Chapter 14 – Decision Making
Chapter Fourteen: Decision Making
Chapter Synopsis
This chapter highlights four aspects of decision-making:
❑ The types of decisions made in organizations
❑ Steps in the decision-making process
The chapter begins by describing the two basic types of decisions (programmed and non-
programmed) and provides characteristics and examples of each. It lays out the steps in the decision-
making process: establishing specific goals/objectives, identifying and defining the problem,
establishing priorities, considering causes, developing alternatives, evaluating alternatives, selecting
an alternative, implementing the chosen solution, and following up.
Learning Objectives
After completing this chapter, students should be able to:
1. Contrast programmed with non-programmed decisions
2. Identify the steps in the rational decision-making process
Key Terms
programmed decisions—Situations in which specific procedures have been developed for repetitive
and routine problems.
nonprogrammed decisions—Decisions required for unique and complex management problems.
decision—A means to achieve some result or to solve some problem. The outcome of a process that
is influenced by many forces.
values—The guidelines and beliefs that a person uses when confronted with a situation in which a
choice must be made.
cognitive dissonance—A mental state of anxiety that occurs when there is a conflict among an
individual’s various cognitions (for example, attitudes and beliefs) after a decision has been made.
escalation of commitment—An increasing adherence to a previous decision when a rational
decision maker would withdraw.
Lecture Outline
The Chapter outline is organized to correspond with the PowerPoint slides.
The chapter title slide may be used as a background to introduce the class.
Learning objectives
Review the chapter learning objectives. These will be reviewed on the last slide of the pack.
Types of Decisions (1 of 3)
Researchers and experts in the field of decision making have developed several ways of
classifying different types of decisions. For the most part, these classification systems are
because it is complex or extremely important.
Types of Decisions (2 of 3)
Exhibit 14.1 presents a breakdown of the different types of decisions, with examples of each
type, in different kinds of organizations. The exhibit illustrates that programmed and
nonprogrammed decisions require different kinds of procedures and apply to distinctly different
types of problems.
Types of Decisions (3 of 3)
nonprogrammed decisions. In other words, the nature, frequency, and degree of certainty
surrounding a problem should dictate at what level of management the decision should be
made. Obviously, problems arise in those organizations where top management expends much
time and effort on programmed decisions. One unfortunate result of this practice is a neglect of
long-range planning.
The Rational Decision Making Process (1 of 3)
Decisions should be thought of as means rather than ends. They are the organizational
mechanisms through which an attempt is made to achieve a desired state. They are, in effect, an
organizational response to a problem. Every decision is the outcome of a dynamic process that
is influenced by a multitude of forces.
The Rational Decision Making Process (2 of 3)
Exhibit 14.2 diagrams a rational decision-making process. The reader should not, however,
interpret this out-line to mean that decision making is a fixed procedure. It is a sequential
process rather than a series of steps. This sequence diagram enables us to examine each element
occur infrequently, with a great deal of uncertainty surrounding the outcome, require that the
manager utilize the entire process. For problems that occur frequently, however, this is not
necessary. If a policy is established to handle such problems, it will not be necessary to develop
The Rational Decision Making Process (3 of 3)
All problems are not created equal. Managers need to decide which problems need immediate
attention. Determining problem significance involves consideration of three issues: urgency,
impact, and growth tendency. Urgency relates to time. Impact describes the seriousness of the
problem’s effects. Growth tendency addresses future considerations. Even though a problem
may currently be of low urgency and have little impact, if allowed to go unattended it may
grow.
Decision Making Environments
Once alternatives have been developed, they must be evaluated and compared. In every
decision situation, the objective is to select the alternative that will produce the most favorable
outcomes and the least unfavorable outcomes. This again points to the necessity of objectives
the previously established goals and objectives. The alternative-outcome relationship is based
on three possible conditions:
each alternative.
outcome of each alternative.
Alternatives to Rational Decision Making
Decision makers do not follow to the letter the decision-making process presented in Exhibit
14.2. Time pressures, incomplete information, limited human resources, and many other factors
may impact the decision-making process.
Administrative Decision Making
March and Simon offer a descriptive approach that is described as the administrative decision-
referred to as the bounded rationality approach .In this approach the decision makers are
assumed to have a limited or incomplete view of the problems or opportunities facing them. The
number of solutions that can be implemented is limited by the capabilities of the decision maker
and the resources that are available. Since the information, data, and knowledge are not perfect,
which decision is best is unknown.
decision making. •Conflicting goals of different constituents (e.g., employees, suppliers,
customers, and boards) can restrict decisions, forcing a compromise solution.
