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27.07.2015
Decision making is the process of making choices by setting goals, gathering information, and assessing alternative occupations.
Individuals throughout organizations use the information they gather to make a wide range of decisions. Because many decisions involve an ethical component, one of the most important considerations in management is whether the decisions you are making as an employee or manager are ethical. Despite the far-reaching nature of the decisions in the previous example, not all decisions have major consequences or even require a lot of thought. However, decisions that are unique and important require conscious thinking, information gathering, and careful consideration of alternatives. Decision making can also be classified into three categories based on the level at which they occur. In this chapter, we are going to discuss different decision-making models designed to understand and evaluate the effectiveness of nonprogrammed decisions. The rational decision-making modelA decision making model which describes the series of steps that decision makers should consider if their goal is to maximize their outcome. Let’s imagine that your old, clunky car has broken down and you have enough money saved for a substantial down payment on a new car. Using the rational decision-making model to make major purchases can help avoid making poor choices. Before we can move too much further, you need to decide how important each factor is to your decision in step 3.
Of course, the outcome of this decision will be related to the next decision made; that is where the evaluation in step 8 comes in. While decision makers can get off track during any of these steps, research shows that limiting the search for alternatives in the fourth step can be the most challenging and lead to failure. Despite all its benefits, you may have noticed that this decision-making model involves a number of unrealistic assumptions. In fact, the availability of too much information can lead to analysis paralysisA decision-making process where more and more time is spent on gathering information and thinking about it but no decisions actually get made., where more and more time is spent on gathering information and thinking about it, but no decisions actually get made. The bounded rationality modelA model that recognizes the limitations of decision-making processes.
In addition to the rational decision making, bounded rationality models, and intuitive decision making, creative decision making is a vital part of being an effective decision maker.
The five steps to creative decision making are similar to the previous decision-making models in some keys ways.
A NASA scientist describes his decision-making process leading to a creative outcome as follows: He had been trying to figure out a better way to de-ice planes to make the process faster and safer.
Researchers focus on three factors to evaluate the level of creativity in the decision-making process.
Diversify your team to give them more inputs to build on and more opportunities to create functional conflict while avoiding personal conflict. Leaderless teams can allow teams freedom to create without trying to please anyone up front. Engage in brainstorming to generate ideas—remember to set a high goal for the number of ideas the group should come up with, encourage wild ideas, and take brainwriting breaks. Use the nominal group technique in person or electronically to avoid some common group process pitfalls. Build a physical space conducive to creativity that is playful and humorous—this is a place where ideas can thrive. And finally, avoiding groupthink can be an important skill to learn.Adapted and expanded from “Six recommendations for avoiding Groupthink” in Janis, I.
The four different decision-making models—rational, bounded rationality, intuitive, and creative—vary in terms of how experienced or motivated a decision maker is to make a choice. Effective and successful decisions make profit to the company and unsuccessful ones make losses. In the decision making process, we choose one course of action from a few possible alternatives. In the process of solving the problem, you will have to gather as much as information related to the factors and stakeholders involved in the problem.
Then, you can move on generating all possible solutions (alternatives) for the problem in hand.
When it comes to making decisions, one should always weigh the positive and negative business consequences and should favour the positive outcomes.
This avoids the possible losses to the organization and keeps the company running with a sustained growth. But, making the decisions and accepting its consequences is the only way to stay in control of your corporate life and time. Although their exact use in any situation may vary, certain stages of thinking and analysis are central to structured decision making. These stages are often introduced as a series of steps, worked through in a largely linear way but with iteration throughout. The first step in good decision making involves defining what question or problem is being addressed and why, identifying who needs to be involved and how, establishing scope and bounds for the decision, and clarifying the roles and responsibilities of the decision team. A range of creative policy or management alternatives designed to address the objectives is developed. Step 4 is an analytical exercise in which the performance of each alternative is estimated in terms of the evaluation criteria developed in Step 2. SDM is not a black box, and group discussion should always play a central role in evaluating preferences for alternatives. The last step in the decision process then is to identify mechanisms for on-going monitoring to ensure accountability with respect to on-ground results, research to improve the information base for future decisions, and a review mechanism so that new information can be incorporated into future decisions. You then go through an internal process of trying to define clearly the nature of the decision you must make.
Through the process of collecting information you will probably identify several possible paths of action, or alternatives.
In this step, you draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end. Once you have weighed all the evidence, you are ready to select the alternative which seems to be best suited to you. For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school. These are called nonprogrammed decisionsUnique, nonroutine, and important decisions that require conscious thinking, information gathering, and careful consideration of alternatives..
