[FDNMANP] Chapter 7: The Decision-Making Process

decision

a choice that is made among a number of available alternatives to address a problem or an opportunity

Identify need
Develop alternatives
Choose alternative
Implement and monitor choice

The four-step decision-making process

Cognitive scripts

learned guidelines or procedures that help people interpret and respond to what is happening around them

do nothing
apply an existing routine
develop a new routine

3 responses to the need for making a decision

programmed decisions

the response to an organizational problem or opportunity is chosen from a set of standard alternatives

non-programmed decision

involves developing and choosing a new way of dealing with a problem or opportunity

dilemmas

no optimal choice can be made because there are both positive and negative aspects associated with each alternative and the resulting trade-offs defy complete analysis

Certainty

exists when managers know exactly what outcomes are associated with each alternative they are choosing among, the possible payoffs associated with each possible outcome for each alternative, and the probability that each pay-off will occur

Risk

evident when decision-makers have at least some knowledge about the likelihood of the different possible outcomes that might occur if they choose to implement a particular alternative, and the pay-offs associated with each outcome

Explicit knowledge

information that can be codified or articulated

Tacit knowledge

information or other insight that people have that is difficult to codify or articulate

Intuition

making decisions based on tacit knowledge, which can be based on experience, hunches, or “gut feel”

Agreement on aims and means

refers to the level of consensus among decision-makers about the goals of an organization and the best way to achieve those goals

Classical rational
Political
Trial-and-error
Random
Administrative model

Five general approaches for evaluating options

Classical rational

high knowledge, high agreement

Classical rational

involves listing all possible options to choose from, determining the costs and benefits associated with each, and then choosing the best option

Political

high knowledge, low agreement

Political

involves negotiations about which means and ends to pursue, identifying costs and benefits associated with various options, with the final choice often reflecting a compromise that partially satisfies the competing interests of those involved

networking

ensuring that one has friends in positions of influence

compromise

giving in on an unimportant issue in order to gain an ally who will support you when an issue that is important to you comes up

selective use of information

to further one’s interest

scapegoating

blaming someone for a failure

trading favors

e.g., a manufacturing manager supports the marketing manager this year, expecting a favor in return next year

decision matrix

requires that certain subjective issues be systematically analyzed and quantified so that managers can more effectively compare the alternatives that they are considering

Trial-and-error

low knowledge, high agreement

Trial-and-error

involves listing possible incremental options to choose from, attempting to determine the costs and benefits associated with each, and then choosing the option that offers the greatest opportunity for improvement with the lowest chance of making a mistake

Continuous improvement

refers to making many small, incremental improvements with regard to how things are done in an organization.

Random

low knowledge, low agreement

Random

involves negotiations among decision-makers about which means and ends to pursue, and then making a choice even though decision-makers are unable to determine the costs and benefits associated with possible options

Administrative model

medium knowledge/agreement

satisficing

decision-makers do not attempt to develop an optimal solution to a problem, but rather collect enough information and develop enough alternatives until they feel they are able to choose one that provides an adequate solution

Escalation of commitment

occurs when managers persevere with the implementation of a poor decision despite evidence it is not working

Information distortion

refers to overlooking feedback that makes a decision look bad, and favoring feedback that makes it look good

Persistence

remaining committed to a decision despite obstacles

Administrative inertia

evident when existing structures and systems persist simply because they are already in place

Transaction cost theory

helps entrepreneurs with “make vs buy” decisions

Transaction costs

expenses that do not contribute directly to producing an organizational output, but exist only to reduce threats from opportunism and uncertainty

Opportunism

evident when someone cheats or misleads others to achieve his or her own self-interests