Intuitive Decision Making (1 of 2)
Managers sometimes simply make decisions based on a “gut” feeling or intuition. An intuitive
decision maker uses experience, self-confidence, and self-motivation to process information,
data, and the environment to address a problem or opportunity. Intuitive decision making
involves an unconscious process that incorporates the decision maker’s personality and
experience in reaching a decision.
Intuitive Decision Making (2 of 2)
is high, time pressures are bearing down, and complexity exists, intuitive decision making is
likely to be involved. The rational and administrative explanations of decision making are
appealing because some logic and system is associated with each of these processes.
Behavioral Influences on Decision Making
A number of behavioral factors influence any decision-making process (e.g., rational,
administrative, intuitive). Some of these factors influence only certain aspects of the process,
while others influence the entire process. However, each may have an impact and, therefore,
must be understood to fully appreciate decision making as a process in organizations. Four
behavioral factors—values, propensity for risk, potential for dissonance, and escalation of
commitment—are discussed in this section. Each of these factors has been shown to have a
significant impact on the decision-making process.
Values (1 of 2)
In the context of decision making, values can be thought of as the guidelines a person uses
when confronted with a situation in which a choice must be made. Values are acquired early in
life and are a basic (often taken-for-granted) part of an individual’s thoughts.
Values (2 of 2)
The influence of values on the decision-making process is profound: In establishing objectives,
it is necessary to make value judgments regarding the selection of opportunities and the
assignment of priorities. In developing alternatives, it is necessary to make value judgments
about the various possibilities. In choosing an alternative, the values of the decision maker
influence which alternative is chosen. In implementing a decision, value judgments are
necessary in choosing the means for implementation. In the evaluation and control phase, value
judgments cannot be avoided when corrective action is taken.
problem and found that no one set of explanations applies to all cases. Some of the most cited
explanations of why decision makers still make unethical choices include those on the slide.
Questions for Decision Makers
Improving the record of making ethical decisions is difficult. Values are difficult to change.
Efforts to promote ethical decision-making focus on training, preparation of a code of ethics,
having top executives serve as proactive role models, and personally examining the situation or
decision to be made. When examining the situation, the decision maker should consider doing
what is legal, doing what is right, being fair, and answering the question, “Could the decision
meet the ‘sunshine’ test,” or “if it is published in the newspaper, would the reader consider the
decision ethical?” Ethical decision making starts with the values that guide an individual’s
decision making. There are no simple prescriptions, but there are right, fair, honest, and open
ways of making decisions. Many decisions have an ethical dimension that requires thought,
reflection, caution, and attention. Considering the rights of others, adhering to strong values,
and living up to high standards of behavior are the starting points for facing inevitable ethical
dilemmas when making decisions.
people are more willing to accept risk as members of a group. Risk propensity is also affected
by whether potential outcomes are characterized in terms of losses or gains. This, in turn,
Potential for Dissonance (1 of 2)
Much attention has been focused on the forces and influences affecting the decision maker
before a decision is made and on the decision itself. But only recently has attention been given
to what happens after a decision has been made. Specifically, behavioral scientists have focused
attention on the occurrence of post-decision anxiety.
Such anxiety is related to what Festinger calls cognitive dissonance. Festinger’s cognitive
That is, there will be a conflict between what the decision maker knows and believes and what
was done, and as a result the decision maker will have doubts and second thoughts about the
choice that was made. In addition, there is a likelihood that the intensity of the anxiety will be
greater when any of the following conditions exist:
1. The decision is an important one psychologically or financially.
2. There are a number of forgone alternatives.
especially those at higher levels in the organization.
Potential for Dissonance (2 of 2)
Dissonance can be reduced by admitting that a mistake has been made. Unfortunately, many
individuals are reluctant to admit they have made a wrong decision and will be more likely to
use one or more of the following methods to reduce their dissonance:
1. Seek information that supports the wisdom of their decision.
2. Selectively perceive (distort) information in a way that supports their decision.
importance of the positive aspects.