Petersburg, Russia, location, McDonald’s trains all restaurant managers (over 65,000 so far) at Hamburger University where they take the equivalent of two years of college courses and learn how to make decisions. We will cover four decision-making approaches starting with the rational decision-making model, moving to the bounded rationality decision-making model, the intuitive decision-making model, and ending with the creative decision-making model. If each is equally important, then there is no need to weight them, but if you know that price and gas mileage are key factors, you might weight them heavily and keep the other criteria with medium importance. For example, if you purchase a car but have nothing but problems with it, you are unlikely to consider the same make and model in purchasing another car the next time! In fact, one researcher found that no alternative generation occurred in 85% of the decisions studied.Nutt, P. First, when making a decision you may want to make sure that you establish your decision criteria before you search for all alternatives. It assumes that people understand what decision is to be made, that they know all their available choices, that they have no perceptual biases, and that they want to make optimal decisions. Our guess is that you rarely sit down and complete all eight steps in the rational decision-making model.
A senior executive at Hewlett-Packard admits that his company suffered from this spiral of analyzing things for too long to the point where data gathering led to “not making decisions, instead of us making decisions.”Zell, D.
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. The model argues that in a given situation, experts making decisions scan the environment for cues to recognize patterns. All of the models include problem identificationThe step in which the need for problem solving becomes apparent., which is the step in which the need for problem solving becomes apparent.


After recognizing the problem, he had immersed himself in the literature to understand all the options, and he worked on the problem for months trying to figure out a solution. Linus Pauling, the Nobel prize winner who popularized the idea that vitamin C could help build the immunity system, said, “The best way to have a good idea is to have a lot of ideas.” One popular way to generate ideas is to use brainstorming. Here are some guidelines for enhancing organizational creativity within teams.Adapted from ideas in Amabile, T. Choosing the right approach will make you more effective at work and improve your ability to carry out all the P-O-L-C functions. There are different types of decisions, ranging from automatic, programmed decisions to more intensive nonprogrammed decisions. Therefore, corporate decision making process is the most critical process in any organization. Majority of corporate decisions involve some level of dissatisfaction or conflict with another party. There are a couple of questions one should ask when it comes to identifying the purpose of the decision. For the process of information gathering, tools such as 'Check Sheets' can be effectively used. When it comes to defining the criteria, organizational goals as well as the corporate culture should be taken into consideration. Companies usually do not make decisions that reduce profits, unless it is an exceptional case.
Before the idea generation step, it is vital to understand the causes of the problem and prioritization of causes. Cause-and-Effect diagram helps you to identify all possible causes of the problem and Pareto chart helps you to prioritize and identify the causes with highest effect. In addition, the selection of the best alternative is an informed decision since you have already followed a methodology to derive and select the best alternative. Sometimes, avoiding decision making seems easier; especially, when you get into a lot of confrontation after making the tough decision. Alternatives should reflect substantially different approaches to the problem or different priorities across objectives, and should present decision makers with real options and choices.
Care must be taken to determine the focal areas of uncertainty and to ensure that these are represented properly in the analysis. However, in many cases, preference assessment techniques (such as swing weighting) may be used to help people understand their preferred alternatives. The real trick in this step is to know what information is needed, the best sources of this information, and how to go about getting it. You must evaluate whether the need identified in Step 1 would be helped or solved through the use of each alternative. While it can be argued that management is decision making, half of the decisions made by managers within organizations fail.Ireland, R.
For example, the decisions made by executives and consulting firms for Enron ultimately resulted in a $60 billion loss for investors, thousands of employees without jobs, and the loss of all employee retirement funds.
For example, in 2005, McDonald’s became aware of a need to respond to growing customer concerns regarding foods high in fat and calories. 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 first step, therefore, has already been completed—we know that you want to buy a new car. This would prevent you from liking one option too much and setting your criteria accordingly. Nobel Prize–winning economist Herbert Simon observed that while the rational decision-making model may be a helpful tool for working through problems, it doesn’t represent how decisions are frequently made within organizations. For example, this model proposed that we should search for all possible alternatives before making a decision, but this can be time consuming and individuals are often under time pressure to make decisions. It was not until he was sitting outside of a McDonald’s restaurant with his grandchildren that it dawned on him. BrainstormingA process of generating ideas that follows a set of guidelines, which includes no criticism of ideas during the process, the idea that no suggestion is too crazy, and building on other ideas (piggybacking).
