Decision Making

MGT 111 – IDTB

 • Critical part of our work lives
• Critical to survival of organizations

WHY • Often not a straight-forward thing

• Appreciate the limitations we face in decision-
making
• Help make better decisions
 • Making a choice from more than one alternatives
WHAT • The action or process of thinking through possible
options and selecting one
 • When we identify the existence of a problem
• Def. - A discrepancy between the current state
WHEN of affairs and a desired state
• And there are alternative courses of action
available
 Source: Nelson & Quick (2019)
HOW
 Decision-making: The Process View
1. Recognize the 2. Identify the objective 3. Gather and evaluate 4. List and evaluate
problem and the need of the decision. data and diagnose the alternatives.
for a decision. situation.
M realizes that the decision M needs to determine what is Accumulate sufficient Conduct “what-if” analysis.
must be made. to be accomplished by the information about why the Determine the various factors
Identifying the real problem is decision problem occurred. that could influence the
important. Involves conducting a outcome.
Else, she may just be reacting thorough diagnosis of the Generate a range of options
to symptoms, rather than root situation and going on a fact- and viable solutions.
cause finding mission.

8. Follow up. 7. Gather feedback. 6. Implement the 5. Select the best

decision. course of action.

Consistent monitoring and The situation to be monitored Go ahead. Implement! Selects the alternative that
periodic feedback. to check if decision meets its best meets the decision
objective. objective. If the problem
diagnosis is correct and
sufficient alternatives have
been identified, this becomes
easy-peasy-lemon-squeezy.
Importance of Decision-maker
• Why is the responsibility of decision-making given to most level-headed person?
• Why companies spend a fortune in hiring CXOs (decision-makers)?
• Are all decision-makers of same quality?
• Are individual differences making a difference in decision-making?
• Which aspect of individuals would impact decision-making?
Perception and Decision-making
• Is there a problem at hand?
• Do we need to take a decision?
• Where should we focus?
• Which data is relevant to the decision?
• What are the alternatives that can be considered?
• How do we evaluate the alternatives to make a choice?
Models of Decision-Making

1. Rational Model
2. Bounded Rationality Model
3. Z-Model
Rational Model

• Rational?
• Characterized by making consistent, value maximizing choices within specified constraints
• Rational Decision-making Model
• A decision-making model that describes how individuals should behave to maximize an outcome
• Rationality:
• A logical, step-by-step approach to decision making, with a thorough analysis of alternatives and
their consequences
Source: Robbins & Judge (2021)
Assumptions in RDM

• (Rooted in classic economic theory)

• Assumptions:
• The outcome will be completely rational
• The decision-maker has a consistent system of preferences, which is used to choose the best
alternative
• The decision maker is aware of all the possible alternatives
• The decision maker can calculate the probability of success for each alternative
RDM: An ideal

• Key Point: Decision-maker strives to select the most optimal alternative

• Its an ideal that a decision-maker should strive for
• The one best procedure or way a decision should be made
Rational Model: The Ideal

• Is it realistic?
• Time constraints, limits to human knowledge and info-processing capability
• M’s need and preference may change
Types of Decision-making
• Programmed Decisions – A simple, routine matter for which there is an established
decision rule
• Example?
• Non-programmed Decisions – A new, complex decision that requires creative solution
• Example?
 Programmed Decisions
• Def:
• Repeated over time and for which an existing set of rules can be developed to guide the
process.
• Can be simple or complex
• The criteria in making the decision are known or can at least be estimated with
a reasonable degree of accuracy
• Can also be taught easily to another person
• Example:
• Dabbawala: https://www.youtube.com/watch?v=KDD32skx-zM
 Non-Programmed Decisions
• Def:
• Novel and unstructured decisions, generally based on criteria that are not well-defined
• Information likely to be ambiguous or incomplete
• Use of judgment and creative thinking
• Non-routine and high-involvement decisions
• https://threadreaderapp.com/thread/1316828204204584960.html
Types of Decision-making
• Herbert Simon on difficulty of decision making:
https://www.youtube.com/watch?v=eTXkZURBq7k

• “Decisions are programmed to the extent they are repetitive and routine, to the extent
that a definite procedure has been worked out for handling them so that they don't have
to be treated from scratch each time they occur” (Simon, 1977; p. 46)

• “Decisions on the other hand are non-programmed to the extent they are novel,
unstructured and unusually consequential” (Simon, 1977; p. 46)
 Decision Type : Example 1
• Deciding the quantity of raw materials to order, based on anticipated
production, existing stock, and anticipated length of time for the delivery of the
final product
• Type?
 Decision Type : Example 2
• Manager trying to decide whether or not to adopt a new technology.
• There will always be unknowns in situations of this nature.
• Will the new technology really be better than the existing technology?
• Will it become widely accepted over time, or will some other technology
become the standard?
• Type?
 Decision Type : Example 3
• A retail store manager developing the weekly work schedule for part-time
employees
• Consider how busy the store is likely to be, seasonal fluctuations, the availability
of the workers
• Type?
 Bounded Rationality Model (BRM)
• Sully: https://www.youtube.com/watch?v=mjKEXxO2KNE&t=24s
• Simon Herbert on difficulty of decision making:
https://www.youtube.com/watch?v=eTXkZURBq7k
• Simon Herbert on BRM:
https://www.youtube.com/watch?v=ErnWbP_Wztk
 RDM Vs. BRM
“Once we have identified a problem, we begin to search for criteria and alternatives.”