Potential for Dissonance (2 of 2)
The potential for dissonance is influenced heavily by one’s personality, specifically one’s self–
confidence and ability to be persuaded. In fact, all of the behavioral influences are closely
interrelated and are isolated here only for discussion purposes. For example, what kind of a risk
taker you are and your potential for anxiety following a decision are very closely related, and
both are strongly influenced by your personality, your perceptions, and your value system.
organization when they make decisions.
Escalation of Commitment
Decision makers who are unclear about their goals, have a fear of failure, are feeling pressure,
and work in a culture with low trust are likely to be candidates for escalation of decision
losing or poor decision into a winning or good decision.
Making Decisions in Diverse Cultures
Organizational decision making in the United States is presumed to be based on thorough and
objective analysis of relevant information. Whether this is true in actual practice is arguable, but
it does represent what is supposed to happen ideally. This is not the ideal in every society,
.
Group Decision Making
In most organizations, a great deal of decision making is achieved through committees, teams,
task forces, and other kinds of groups. Managers frequently face situations in which they must
seek and combine judgments in group meetings. This is especially true for nonprogrammed
problems, which are novel and have much uncertainty regarding the outcome. In most
a regular basis. The increased complexity of many nonprogrammed decisions requires
Individual Versus Group Decision Making
Considerable debate has occurred over the relative effectiveness of individual versus group
decision making. Groups usually take more time to reach a decision than individuals do. But
bringing together individual specialists and experts has its benefits since the mutually
reinforcing impact of their interaction results in better decisions. In fact, a great deal of research
has shown that consensus decisions with five or more participants are superior to individual
Benefits of Group Decision Making
Certain decisions appear to be better made by groups, while others appear better suited to
individual decision making. Nonprogrammed decisions appear to be better suited to group
decision making. Usually calling for pooled talent, the decisions are so important that they are
frequently made by top management and, to a somewhat lesser extent, by middle managers.
group members. Thus, for a complex problem requiring pooled knowledge, the quality of the
decision is likely to be higher as the group moves toward achieving consensus.
Creativity in Group Decision Making
Since most decisions involve some degree of risk, there is a need for creativity to solve
problems and seize opportunities. Creativity is a process by which an individual, group, or team
produces novel and useful ideas to solve a problem or capture an opportunity. In organizations,
lateral thinking or a process of generating novel ways to solve problems faced by an individual
or group.
Techniques for Stimulating Creativity
Practicing managers need specific techniques that will enable them to in-crease the benefits
from group decision making while reducing the associated problems. If problems are not
addressed, then a group’s creativity can be substantially diminished. We shall examine three
techniques that, when properly utilized, have been found to be extremely useful in increasing
the creative capability of a group in generating ideas, understanding problems, and reaching
better decisions. Increasing the creative capability of a group is especially necessary when
individuals from diverse sectors of the organization must pool their judgments and create a
satisfactory course of action for the organization. The three techniques are brainstorming, the
Delphi technique, and the nominal group technique.
The purpose of the rules is to promote the generation of ideas while, at the same time, avoiding
the inhibitions of members that usually are caused by face-to-face groups. The basic rules are
shown on the slide.
Brainstorming (2 of 2)
Issues that can decrease the effectiveness of brainstorming in teams include: 1. Social loafing.
Team members tend to not work as hard mentally or physically as they would alone, so social
loafing can decrease the quality and quantity of ideas generated from the brainstorming session.
2. Conformity. If members of the team are overly concerned that their ideas and suggestions
will be viewed critically by others, then they will be less likely to provide innovative and
creative suggestions. 3. Idea production blocking. This occurs when a team member has to wait
for his or her turn to provide an idea that contributes to the brainstorming session. The delay
The Delphi Technique
This technique involves the solicitation and comparison of anonymous judgments on the topic
of interest through a set of sequential questionnaires that are interspersed with summarized
information and feedback of opinions from earlier responses. The Delphi technique retains the
advantage of having several judges while removing the biasing effects that might occur during
face-to-face interaction. The basic approach has been to collect anonymous judgments by mail
is that the consensus estimate will result in a better decision after several rounds of anonymous
group judgment. While it is possible to continue the procedure for several rounds, studies have
shown essentially no significant change after the second round of estimation.
The Nominal Group Technique
NGT has gained increasing recognition in health, social service, education, industry, and
government organizations. The term nominal group technique (NGT) was adopted by earlier
researchers to refer to processes that bring people together but do not allow them to
communicate verbally. Thus, the collection of people is a group “nominally,” or in name only.