Structured decision-making processes include rational decision making, bounded rationality, intuitive, and creative decision making.
Some information must be sought from within yourself through a process of self-assessment; other information must be sought from outside yourself-from books, people, and a variety of other sources.
In this step of the decision-making process, you will list all possible and desirable alternatives.
In going through this difficult internal process, you begin to favor certain alternatives which appear to have higher potential for reaching your goal. Your choice in Step 5 may very likely be the same or similar to the alternative you placed at the top of your list at the end of Step 4. If the decision has not resolved the identified need, you may repeat certain steps of the process in order to make a new decision. But Sherron Watkins, a former Enron employee and now-famous whistleblower, uncovered the accounting problems and tried to enact change. These types of straightforward decisions are termed programmed decisions;Decisions that occur frequently enough that we develop an automated response to them. This is a nonprogrammed decision because for several decades, customers of fast-food restaurants were more concerned with the taste and price of the food, rather than the healthiness.
Finally, operational decisions are decisions that employees make each day to run the organization. Then, in step 5, you need to use this information to evaluate each alternative against the criteria you have established.
For example, let’s say you started browsing for cars before you decided your decision criteria.
Moreover, even if we had access to all the information, it could be challenging to compare the pros and cons of each alternative and rank them according to our preferences.
With the flattening of organizations and intense competition among organizations, individuals and organizations are driven to be creative in decisions ranging from cutting costs to creating new ways of doing business. ImmersionThe step where the decision maker thinks about the problem consciously and gathers information.
The golden arches of the “M” of the McDonald’s logo inspired his solution: he would design the de-icer as a series of M’s!Interview by author Talya Bauer at Ames Research Center, Mountain View, CA, 1990.
Each of these can be useful, depending on the circumstances and the problem that needs to be solved.
Eventually you are able to place the alternatives in priority order, based upon your own value system.
You may, for example, gather more detailed or somewhat different information or discover additional alternatives on which to base your decision. Similarly, the decisions made by firms to trade in mortgage-backed securities is having negative consequences for the entire U.S. In response, McDonald’s decided to offer healthier alternatives, such as substituting apple slices in Happy Meals for French fries and discontinuing the use of trans fats. For example, remember the restaurant that routinely offers a free dessert when a customer complaint is received.
You may come across a car that you think really reflects your sense of style and make an emotional bond with the car.
Anyone who has recently purchased a new laptop computer or cell phone can attest to the challenge of sorting through the different strengths and limitations of each brand, model, and plans offered for support and arriving at the solution that best meets their needs.
An important part of the bounded rationality approach is the tendency to satisficeAccepting the first alternative that meets minimum criteria., which refers to accepting the first alternative that meets your minimum criteria.
Eighty-nine percent of managers surveyed admitted to using intuition to make decisions at least sometimes, and 59% said they used intuition often.Burke, L. Please note that, while creativity is the first step in the innovation process, creativity and innovation are not the same thing. If decision makers are able to generate several unique solutions to a problem, they are high on flexibility. Research shows that the quantity of ideas actually leads to better idea quality in the end, so setting high idea quotasA set number of ideas a group must reach before they are done with brainstorming.


The automated response we use to make these decisions is called the decision ruleAutomated responses used to make programmed decisions.. Then, because of your love for this car, you may say to yourself that the fuel economy of the car and the innovative braking system are the most important criteria. For example, many college graduates do not conduct a national or international search for potential job openings; instead, they focus their search on a limited geographic area and tend to accept the first offer in their chosen area, even if it may not be the ideal job situation.
Innovation begins with creative ideas, but it also involves realistic planning and follow-through.
A key to success in creative decision making is having or acquiring expertise in the area being studied. After he tested and verified his creative solution, he was done with that problem except to reflect on the outcome and process. Each of these people made a decision, and each person, as well as others, is now living with the consequences of his or her decisions.
For example, many restaurants face customer complaints as a routine part of doing business. The manager of the restaurant implemented the free dessert policy as a way to handle customer complaints, which is a tactical decision. Conversely, successful managers are clear about what they want at the outset of the decision-making process, set objectives for others to respond to, carry out an unrestricted search for solutions, get key people to participate, and avoid using their power to push their perspective.Nutt, P. After purchasing it, you may realize that the car is too small for all of your friends to ride in the back seat when you and your brother are sitting in front, which was something you should have thought about! Strategic management in turbulent times: The short and glorious history of accelerated decision making at Hewlett-Packard. Satisficing is similar to 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. Then, incubationThe step when the decision maker sets the problem aside and does not think about it for a while.
