Chapter 6 1
Chapter 6 2
What is decision making?
Decision making is almost universally defined as choosing between alternatives. It is
closely related to all the traditional management functions. For example when a manager
plans, organizes and controls he or she is making decisions. There is a little question of
important role that human behavior can play in management decision making.
Phases in decision making
Most discussions of the decision making process breaks it down to a series of steps.
Mintzberg points out three steps
1. The identification phase
During which recognition of a problem or opportunity arises and a diagnosis is
made. It was found that severe immediate problems did not have a very
systematic extensive diagnosis but that mild problems did.
2. The development phase
During which there may be a search for existing standard procedures or solutions
already in place or the design of a new tailor made solution. It was found that the
design process was a grouping trial-and-error process in which the decision
makers had only a vague idea of the ideal solution.
3. The selection phase
During which the choice of a solution is made by judgment of the decision maker,
on the basis of experience or intuition rather than logical analysis and by
bargaining when the selection involves a group of decision makers and all the
political maneuvering that this entails.
Also, decision making is a dynamic process, and there are many feedback loops in
each of the phases. Feedback loops can be caused by problems of timing, politics,
disagreement among mangers, inability to identify an appropriate alternative or to
implement the solution turnover of managers or the sudden appearance of a new
Behavioral implications of decision making
Why do decision makers choose one alternative over another? The answer to this
question involves decision rationality and behavioral decision models.
The most often used definition of rationality in decision making is that “it is means to
an end”. If appropriate means are chosen to reach desired ends, the decision is said to
be rational. However there are many complications to this simple test of rationality.
To begin with it is very difficult to separate means from ends because an apparent end
may be only a means for some future end. Simon points out that “the mean – ends
hierarchy” is seldom an integrated, completely connected chain. Often the connection
between organization’s activities and ultimate objectives is obscure. Further, “the-
means–ends” concept is obsolete. Simple means–ends analysis may have inaccurate
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The following three phases should help in avoiding the inherent problems of means –
The ends to be attained by the choice of a particular behaviour alternative are
often incompletely or incorrectly stated through failure to consider the alternative
ends that could be reached by selection of another beahviour.
In actual situations a complete separation of means from ends is usually
The means–end terminology tends to obscure the role of the time element in
Models of decision making behaviour
There are many descriptive models of rationality–of–choice behaviour. In effect,
these have become models for much of management decision making behaviour. The
models attempt to describe theoretically and realistically how practicing managers
make decisions. In particular, the models strive to determine to what degree
management decision makers are rational.
1. The Econologic Model: This model comes from the classical economic model, in
which the decision maker is perfectly and completely rational in every way.
Regarding decision – making activities, the following conditions are assumed:
i The decision will be rational in the means – ends sense.
Econolgic Simons bounded Peters and waterman’s Social
Model rationality Model “well – managed” Model Model
+ ________________________ Rationality ________________________ -
ii There is a complete system of preferences which allows choice among the
iii There is complete awareness of all the possible alternatives.
iv There are no limits to the complexity of computations that can be
performed to determine the best alternatives.
v Probability calculations are neither frightening nor mysterious.
With his almost infallible ability the decision maker always strives to maximize
outcomes in the business firm, and decisions will be directed to the point of
Most economists and quantitative decision theorists do not claim that this depiction is
a realistic descriptive model of modern decision – making behavior. But because this
rational model and its accompanying quantitative methods have been embraced by
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the business schools, most of today’s managers equate “good” management decision
making with this approach.
This may be dangerous and may be a leading cause of many of today’s problems. As
Peters and Waterman observed: “The numerative, rationalist approach to
management” dominates the business schools. It seeks detached, analytical
justification for all decisions. It is right enough to be dangerously wrong, and it has
arguably led us seriously astray. The rational model is not the be – all and end – all of
effective decision making and that, if carried to the extreme, it can actually be
harmful to the decision – making process
2. The Social Model: All the opposite extreme from the Econologic model is the
social model of psychology. Social influences have a significant impact on
decision – making behavior. Further more, social pressures and influences may
cause managers to make irrational decisions.
There are many economic, social and organizational variables which influence the
degree to which satisficing becomes maximizing. An example of an economic
variable is market structure. The “an agricultural” products market situation
staisficing will by necessity become maximizing. Economists generally recognize
that in a purely competitive environment, profit maximization lends itself to the
very survival of the firm. Thus, the decision maker must make maximizing
Besides the economic market constraints, there are many socially based obstacles
which are not consciously recognized by the management decision maker but
these prevent maximization in practice are resistance to change, desire for status,
concern for image, organizational politics. On the other hand, the decision maker
may in some cases consciously avoid maximizing. Examples of the latter behavior
include decisions which discourage competitive entry, restrain union demands, or
maintain consumer good will.