“We identify a limited list of the most conspicuous choices, both easy to find and highly visible,
that usually represent familiar criteria and tried-and-true solutions.” (A2)

“Next, we begin reviewing them, but our review will not be comprehensive.(A3) Instead, we
Source: Nelson & Quick (2019)

focus on alternatives that differ only in relatively small degree from the choice currently in
effect.
Following familiar and well-worn paths (A4), we review alternatives only until we identify one
that’s good enough – that meets an acceptable level of performance.”

“That ends our search. The solution represents a satisficing choice – the first acceptable one
we encounter – rather than an optimal one.” (A1)
Source: Robbins & Judge (2021)
 Bounded-Rationality Model - Assumptions
1. We select the first alternative that is satisfactory
Satisficing - Select the first alternative that is “good enough,” because the costs of
optimizing in terms of time and effort are high
2. We recognize that one’s conception of the world is simple
3. We are comfortable making decisions without determining all the alternatives
4. We make decisions by rules of thumb, or heuristics
Based on what has worked in past experiences
Kahnemann & Tversky on Heuristics: https://www.youtube.com/watch?v=3IjIVD-KYF4
 Bounded-Rationality Model
• More Realistic than RDM?
• Decisions are made under constraints like time, risk, uncertainty
• Role of Emotion should be included
 Bounded-Rationality Model

• ALERT: Simon Herbert clearly refers to BRM in terms of decision-making under

uncertainty. He does refer to ideas of optimization or limited information-
processing capability.
 Intuition
• Simon Herbert on Intuition: https://www.youtube.com/watch?v=1UqekPMfNk4
 Z Problem-solving Model
• Based on Isabel Briggs Myers’ Personality Type Theory
• There are four separate preferences: Sensing, Intuition, Thinking, Feeling
• A good decision-making should attempt to involve all four preferences
Type Theory Preferences

Source: Myers (1998)

Z Problem-solving Model

Source: Myers (2009)

 Z Problem-solving Model
• 4 steps:
1. Examine the facts and details - Use Sensing to gather information about the problem
2. Generate alternatives - Use Intuition to develop possibilities
3. Analyze the alternatives objectively - Use Thinking to logically determine the effects of
each alternative
4. Weigh the impact - Use Feeling to determine how the people involved will be affected
 Z Problem-solving Model
Look at the facts and Sensing Intuition What alternatives do
How we details the facts suggest?
gather
What are the facts? Let the imagination run wild
information: Be specific and realistic Brainstorm
Sensing List all relevant details Consider various solutions
Intuition Be clear

Source: Theusen & Kroeger (1992)

Can it be analyzed What impact will it have
How we objectively on those involved?
Thinking Feeling
make
Consider the consequences of Is it something you can live
decisions:
each alternative. with?
Thinking If you were not involved, what How do you feel about your
Feeling would you suggest. actions?
What is the cause and effect of What hunches do you have
each action about others’ reactions
 Z Problem-solving Model
• We can capitalize by using both one’s preferences and non-preferences to make
decisions more effectively
• Rely on trusted others to perform non-preferred activities.
• For example, an individual who is an IF (Intuition-Feeling person) might want to turn to a
trusted NT (Intuition-Thinking person) for help in analyzing alternatives objectively
 Barriers to Effective Decision-Making
• Time Constraints
• Uncertainty
• Bounded Rationality
• Escalation of Commitment
• Personal Cognitive Biases
• Conflict
 Escalation of Commitment - Example
• Shikha has completed her management course
• She takes the position of chief manager at her mother’s enterprise Harsha
Transport in Waltair, Andhra Pradesh
• She has to choose between two competing software packages that her
organization will use on a daily basis to enhance efficiency
 Escalation of Commitment - Example
• SAP Vs. Arvind Software
• She initially chooses the product that was developed by SAP, reasoning that they will have
greater financial resources to invest in ensuring that the technology is good.
• However, after some time, it becomes clear that the competing software package from
Arvind Software is going to be far superior.
• Arv ERP could be integrated into the organization’s existing systems at little additional
expense
• SAP ERP will require a much greater initial investment and substantial ongoing costs for
maintaining it.
• Say, Shikha has already paid for the SAP ERP.
 Escalation of Commitment - Example
• Big Q:
• Will she abandon the path that she’s on, accept the loss on the money that’s been
invested so far, and switch to the better software?
• OR will she continue to invest time and money into trying to make the first product work?
 Escalation of Commitment
• Def:
• The tendency to continue to support a failing course of action
• What’s happening here?
• Given the lack of complete information, we don’t always make the right decision initially
• It may not be clear that a decision was a bad one until after some time has passed.
• Seems easier to “stay the course” than to admit (or to recognize) that a decision was poor
• Read: https://hbr.org/1987/03/knowing-when-to-pull-the-plug
• Watch: https://www.youtube.com/watch?v=s_B26pK2lz4