thumb,
various techniques (rarely sophisticated )
known to individual planners, and an
endless series of consultations“
• Lindblom calls it "the science of muddling
through

Mixed Scanning
Sociologist Amitai Etzioni found fault with both the
rational-comprehensive model of decision-making and
the incremental model of decision-making. His mixed
scanning approach considers both fundamental and
incremental decisions and is more realistic than the
rational model and less passive than the incremental
model
• The mixed scanning model tries to involve the
strengths of the rational model and the incremental
model and to eliminate the weaknesses (Mitchell
2002). It is based on ‘bounded’ instrumental rationality
(Larsen 2003).
Source: Miclat (2004) Planning Models as cited by Bitonio (2013)

Types of Decision-Making
Programmed
Decision
Rationale
Decision
Bounded
Rationality
Intuitive
Decision
Creative
Decision

Carpenter, Bauer, &
Erdogan(2010) outlined the
followings:
Programmed
Decision-Straight-forward,
mundane, and less thoughtful
everyday decisions.
Decisions on the kind of
clothes to wear, food to eat
daily, including recurring
customers’ complaints are
examples of such decisions.

Rational Decision-involves series of steps decision
makers would consider if goal of such decisions is to maximize
the decision’s outcomes.

Bounded Rationality Decision -Helps managers in their decision making
process to limit their search in a manageable way for alternatives. For example, as a
recent graduate from college in search of a job in your area of study, you would save
yourself the time and headache if you focus on a particular geographic area, and also
accepting the first available offer. That kind of decision-making technique is what is
considered as bounded rationality decision-making.

Intuitive Decision-Making -
Arriving at decision without
conscious reasoning. For example,
if pressed against times, limited
resources, adverse circumstances,
challenging situations, and quick
outcomes, intuitive decision-
making would be the right choice.
In other words, decisions taken in
times of emergencies and under
unanticipated conditions
facilitated by logical guesses could
be described as intuitive decision-
making as well.

Creative Decision-Making-Involves decisions surrounding generation
of new imaginative ideas. Developed against the background of
organizations becoming flatter in structures and competitive, leaders and
their organizations are obliged to be creative and innovative in decisions
regarding cost-saving strategies, and new ways of doing business. For
example, as a manager if you want your organization to still afloat of the
competition in Liberia, you need to think on how best to improve
customer services.

Decision-Making Process
A. Identify the problem-For example, you have
an old dilapidated car and you want replace it
with a new one.
B. Establish decision criteria-what factors to
consider when purchasing the new car. For
instance, passenger accommodation, car’s
color, special features, fuel economy, safety
issue, price, etc. are some criteria you want to
take into account
C. Generate Alternatives-What are the
available options you have at your disposal?
Do you actually want a car with CD Player or
would one with radio suffice? How about
comfort, relaxation, or class?

Decision-Making Process
D. Develop problem with that particular car, it is unlikely
that you buy the same model and make of such car in
future decision on car.
E. Choose the best Alternative-If you are someone who
loves comfort, relaxation, or class, then a higher-priced
car could be your best alternative rather settling for
anything less.
F. Implement the Decision-Execute your decision by
buying the car, and if in the instance, you develop
problem with that particular car, it is unlikely that you
buy the same model and make of such car in future
decision on car.

Tools & Techniques to Improve Decision-Making
Robbins & Judge(2010) named two types:
Brainstorming- Fosters creativity by encouraging every member of
the group to be part of the decision-making process rather than conforming
to the pressure from it. For example, as a members of team on a particular
class project, adopting the brainstorming technique of decision-making
would everyone of us a chance to make individual contributions to that
.project
Brainstorming

Nominal Group Technique-Restricts discussion or interpersonal communication
during decision-making process. It takes into account the following steps:
• Members meet as group, and before any discussion, each member is asked to
individually jolt down his or her points/ideas
• Each member presents his or her ideas or points until all ideas or points have been
presented and recorded
• Group then discusses ideas for clarity and evaluation
• Each group member silently and independently rank-order the ideas or points until
the points or ideas with the higher raking aggregate becomes the decision of
group.
Nominal Group Technique

Moreover, , Carpenter, Bauer, &
Erdogan(2010) suggested the below listed
techniques:
Delphi Technique- Group provides written
responses to questionnaires instead of coming
together to take a particular decision. Usually
such questionnaires are loaded with questions
that ask respondents to provide answers to
broad range of questions such as stating the
problem, outlining objectives, or proposing a
solution. The first questions provide basis to
frame subsequent questions, with the process
ending as the group reaches consensus. This
technique is often use in decision-making
practices to generate best practice from
experts.
Delphi Technique

Majority Rule Technique
Additionally, Carpenter, Bauer,
& Erdogan(2010) suggested the
below listed techniques:
Majority Rule Technique-Refers
to a decision-making where each
member of the group is given a
single vote, and the option that
receives the greatest number of
votes is selected. Popularity of this
technique is grounded in the fact
that it is simple, speedy, easy, and
fair in terms of representation.

