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Decision Making

the process of choosing a solution from available alternatives

Rational Decision Making

a systematic process of defining problems, evaluating alternatives, and choosing optimal solutions

Steps to Rational Decision Making

1) Define the problem
2) Identify decision criteria
3) Weight the criteria
4) Generate alternative courses of action
5) Evaluate each alternative
6) Compute the optimal decision

When does a problem exist?

when there is a gap between a desired state (what managers want) and an existing state (the situation that managers are facing)

Decision criteria

the standards used to guide judgments and decisions

Determining alternative's optimal value

Multiply the rating for each criterion (Step 5) by the weight for that criterion (Step 3), then summing those scores for each alternative course of action that you generated (Step 4)

Define the problem

1) Managers have to be aware of the gap
2) have to be motivated to reduce the gap
3) have to have the knowledge, skills, abilities, and resources to fix the problem

Identify decision criteria

-standards used to guide judgments and decisions
-the more criteria a potential solution meets, the better that solution should be

Weight the criteria

Absolute and relative comparisons to decide which criteria are more or less important

Absolute comparisons

each criterion is compared to a standard or ranked on its own merits (ex, scale of 1 to 5)

Relative comparisons

each criterion is compared directly to every other criterion (ex: +1, 0, -1)

Generate alternative courses of action

identify possible courses of action that could solve the problem, ideally as many alternatives as possible

Evaluate each alternative

each alternative is systematically evaluated against each criterion; this step can take much longer and be more expensive than the other steps

Compute the optimal decision

-multiply the rating for each criterion by the weight for that criterion
-sum the scores for each alternative course of action

Bounded Rationality

Decision-making process restricting in the real world by:
-limited resources
-incomplete and imperfect information
-managers' limited decision-making capabilities

Satisfice

choosing a "good enough" alternative

Protecting against escalation

-avoid being married to your own ideas
-progress reports
-outside auditors
-change managers

Availability Bias

the tendency of decision makers to give preference to recent information, vivid images that evoke emotions, and specific acts and behaviors that they personally observed

Representative Bias

when decision makers judge the likelihood of an event's occurrence based on its similarity to previous events and their likelihood of occurrence

Anchoring and Adjusting bias

tendency of decision makers to use an initial value or experience as a basis of comparison

Groupthink

occurs in highly cohesive groups when members feel intense pressure not to disagree with each other

Groupthink Conditions

-the group is insulated from others with different perspectives
-the group leader begins by expressing strong preference for a particular decision
-there is no established procedure for systematically defining problems and exploring alternatives
-group members have similar backgrounds

Devil's Advocacy

creates c-type conflict by assigning an individual or a subgroup the role of critic

Steps to establish a Devil's Advocacy Program

1) generate potential solution
2) assign a devil's advocate to criticize and questions
3) present the critique of the solution to key decision makers
4) gather useful information
5) decide whether to use, change, or not use the originally proposed solution

Dialectical Inquiry

creates c-type conflict by forcing decision makers to state the assumptions of a proposed solution (thesis) and then to generate a solution that is the opposite (antithesis) of the proposed solution

Steps to establish a Dialectical Inquiry Process

1) generate a potential solution
2) identify the assumptions underlying the potential solution
3) generate a conflicting counterproposal based on opposite assumptions
4) have advocates of each position present their arguments and engage in a debate in front of decision makers
5) decide whether to use, change, or not use the originally proposed solution

Nominal Group Technique

begins by having group members act as individuals and come up with ideas, which they share until all ideas have been shared; group members then individually rank the ideas, and the idea with the highest average rank wins

Delphi Technique

panel of experts respond to questions and to each other until reaching agreement on an issue

Multivariable testing

-systematic approach of experimentation to analyze and evaluate potential solutions
-improves decision making by:
*conducting experiments and letting the data decide
*saving time and money by using a mathematical shortcut to test variables

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