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Chapter Seven
Individual & Group
Decision Making
B7-1
Decision Making Defined
 Decision: is a choice
made from among
available alternatives.
 Decision Making: is
the process of
identifying and
choosing alternative
courses of action.
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-2
Types of Decisions
 Programmed
Decisions: are
repetitive and routine.
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 Nonprogrammed
Decisions: are those
that occur under
nonroutine, unfamiliar
circumstances.
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-3
Decision Making Style
 Decision Making Style: reflects the combination of
how an individual perceives and responds to
information.
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-4
Decision Making Styles
Tolerance for ambiguity
Panel 7.1
Analytical
Conceptual
Directive
Behavioral
Task & technical
concerns
People & social
concerns
High
Low
Value Orientation
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-5
Rational Decisions
 Rational Model of
Decision Making: also
called the classical
model explains how
managers should
make decisions; it
assumes managers
will make logical
decisions that will be
optimum in furthering
the organization’s best
interests.
McGraw-Hill/Irwin
 The Rational Model is
based on unrealistic
assumptions:
 Complete information,
no uncertainty
 Logical, unemotional
analysis,
 Best Decision for the
organization
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-6
Panel 7.2
The Four Steps in Rational
Decision Making
Stage 1
Stage 2
Stage 3
Stage 4
Identify the
problem or
opportunity
Think up
alternative
solutions
Evaluate
alternatives &
select a
solution
Implement &
evaluate the
solution
chosen
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-7
Nonrational Decision Maing
 Nonrational models
of decision making:
explain how managers
do make decisions;
they assume the
decision making is
nearly always
uncertain and risky,
making it difficult for
managers to make the
optimum decisions.
McGraw-Hill/Irwin
 Nonrational Models
are:
 Satisficing
 Incremental
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-8
Making Better Decisions Through
Knowledge Management
 Explicit Knowledge: information that can be easily
put into words.
 Tacit knowledge: individual based, intuitive, acquired
through considerable experience, and hard to
express and to share.
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-9
Panel 7.5
The Ethical Decision Tree
Yes
Do it.
Is it ethical?
Yes
No
Yes
Does it
maximize
shareholder
value?
Is the
proposed
action legal?
No
No
Don’t do it.
Yes
Don’t do it.
Would it be
ethical not to
take action?
No
McGraw-Hill/Irwin
Don’t do it.
Do it.
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-10
Advantages & Disadvantages of
Group Decision Making
Advantages
Disadvantages
Greater pool of knowledge
A few people dominate or intimidate
Different perspectives
Groupthink
Intellectual stimulation
Satisficing
Better understanding of decision
rationale
Deeper commitment to the decision
McGraw-Hill/Irwin
Goal displacement
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-11
What Managers Need to know
about Groups & Decision Making
1) They are less efficient
2) Their size affects decision quality
3) They may be too confident
4) Knowledge counts
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-12
Panel 7.7
When a Group Can Help in
Decision Making
1) When it can increase quality
2) When it can increase acceptance
3) When it can increase development
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-13

Participative Management
Participative Management: the process of
involving employees in setting goals, making
decisions, solving problems, and making changes
in the organization.
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-14
Panel 7.8
Factors that Can Help
Participative Management Work

Top management is continually involved

Middle and supervisory managers are supportive

Employees trust managers

Employees are ready

Employees don’t work in interdependent jobs

PM is implemented with TQM
McGraw-Hill/Irwin
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B7-15
More Group Problem Solving
Techniques

Interacting group

Nominal group

Delphi group

Computer aided decision making
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-16
How Do Individuals Respond to a
Decision Situation?
 Effective Responses:
Importance
Credibility
urgency
McGraw-Hill/Irwin
 Ineffective Responses:
Relaxed avoidance
Relaxed change
Defensive avoidance
Panic
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
B7-17
Decision Making Biases

Availability bias

Representativeness bias

Anchoring and adjustment bias
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Key Terms Used in This Chapter
 Anchoring and adjustment bias  Explicit knowledge
 Availability bias
 Goal displacement
 Bounded rationality
 Groupthink
 Consensus
 Heuristics
 Deciding to decide
 Incremental model
 Decision
 Interacting group
 Decision making
 Knowledge management
 Decision making style
 Nominal group
 Decision tree
 Nonprogrammed decisions
 Defensive avoidance
 Delphi group
 Nonrational models of decision
making
 Diagnosis
 Opportunities
 Escalation of commitment
 Panic
 Ethics officer
 Participative management
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Key Terms Used in This Chapter
 Problems
 Programmed decisions
 Rational model of decision
making
 Relaxed avoidance
 Relaxed change
 Representativeness bias
 Satisficing model
 Tacit knowledge
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.