3. Peters and Waterman’s “Well Managed Model: In their analysis of well –
managed companies, Peters and Waterman found that the decision – making
process in these firms did not always follow the rational model. In particular,
they found that the rational model, and its accompanying emphasis on
quantitative analysis, had the following dysfunctional effects on the companies
i The rational approach has a built – in conservative bias that causes
constreduction to take priority over revenue enhancement.
ii If allowed to go too far, the rational model can lead to an abstract,
iii An overly narrow rational approach is sometimes negative.
iv Some versions of rationality do not value experimentation and crack down
on those who make a mistake or fail. On the other hand H.P., and Wang,
amid a hot bed of experimentation, have proceeded rational and
chaotically, and introduced ten more new products each during the
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v A climate of anti-experimentation fostered by the rational model leads to
over-complexity and inflexibility,
In addition, Peters and Waterman point out that there are other problems in the rational
model, such as stressing the formal rather than the informal procedure, deemphasizing the
importance of corporate values, and stifling internal competition. Human being on the
other hand can’t stop their biases and personal whims getting into their decisions.
This newest model of decision-making is placed towards the non-rational end of the
continuum. Unlike the others, it is based on empirical support of how successful
companies are being run. Although recent analysis questions this empirical support and
suggests that Peters and Waterman’s work may be based more on advocacy than science,
it does at least deal with examples and problems from real organization.
In the final analysis, all the models presented are appropriate under certain conditions and
are used in combination with one another. Beside s the strategies and techniques coming
out of ” well-managed” model, the behavioral techniques discussed next can also be
helpful for effective decision making.
4 Somon’s Bounded Rationality Model.
To present a more realistic alternative to the econologic model, Herbert Simon proposed
what he called” administrative man”. He felt that management decision-making behavior
can best be described as follows;
i In choosing between alternatives, managers attempt to look for the one
which is satisfactory or “good enough.” For examples, adequate profit or
share of the market and fair price.
ii They recognize that the world they perceive is a drastically simplified of
the real world. They are content with this simplification because they
believe the real world is mostly empty anyway.
iii Because they satisfice rather than maximize, they can make their choices
without first determining all possible behavior alternatives and without
ascertaining that these are in fact all the alternatives.
iv Because they treat the world as rather empty, they are able to make
decisions with relatively simply rules of thumb or tricks of the trade or
from force of habit. These techniques do not make impossible demands
upon their capacity for thought.
In contrast to the econologic model Simon’s model is rational and maximizing but it is
bounded. Decision makers end up satisficing because they do not have the ability to
maximize. The case against maximizing behavior has been summed up by noting that
objectives are dynamic rather than static; information is seldom perfect; there are obvious
time and cost constraints; alternatives seldom lend themselves to quantified preference
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ordering; and the effect of environmental forces cannot be disregarded. Simon’s model
recognizes these limitations.
The econologic models assumptions are viewed as unrealistic. But in the final analysis,
the difference between the econologic model and Simon’s model is that of relative degree
because, under some conditions, satisficing approaches maximizing, whereas in other
conditions satisfiction and maximizing are very far apart. The real, world is full of
irrational conformists. There seems to be little doubt of importance of social influences in
There is still much to be learned about the impact of social pressures on decision-making
behavior. This even applies to how one makes decision in the international arena.
Knowing the correct social protocol can be very important to U.S. managers in an
Behaviorally oriented decision-making techniques
Most of the behavioral techniques have revolved around the concept of participation.
Used as a technique, participation involves individuals or groups in the decision-making
process. It can be formal or informal, and it entails intellectual and emotional as well as
physical involvement. The actual amount of participation in making decision ranges from
one extreme of no participation, wherein the superior makes the decision and asks for no
help or ideas from anyone, to the other extreme of full participation, where everyone
connected with, or affected by, the decision is completely involved. In Practice, the
degree of participation will be determined by factors such as the experience of the person
or group and the nature of the task. The more experience and the more open and
unstructured the task, the more participation there will tend to be.
In today’s organizations there is an awakened interest in participation to combat declining
productivity and foreign competition. These are: -
1 Individual, group, and programmer participation Techniques
Participation techniques can be applied informally on an individual or a group basis or
formally on a programme basis. Individual participation techniques are those in which a
subordinate somehow affects the decision making of a superior. Group participation
utilizes consultative and democratic techniques. Under consultative participation,
research supports that it enhances employee performance.
Examples of formal programmes of participation include the autonomous work groups.
Junior boards of executives, union-management cooperation committees, and quality
circles. The junior board enables junior executives in top decision-making. Normally, the
Junior executives are limited to an advisory role. Collective bargaining, defined as the
negotiation and administration of an agreement between labor and management over
wages, hours, and employment conditions generally not associated with participation
techniques of decisions making. Yet technically, if the union is a legally elected
bargaining agent for the employees the union participates through collective bargaining
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in the decision affecting the employees. Union-management cooperation committees are
formally established to encourage participation of union members in practically all areas
of management decision-making. Such a committee is usually set up as a last resort to
save an organization from closing down.
