Decision Making
Routine Decisions: made everyday
Assumption of Rationality
simple problem, clear goals and limited alternatives, minimal time pressures, cost of evaluating alternatives is low, organisation's culture supports innovation. measurable outcomes
Managers tend to operate under Bounded Rationality
Programmed Decision; repetitive can handled by a routine appraoch
Structured Problems; straightforward, familiar, easily defined
Make rational decisions, but are limited by their ability to process infomation
cannot analyse all infomation, so managers "staisfice" instead of maximise
escalation of committment: increased commitment to a previous decision even if it may be wrong; people don't want to admit they made an error
Limited Rationality often compliments intuition; the methods do not exist in isolation
Policy: guideline that establishes parameters for decision making
Biases and Errors
Unstructured Problems; incomplete infomation, unique, relies on non-programmed decision making (custom made solutions)
Decisions are generally either mainly programmed or mainly non-programmed
Uncertain conditions; decisions affected by psychological orientation of manager e.g. level of optimism
Linear Thinking; rational and logical analysis of external data
Non-Linear Thinking: internal source of infomation; intuition, feelings
Heuristics/Rule of Thumb: rules to makes sense of complex infomation
over-confidence; unrealistic views
immediate gratification; managers want immediate rewards and avoid immediate costs
anchoring effect: managers fixate on initial information and fail to adjust to new information
selective perception bias; the information you pay attention to
Confirmation bias; seek out infomation and ignore infomation to reinforce their past judgements
Framing bias: select certain aspects of a situation and exclude others
availability bias: remember events that are most recent
representation bias: see identical situations where they don't exist
randomness bias: try to create meaning our of random events
sunk cost error: forget that current and future choices cannot fix the past
self-serving bias: take credit for success and absolves themselves of blame for failures
hindsight bias: false belief that the outcome could have accurately been predicted when the outcome is known
Diversity
Advantages: many different perspectives
Disadvantages: more time consuming, difficult to reach agreement, communication issues due to language barrier
Identification
Identify which decisions are the most important to make
Some decisions are rare but strategic e.g. acquisitions
Inventory
factors of the decisions: who's involved? what infomation is available?
Invervention: how to exceute the decision
Wisdom of Crowds: uses surveys of to allow decisions by larger groups