Summary of Chapter 10
- Fundamentals of decision making
Decision-making is one of the most important roles of senior managers. Senior managers a wide range of decisions such as investment or capital budgeting decisions, organizing and coordinating units within the organization. In addition, they make decisions relating to recruitment, allocation, performance evaluation and discipline of employees, among other decisions. Decision-making skills of senior managers are critical to the success of the organization.
i) Definition of the problem: The process of decision making starts with the identification and description of the problem it seeks to solve. For instance, in a capital budgeting decision, the proposed project must be defined. ii) Identification of premises: These include the criteria as well assumptions for evaluating alternatives and arriving at a decision. In capital budgeting, the criterion for accepting or rejecting a project is outlined. For instance, an investment is only considered if its net present value if positive.iii) Information gathering: This step involves environmental scanning to collect the information necessary. The information collected is then evaluated.iv) Identification of alternatives: Several alternatives for achieving the objective outlined in step one are identified and evaluated based on the information collected in the previous step. v) Based on the results of step iv) above, the best alternative is selected. It is then implemented and reviewed to ensure that it achieves its intended objectives.
Satisfactory and ideal decisions
Ideal/ maximizing solutions are impossible since one cannot obtain all the information regarding a given alternative. On the other hand, satisfactory decisions may not be appropriate since they do not consider many alternatives. It is, therefore, important to balance between ideal and satisfactory decisions by considering a sufficient number of alternatives. Considering so many alternatives to get the ideal solution will increase the cost of decision-making.
b) Decision-making styles
i) Sensing: Involves gathering detailed information regarding the situation in order to develop a factual database for supporting the decision. It considers rules and regulations as well as specific examples. It is suitable for routine decisions.ii) Intuition: It focuses on imaginations in order to develop abstractions as a way of developing creative ideas. It pays no consideration to rules and regulations. It is most appropriate in highly dynamic environments and crisis situations which require quick decisions, as well situations new to the organization. iii) Thinking: Involves objective evaluation and systematic analysis of situations and fair decisions based on the policies of the organization. It is effective in cases where the feelings of employees are less important. iv) Feeling: It involves a subjective evaluation and consideration of emotions of other people in the decision. It is most suitable when there is a need to create harmony in the workplace.
- Pitfalls of group decision making
i) Groupthink: It places much emphasis on achieving consensus among members rather than discussing disagreements. It considers a limited number of alternatives.ii) Common information bias: The group may overemphasize on the ideas supported by the majority while paying no consideration to any differing opinions. iii) Risky shift: The group may take a more risky option since members share the total risk thereby leading a smaller average risk per person. iv) Diversity-based infighting: Differing opinions may result in destructive conflicts between members.
d. Group decision-making techniques
i) Brainstorming: Group members generate a large number of ideas, and the evaluation of such ideas is suspended to encourage members who may withhold certain ideas for fear of criticism. ii) Delphi technique: A highly structured method in which members give their opinions regarding the situation, without any face to face meeting. iii) Dialectical inquiry: Involves organizing a debate or discussion between members or subgroups with different opinions. iv) Nominal technique: It involves a structured discussion of the alternatives followed by a silent vote by the members.v) Devil’s advocacy: An individual or subgroup proposes a solution and then a subgroup or individual with a differing opinion argues against it. The decision-maker bases his decision on the critique of the opposing subgroup.