Commonly used suggestion plans or boxes are also a formal shape of participation
programme. The company gives bonuses for suggestion and inputs to its participation
Quality circles/modern participative technique
Quality circles were developed and are widely used in Japan. A group participation
process, quality circles “typically are small groups of volunteers” from the same work
areas who meet regularly to identify, analyze, and solve quality and related problems in
their area of responsibility. Members of a group choose a particular problem to study,
gather data, and use such methods as brainstorming.
There are many positive and negative attributes of participation techniques of decision
making. Balancing these off in evaluating the effectiveness of participative decision
makes it difficult because of moderating factors such as, leadership style or personality of
the parties involved and situational, environmental and contextual factors. Also a recent
extensive review of research found that the different forms of participative techniques
had markedly different outcomes. For example, informal participation was found to have
a positive effect on employee productivity and satisfaction, representative participation
had a positive impact on satisfaction, but not productivity, and short term participation
was ineffective by both criteria.
(i) One problem is the tendency towards pseudo participation. Many managers do not
genuinely ask for participation, whenever subordinates make a suggestion or try to give
some input into a decision, they are put down or never receive feedback. (ii) In some
cases managers try to get their subordinates involved in the task but not in the decision
making process. (iii) Also, participation can be very time consuming, and it has the same
general disadvantages of committees.
From a behavioral standpoint, however, the advantages far outweigh the disadvantages.
Perhaps the biggest advantage is that the participation techniques recognize that each
person can make a meaningful contribution to the attainment of organizational objectives.
2 Group Decision Making Techniques:
Practically all the advances that have been made in decision making techniques over the
past several years have been quantitative in nature. New creative ideas are scarce and do
not seem to be coming out of students educated in business schools.
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The Delphi Technique:
For long range forecasting today's numerous organizations in business, education,
government, health, and military are using Delphi.
Delphi technique seems to be as good as a crystal ball.
The technique works as follows:
1. A panel (usually of experts, but in some cases non experts may be used) is
formed, but importantly the members are not in face to face interaction with one
another. Thus, the expenses of bringing group together are eliminated.
2. Each member is asked to make anonymous predictions or input into the problem
or decision the panel is charged with.
3. Each panel member then receives composite feedback from what the other has
inputted. In some variations the reasons are listed (anonymously) but mostly just a
composite figure is used.
4. On the bases of the feedback, another round of anonymous inputs is made. These
iterations take place for a predetermined number of times or until composite
feedback remains the same, which means every one is sticking with his or her
A major key to the success of the technique lies in its anonymity. It eliminates the
problem of "saving" face and encourages the panel experts to be more flexible and thus to
benefit from the estimates of others.
Many organizations testify to the success they have had so far with the Delphi technique.
The technique can be used to forecast the future uncertainties of commercial market. The
panel suggests products and services which have future marketing potential and predict
technological developments and significant political, economic, social and cultural
events. Besides business applications, the technique has been used successfully on
various problems in government, health, education, and military. In other words, Delphi
can be applied to a wide variety of program planning and decision problems in any type
The major criticisms of the Delphi technique center on its time consumption and cost.
The second criticism implies that, similar to the parlor game of that name, Delphi can
claim no scientific basis or support. To counter this criticism attempts have been made, to
validate Delphi through controlled experimentation.
3 The Nominal Group Technique (NGT) Or Modern Participative Technique:
Closely related to Delphi is the nominal group approach to group decision making used
by social psychologists. A nominal group is simply a "paper group", a group of
individuals added together on paper but not verbally interacting. It is a group in name
only because no verbal exchange is allowed between members. In terms of number of
ideas, uniqueness of ideas, and quality of ideas, research has found nominal group to be
superior to real groups. The general conclusion is that interacting groups inhibit
creativity. This, of course, applies only to ideas generation because the interactive effect
of group member is known to have a significant effect on other variables.
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This nominal group approach used as a specific technique for decision making in
organizations, consists of the following steps:
1. Silent generation of ideas in writing.
2. Round robin feedback from group members.
3. Discussion of each recorded idea for clarification and evaluation.
4. Individual voting on priority ideas, with the group decision being mathematically
derived through rank ordering or rating.
The difference between this approach and Delphi is that the NGT members are usually
acquainted with one another, have face to face contact, and communicate directly. A
review of the existing research literature of Delphi and NGT concluded that both help
improve the quality of group decision because they mitigate the problems of interacting
groups – individual dominance and groupthink. A skilled chairperson, therefore, may
adapt these techniques to particular decision making situation.
4 Artificial Intelligence And Expert System:
Artificial intelligence is the use of computers to mimic human intellectual activity. It will
improve productivity through the automation of decision making. When applied to actual
diagnoses and decision making in organizations, this technology has become known as
expert system. More specifically, expert system use a new way of organizing information
in computers that uses symbols rather than just numbers as in conventional software.
Almost all large firms today in a variety of industries are using expert systems.
The use of expert system and artificial intelligence in general has had and will continue to
have a tremendous impact on decision making. In the final analysis, however, human
beings, not machine, must make the decision that guide organizations into the future and
make them effective. One important set of human decisions revolves about how, when,
and where to implement expert system.