7.1 The Nature of Decision Making

• A decision is a choice made from among available alternatives. Decision making is the process of identifying and choosing alternative courses of action.
• Decisions are of two types: programmed and nonprogrammed. Programmed decisions are repetitive and routine. They tend to follow established rules and so are virtually automatic. Nonprogrammed decisions are those that occur under nonroutine, unfamiliar circumstances. Because they occur in response to unusual, unpredictable opportunities and threats, nonprogrammed decisions are relatively unstructured.
• A decision-making style reflects the combination of how an individual perceives and responds to information. Decision-making styles may tend to have a value orientation, which reflects the extent to which a person focuses on either task or technical concerns versus people and social concerns when making decisions. Decision-making styles may also reflect a person's tolerance for ambiguity, the extent to which a person has a high or low need for structure or control in his or her life. When the dimensions of value orientation and tolerance for ambiguity are combined, they form four styles of decision making: directive, analytical, conceptual, and behavioral.

7.2 Two Kinds of Decision Making: Rational & Nonrational

• Two models managers follow in making decisions are rational and nonrational.
• In the rational model, there are four steps in making a decision: Stage 1 is identifying the problem or opportunity. A problem is a difficulty that inhibits the achievement of goals. An opportunity is a situation that presents possibilities for exceeding existing goals. This is a matter of diagnosis—analyzing the underlying causes. Stage 2 is thinking up alternative solutions. For programmed decisions, alternatives will be easy and obvious. For nonprogrammed decisions, the more creative and innovative the alternatives, the better. Stage 3 is evaluating the alternatives and selecting a solution. Alternatives should be evaluated according to cost, quality, ethics, feasibility, and effectiveness. Stage 4 is implementing and evaluating the solution chosen.
• The rational model of decision making assumes managers will make logical decisions that will be the optimum in furthering the organization's best interests. The rational model is prescriptive, describing how managers ought to make decisions. It assumes that managers have complete information and there is no uncertainty, that they can do unemotional analysis, and that they are coolly capable of making the best decision for the organization.
• Nonrational models of decision making assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimum decisions. Two nonrational models are satisficing and incremental. (1) Satisficing falls under the concept of bounded rationality—that is, that the ability of decision makers to be rational is limited by enormous constraints, such as time and money. These constraints force managers to make decisions according to the satisficing model—that is, managers seek alternatives until they find one that is satisfactory, not optimal. (2) In the incremental model, managers take small, short-term steps to alleviate a problem rather than steps that will accomplish a long-term solution.

7.3 Making Ethical Decisions

• Corporate corruption has made ethics in decision making once again important. Many companies have an ethics officer to resolve ethical dilemmas, and more companies are creating values statements to guide employees as to desirable business behavior.
• To help make ethical decisions, a decision tree—a graph of decisions and their possible consequences—may be helpful. Managers should ask whether a proposed action is legal and, if it is intended to maximize shareholder value, whether it is ethical—and whether it would be ethical not to take the proposed action.
• A goal for managers should be to rely on moral principles so that their decisions are principled, appropriate, and defensible, in accordance with "the magnificent seven" general moral principles for managers.

7.4 Group Decision Making: How to Work with Others

• Groups make better decisions than most individuals acting alone, though not as good as the best individual acting alone.
• Using a group to make a decision offers five possible advantages: (1) a greater pool of knowledge; (2) different perspectives; (3) intellectual stimulation; (4) better understanding of the reasoning behind the decision; and (5) deeper commitment to the decision. It also has four disadvantages: (1) a few people may dominate or intimidate; (2) it will produce groupthink, when group members strive for agreement among themselves for the sake of unanimity and so avoid accurately assessing the decision situation; (3) satisficing; and (4) goal displacement, when the primary goal is subsumed to a secondary goal.
• Some characteristics of groups to be aware of are (1) groups are less efficient, (2) their size affects decision quality, (3) they may be too confident, and (4) knowledge counts—decision-making accuracy is higher when group members know a lot about the issues.
• Participative management (PM) is the process of involving employees in setting goals, making decisions, solving problems, and making changes in the organization. PM can increase employee job involvement, organizational commitment, and creativity and can lower role conflict and ambiguity.
• Using groups to make decisions generally requires that they reach a consensus, which occurs when members are able to express their opinions and reach agreement to support the final decision.
• Three group problem-solving techniques aid in problem solving. (1) In interacting groups, members interact and deliberate with one another to reach a consensus. (2) In nominal groups, members generate ideas and evaluate solutions by writing down as many ideas as possible; the ideas are then listed on a blackboard, then discussed, then voted on. (3) In Delphi groups, physically dispersed experts fill out questionnaires to anonymously generate ideas; the judgments are combined and in effect averaged to achieve consensus of expert opinion. These three groups may be assisted by computer-aided decision making, using either chauffeur- driven systems, which ask participants to answer predetermined questions on electronic keypads or dials, or group-driven systems, in which participants in a room express their ideas anonymously on a computer network.

7.5 How to Overcome Barriers to Decision Making

• When confronted with a challenge in the form of a problem or an opportunity, individuals may respond in perhaps four ineffective ways and three effective ones.
• The ineffective reactions are as follows: (1) In relaxed avoidance, a manager decides to take no action in the belief that there will be no great negative consequences. (2) In relaxed change, a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk. (3) In defensive avoidance, a manager can't find a good solution and follows by procrastinating, passing the buck, or denying the risk of any negative consequences. (4) In panic, a manager is so frantic to get rid of the problem that he or she can't deal with the situation realistically.
• The effective reactions consist of deciding to decide—that is, a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps. Three ways to help a manager decide whether to decide are to evaluate (1) importance—how high priority the situation is; (2) credibility—how believable the information about the situation is; and (3) urgency—how quickly the manager must act on the information about the situation.
• Heuristics are rules of thumb or strategies that simplify the process of making decisions. Some heuristics or barriers that tend to bias how decision makers process information are availability, representativeness, anchoring and adjustment, and escalation of commitment. (1) The availability bias means that managers use information readily available from memory to make judgments. (2) The representativeness bias is the tendency to generalize from a small sample or a single event. (3) The anchoring and adjustment bias is the tendency to make decisions based on an initial figure or number. (4) The escalation of commitment bias describes when decision makers increase their commitment to a project despite negative information about it. An example is the prospect theory, which suggests that decision makers find the notion of an actual loss more painful than giving up the possibility of a gain.