You will see, however, that NGT in its present form combines both verbal and nonverbal
stages. Basically, NGT is a structured group meeting that proceeds as follows: A group of
individuals (7 to 10) sit around a table but do not speak to one another. Rather, each person
independent voting in which each participant, in private, selects priorities by ranking or voting.
The group decision is the mathematically pooled outcome of the individual votes.
EXHIBIT 14.4 Four-Step Nominal Group Technique
Exhibit 14.4 illustrates the nominal group technique.
Differences Between Delphi and NGT
Both the Delphi technique and NGT have had excellent
success records. Basic differences between them are shown on the slide.
decisions will have some effect (positive or negative, large or small) on the organization.
In Review, Did We…
Instructors may wish to refer to the learning objectives to facilitate a review of the chapter
concepts.
Summary of Key Points
❑ Decisions may be classified as programmed or nonprogrammed, depending on the type of
problem. Decisions are programmed to the extent that they are repetitive and routine and a
definite procedure has been developed for handling the problem. Decisions are
nonprogrammed when they are novel and unstructured and there is no established procedure
for handling the problem.
❑ The relationship between alternatives and outcomes is based on three possible conditions.
Certainty exists when the decision maker has complete knowledge of the probability of the
outcome of each alternative. Uncertainty exists when absolutely no such knowledge is
available. Risk is an intermediate condition, wherein some probable estimate of outcomes can
be made.
❑ The decision-making process is influenced by behavioral factors. Different decision makers
may behave differently at any step in the decision-making process. Behavioral factors
include values, propensity for risk, potential for dissonance, and escalation of commitment.
❑ One of the advantages of group decision making is that it can facilitate the identification of
creative and innovative solutions to problems. Three specific techniques for stimulating
creativity in groups are brainstorming, the nominal group technique, and the Delphi
technique.
Review and Discussion Questions
1. Risk is an inevitable part of decision making. Thinking back to an important career-related
decision you made recently, how much risk was involved in the decision? How did you go
about weighing the risks associated with the possible outcomes? How much risk are you
willing to tolerate to be successful in your career?
Ans: Student answers will vary.
2. Why is it important to establish priorities among different problems? Under what
conditions might it be necessary to re-evaluate priorities?
Ans: Because problems differ in their significance, urgency, impact on the organization and
3. Increasingly today, decisions are made in a global context. Can you think of some
techniques that might be employed to reduce the likelihood of difficulties when decision
makers from different cultures are working together to solve a problem?
Ans: Student answers will vary. Sample answer: A useful starting point is awareness. Decision
makers must know that culture may influence the way people define a problem, assess its
4. How do you cope with cognitive dissonance after making a decision? Are you successful? By
what criteria?
Ans: Answers will vary by student.
5. Think of a reasonably important nonprogrammed decision you have made recently. Did
you employ an approach similar to the decision-making process outlined in Exhibit 14.2? How
good was your decision? Could it have been improved by using the decision-making process?
Explain.
Ans: Student answers will vary.
6. Given all the corporate scandals ( e.g.,Volkswagen) that have been in the news, how
important a role should ethics play in decision-making? Should leaders and managers—and
organizations—be evaluated on the extent to which they make ethical decisions?
Ans: Student answers will vary, although most business ethicists would say, “Yes, they should be
7. What role does personality play in decision making? Can you think of an example from
your experience where the personality of a decision maker clearly influenced his or her
decision?
Ans: Student experiences will vary, although personality profoundly influences the decision-making
8. Creativity requires nonconformity of thinking. Does that explain why so many
organizational decisions are noncreative? Aside from the specific techniques discussed in the
chapter, what can be done to stimulate creative decision making in an organization?
Ans: Student answers will vary. Sample answer: Conformity of think could partially explain why so
many organizational decisions are noncreative, but so could other factors, such as time and budget
9. Bounded rationality appears to be a better explanation of how decision making actually
occurs. What makes this better than a rational explanation of decision making?
Ans: With bounded rationality decisions, it is assumed that decision makers have a limited or
incomplete view of the problems and opportunities facing them and that decisions are limited by the
10. “Decisions should be thought of as means rather than ends.” Explain what this statement
means and what affect it should have on decision making.