If you are able to generate several distinct solutions to a problem, your decision-making process is high on flexibility. Another unique aspect of brainstorming is that the more people are included in brainstorming, the better the decision outcome will be because the variety of backgrounds and approaches give the group more to draw from. Because this is a recurring problem for restaurants, it may be regarded as a programmed decision. They had recently introduced a new product, ChargeUp with Lipitrene, an improved version of their popular sports drink powder, ChargeUp. And, the servers at the restaurant are making individual decisions each day evaluating whether each customer complaint received is legitimate to warrant a free dessert. You only have a certain amount of money saved, and you don’t want to take on too much debt, so price range is an important factor as well. Setting criteria before you search for alternatives may prevent you from making such mistakes. A variation of brainstorming is wildstormingA variation of brainstorming where the group focuses on ideas that are impossible and then imagines what would need to happen to make them possible.
To deal with this problem, the restaurant might have a policy stating that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule. But a phone call came from a state health department to inform them that several cases of gastrointestinal distress had been reported after people consumed the new product. If you know you want to have room for at least five adults, get at least 20 miles per gallon, drive a car with a strong safety rating, not spend more than $22,000 on the purchase, and like how it looks, you’ve identified the decision criteria. Another advantage of the rational model is that it urges decision makers to generate all alternatives instead of only a few. During incubation, the individual sets the problem aside and does not think about it for a while. Making strategic, tactical, and operational decisions is an integral part of the planning function in the P-O-L-C (planning-organizing-leading-controlling) model. All of the potential options for purchasing your car will be evaluated against these criteria.
By generating a large number of alternatives that cover a wide range of possibilities, you are likely to make a more effective decision in which you do not need to sacrifice one criterion for the sake of another.
For example, if you are looking to purchase a house, you may be willing and able to invest a great deal of time and energy to find your dream house, but if you are looking for an apartment to rent for the academic year, you may be willing to take the first one that meets your criteria of being clean, close to campus, and within your price range.
Two weeks later, it became clear that the gastrointestinal problems were unrelated to ChargeUp with Lipitrene.
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.
Then comes illuminationThe insight moment, when the solution to the problem becomes apparent. Yet when CEOs, financial analysts, and healthcare workers are asked about the critical decisions they make, seldom do they attribute success to luck.
We do not exactly know how many ideas he had over the course of his career, but his ideas are fairly different from one another.
This unfortunate decision caused Nutrorim to rethink the way decisions were made under pressure so that they now gather information to make informed choices even when time is of the essence.Garvin, D. To an outside observer, it may seem like they are making guesses as to the course of action to take, but it turns out that they are systematically making decisions using a different model than was earlier suspected. This is the “eureka” moment similar to what happened to the ancient Greek inventor Archimedes, who found a solution to the problem he was working on while he was taking a bath. After teaching math in Africa with the Peace Corps, Hastings was accepted at Stanford University, where he earned a master’s degree in computer science. Research on life-or-death decisions made by fire chiefs, pilots, and nurses finds that these experts do not choose among a list of well-thought-out alternatives.
Finally, the verification and applicationThe stage when the decision maker consciously verifies the feasibility of the solution and implements the decision. Soon after starting work at a software company, he invented a successful debugging tool, which led to his founding the computer troubleshooting company Pure Software in 1991. After a merger and the subsequent sale of the resulting company in 1997, Hastings founded Netflix, which revolutionized the DVD rental business through online rentals with no late fees.
Therefore, increasing effectiveness in decision making is an important part of maximizing your effectiveness at work. The intuitive decision-making model argues that, in a given situation, experts making decisions scan the environment for cues to recognize patterns.Breen, B. This chapter will help you understand how to make decisions alone or in a group while avoiding common decision-making traps. An examination of leadership and employee creativity: The relevance of traits and relationships. Once a pattern is recognized, they can play a potential course of action through to its outcome based on their prior experience. Due to training, experience, and knowledge, these decision makers have an idea of how well a given solution may work. If they run through the mental model and find that the solution will not work, they alter the solution and retest it before setting it into action. If it still is not deemed a workable solution, it is discarded as an option and a new idea is tested until a workable solution is found. Once a viable course of action is identified, the decision maker puts the solution into motion. For example, research shows that individuals who are open to experience, are less conscientious, more self-accepting, and more impulsive, tend to be more creative.Feist, G. Novices are not able to make effective decisions this way because they do not have enough prior experience to draw upon.



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