Managerial Decision Making Flashcards
decision
a choice made from available alternatives
decision making
the process of identifying problems and opportunities and then resolving them
programmed decisions
a decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future
non-programmed decisions
a decision made in response to a situation that is unique, or poorly defined and largely unstructured and has important consequences for the organisation
types of decision-making models
- classical model
- administrative model
- political model
classical model
a decision-making model based on the assumption that managers should make logical decisions that will be in the organisation’s best economic interests
normative
an approach that defines how a decision maker should make decisions and provides guidelines for reaching an ideal outcome for the organisation
administrative model
a decision-making model that describes how managers actually make decisions in situations characterised by non-programmed decisions, uncertainty and ambiguity
descriptive
an approach that describes how managers actually make decisions rather than how they should
political model
a decision-making model that is useful for making non-programmed decisions when conditions are uncertain, information is limited and there is disagreement among managers
characteristics of classical model
- clear-cut model and goals
- condition of certainty
- full information about alternatives and their outcomes
- rational choice for maximising outcomes
characteristics of administrative model
- vague problem and goals
- condition of uncertainty
- limited information about alternatives and their outcomes
- satisfying choice for resolving problems using intuition
characteristics of political model
- pluralistic; conflicting goals
- condition of uncertainty
- inconsistent viewpoints; ambiguous information
- bargaining and discussion among coalition members
decision-making steps
- recognition of decision requirement
- diagnosis and analysis of causes
- development of alternatives
- selection of desired alternative
- implementation of chosen alternative
- evaluation and feedback
types of personal decision styles
- directive style
- analytical style
- conceptual style
- behavioural style
directive style
used by people who prefer simple, clear-cut solutions to problems
analytical style
used by people who like to consider complex situations based on as much data as they can gather
conceptual style
Similar to the analytical style, it is also used by people who also like to consider a broad amount of information. However, they are more socially oriented than those with an analytical style and like to talk to others about the problem and possible alternatives for solving it.
behavioural style
used by people who have a deep concern for others as individuals
reasons managers make poor judgements
- being influenced by initial impressions
- justifying past decisions
- seeing what they want to see
- perpetuating the status quo
- being influenced by emotions
- overconfidence
overconfidence bias
believing one’s estimates to be more accurate than they are
what happens to firms led by overconfident CEOs
- pay less heed in general to external indications of error
- be less likely to comprehensively investigate the causes of major errors
- be more likely to repeat major errors
groupthink
involves members of a group agreeing a position on a decision or issue to avoid conflict or disagreement. The tendency for group members to censor their personal opinions and being reluctant to criticise the opinion of others leads to a reduction in decision-making quality
escalating commitment
continuing to invest time and money in a decision despite evidence that it is failing
postmortem/ after-action review
a disciplined procedure whereby managers review the results of decisions to evaluate what worked, what didn’t, and how to do things better
heuristics
intuitive shortcuts learned from experience
advantages of heuristics
- save limited time and attention
- cope with incomplete or too complex information
disadvantages of heuristics
- bring hidden traps and lead to systematic decision making mistakes
de-biasing
a means of reducing group think and the effects of cognitive bias
For groups:
Be aware of groupthink
Assign a devil’s advocate (rotating) – Invite outside experts
Encourage a ‘culture of difference’
Leaders might:
Set up subgroups sometimes
Allow anonymous feedback
Try to be impartial
For individuals:
Be aware of key biases that might be influencing your decision
Have a reliable devil’s advocate, whom you trust
strategies to frame clashes and negative emotions
- practicing inclusiveness (everyone gets a voice)
- establishing bridges, showing compatibility, synergy, etc.
- attending to and regulating negative emotions (not ignoring them)