Ans: A decision is a stated intent to take action to solve a problem. The decision is not an end; the
end is the objective that is hopefully achieved by decided-upon action (implementation). A decision
EXERCISE 14.1: HOW BIASED IS YOUR DECISION MAKING
Exercise 14-1: How Biased Is Your Decision Making?
Purpose
To allow students to see how decisions vary, depending on variables such as how questions are
framed and depending on individual biases.
The Exercise in Class
Since these problems are all fictitious, there are obviously no absolute right or wrong answers.
However, several scholars have studied patterns of responses and the relationship of those responses
Answer to #1
(Two Hospitals) Based upon the information provided, both hospitals will average 50% male births
over time. A single birth will have a greater impact on relative population of male births in the small
hospital. On a typical day one would expect seven or eight of the 15 births to be male in the smaller
hospital, just one male birth beyond the normal range would lead to a 60% rate. The larger hospital
would require four such births. One may also expect the smaller hospital to have a higher percentage
of 60% female days as the impact of a single birth of either sex is weighted more heavily due to the
smaller population.
Answer to #2 (What about Linda) Based upon the scenario, there is no information to support either
option.
Answer to #3 (What Color was that Cab?) The information concerning the percentage of cabs in the
prompt is a distractor. The case provides that color identification was correct 80% of the time.
EXERCISE 14.2: GROUP DECISION MAKING
Purpose
To help students understand and experience the pros and cons of group versus individual decision
making.
Chapter 14 – Decision Making
The Exercise in Class
Begin the exercise by explaining its purpose and outline. Because some students may not bring their
books to class, it is a good idea to distribute copies of the Wilderness Survival Worksheet, one to
each student. Ask students to individually and privately complete the worksheet (allow about 10
minutes). Then form groups of five to seven students per group. Students should read the directions
paragraph at the end of the Wilderness Survival Worksheet, then begin the group task as indicated
CASE 14.1 THE NETFLIX DECISION THAT COULD COST THE COMPANY 800,000
SUBSCRIBERS
The case looks a series of decisions made by Netflix to facilitate thought on decision making
processes, values and decision making traps.
Discussion questions:
1. Faced with the increased costs delivering both DVD by mail and for streaming online
content it is clear that Netflix had to take some action. Describe the decision making
process you would have advised Netflix management to follow.
2. What values are reflected in the Netflix decisions presented in the case?
While student answers will vary, students may pick up on a value of technology and analytical
Teaching Hints and Tips
Lecture Ideas
1. To facilitate understanding of their approaches to decision making and the steps in the
decision-making process, ask your students; “What’s the most difficult decision you’ve ever
2. Bring to the class one or two very high profile decisions, perhaps something taken from the
newspaper or something everyone on campus wants to discuss. Then ask the class to develop a
strategy for solving that problem. (Individual or group? Why?) If individual decision-making
seems appropriate, ask students to explain how they would apply the steps in the decision
3. To personalize the topic of behavioral influences on decisions ask your students how they
would describe themselves: Optimist? Realist? Pessimist? Fatalist? Then ask them to consider
the effect of this personality characteristic on the decisions they make and on the various steps
in the decision process (e.g., setting decision objectives and generating and evaluating
alternatives and selecting one).
Project Ideas and Suggested Class Speakers
1. If a member of the business or psychology faculty has conducted research on individual
decision-making, invite the faculty member to speak to the class on recent research findings
concerning the decision-making process. Interesting topics not covered in the chapter, which
2. This exercise has two objectives: first, to help students methodically examine a decision
process with the expectation that what they see in someone else’s decision process they may be
able to apply to themselves. A second objective is helping students experience the connections
among a variety of organizational behavior concepts: perception, personality, motivation,
communication, and decision-making. The instructor who engages in a discussion with
students about the decision processes can ask questions relating to these concepts, and thus
reinforce the interrelations among concepts.
3. There are a number of classic films about decision-making. A recent one is 13 Days, which is
about the Cuban Missile Crisis. It is an excellent exploration of decision making from a
participatory approach used by JFK. An older but intriguing one is The Caine Mutiny. There is
also Mutiny on the Bounty, 12 Angry Men, To Kill a Mockingbird, Inherit the Wind, and The
Insider.
Term Paper Topics
1. Genders and Decision Making: Do Men and Women Think Differently?
2. Implementation of Decisions: Should the People Who Implement Decisions Participate In
Making Them?
3. The Role of Creativity in Decision Making
4. Presidents Obama and Bush: Profiles of Decision Style