Group Decision Support System-Is another form of
technique that utilizes interactive computer-based systems that
combines communication and decision technologies to enable
groups make informed decisions. The strength of this technique lies
in its effectiveness to foster information-sharing within groups in
virtual business’ environment.
Group Decision Support System

Decision Trees-Is another decision-making style that utilizes
diagram in which “yes or no” questions lead decision makers to address
additional questions until they reach the end of the tree. The significance of
such diagrammatic decision-making technique is that it avoids bias errors. It
further guides decision makers in predetermining alternatives while maintaining
consistency in following one course of action as conditions present themselves.
Decision Trees

Biases and Errors in Decision-Making
Since most decisions tend to be bias and error prone, improving the process
is very vital . Robbins & Judge(2010) described some common biases and errors
that underlie decision-making:
Overconfidence Bias-A tendency
by which an individual feels
overconfident that their response to
a particular question is, for example,
70% correct when in reality the
answer provided is just 50% correct.
The cause of such overconfidence of
decision or judgment is due to
weaknesses in intellectual and
interpersonal abilities of leaders
within organization as research
found.

Anchoring Bias- Another
tendency of managers to settle on
first information instead of
allowing subsequent information
to be factored into the decision-
making exercise. Such biases often
suffice in area of negotiation when
one’s ability to ignore a situation is
compromised.
Confirmation Bias-Occurs
hen managers seek information
that reaffirms their past choices
and overlook those information
that provides counterviews. In
order word, managers prefer
information that confirmed their
preconceived views instead of
those that challenge them in
critical and skeptical ways.

Availability Bias
Availability Bias-Tendency for
manager to base judgment or decision
information that is readily available.
Statistically, for example, there are more
car accidents as research found as oppose
to plane crashes. However, the media
seems to emphasize plane crashes instead
of car accidents, which tends to overstate
the risk of flying and understate rate of
driving. In order words, vivid or recurrence
emotions tend to cloud managers’
memories leading them to overstate
unlikely happenings.

Escalation of Commitment-A practice in which a manager
escalates a commitment when making decision. Even though, for
example, someone would know very well that a situation is not working,
but they project an impression out there as if things are fine. Such
escalation of commitment often takes place in dating relationship, in
which one partner feeling the pinch that such relationship is not working
but still makes commitment to move it to the next level.
Escalation of Commitment

Hindsight Bias-An attitude that suffices that managers tend
to falsely believe, even though the outcome of a situation has
already been known, but act as if such outcome has been
accurately predicted by them.
Biases and Errors in Decision-Making
In short, hindsight bias
holds that “What is clear in
hindsight is rarely clear
before the fact” as
underscored by Malcolm
Gladwell and emphasized
in(Robbins & Judge, 2010,
p. 40).

Conclusion
• Decision-making is making best choices among two or more
alternatives
• Sound decision-making is important since most decisions by managers
tend to fail.
• Problems are not always clearly defined. Problems have to be
formulated in a way which enables people to make decisions about
them. Decision makers must have vast amounts of information in
order to make use of the rational comprehensive decision-making.
Incremental decision-making is remedial, not holistically-devised or
future-oriented technique while Etzioni’s approach is not very specific
about how mixed scanning could be used in practice.

Conclusion
• There are several models of decision-making that
are vital to the understanding of managers.
• The decision-making process needs to be improved
at all times; thus, several tools and techniques are
available to managers.
• There are several biases and errors that inhabit the
decision-making process, of which managers
should be cognizant.

References
Carpenter, M., Bauer, T. & Erdogan, B.(2010). Principles of
management-Version 1.1. Flat World Knowledge,
Inc.,NY
Robbins, S. P. & Judge, T.A.(2010). Essentials of
organizational behavior. Prentice Hall, NJ
Fred C. Lunenburg (2011) Decision Making in Organizations. International
Journal of Management, Business and Administration Vol, 15 Nov 1,
2011. Sam Houston State University
Josefina B. Bitonio (2013) Planning Models
http://www.slideshare.net/jobitonio/planning-models-24267069
Theories of Decision Making .
http://www.unc.edu/wfarrell/SOWO%20874/Readings/decisiontheo
ry.pdf

Decision Making in an Organization

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