Advanced organizational management chapter 1
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advanced organizational management Chapter 1. Critical Thinking and Decision-Making Processes. Overview. Decisions are made in an atmosphere in which there is uncertainty, risk, time pressure, imperfect information and a lack of knowledge as to responses.

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advanced organizational management Chapter 1

Critical Thinking and

Decision-Making Processes


  • Decisions are made in an atmosphere in which there is uncertainty, risk, time pressure, imperfect information and a lack of knowledge as to responses.

  • Decision making is a part of ALL the management functions: planning, organizing, leading, and controlling;

  • Focus on this chapter: decisions made in the name of the organization by managers.

A.Organizational Decision Making

  • Manager’s primary function = decision making—the process of identifying and solving problems creatively; making appropriate and rational decisions!

  • 1.Theories of Managerial Decision Making

    • A. Classical theory

    • B. Behavioral (administrative) theory

A.Organizational Decision Making (cont’d)

  • A. Classical theory:

    * represents anidealmodel, with maximizing outcomes as a primary goal;

    * maximizing = process of making decisions that is aimed at realizing the best possible outcome on one dimension – seeking the best answer! Used with non-programmed decisions

    * considered the normative model – defines how a decision maker should make decisions

  • B. Administrative theory:

    * describes how managers actually make decisions with uncertain outcomes where satisficing is necessary

A.Organizational Decision Making (cont’d)


* manager adopts the solution that minimally meets the objectives, often found in the first acceptable option that arises;

* alternatives are not studied much;

* commonly used and appropriate with programmed and recurring decisions

Example: Purchasing software without reviewing whether the same needs exist this year as last year.

A.Organizational Decision Making (cont’d)


* involves the selection of the BEST alternative from a range of options that have been evaluated within existing time/price constraints;

* involves the use of the classical decision-making model more than the other two types.

Example: Selecting a particular brand of computers to buy for use within the entire office from a range of six major options and within the time allotted.

A.Organizational Decision Making (cont’d)

  • Characteristics of “Classical Theory”

    Managers are expected to:

    * gather information

    * examine it objectively

    * consider all alternative solutions

    * make an appropriate choice of alternatives leading to the best possible outcome

    * managers who are “left-brain” thinkers tend to arrive at logical and analytical decisions and are stronger advocates of the classical theory

A.Organizational Decision Making (cont’d)

  • Identification of the problem – clearly stated/defined

  • Presence of certainty – amount of risk is evident and easily determined

  • Information about alternatives – full set of information about each alternative available and expected outcomes are determined

  • Maximization of outcomes – direct application of classical theory results in rational choice of alternatives in relation to the maximization of outcomes

  • Goal – attempt to make the ideal decision

A.Organizational Decision Making (cont’d)

  • Characteristics of “Behavioral (administrative) Theory” – based on work of Herbert A. Simon; how managers actually make decisions in business situations

    Model incorporates two basic concepts: (1) bounded rationality and (2) satisficing

    * managers who are “right-brain” thinkers tend to rely more on intuitive and creative pursuits and more apt to follow a behavioral model

A.Organizational Decision Making (cont’d)

  • Identification of the problem – problem exists and is identified but difficulty in determining what it is; vagueness

  • Presence of uncertainty and intuition – exists because there is only incomplete information available; sometimes manager must use intuition, based on personal experience

  • Information about alternatives – limited information available about alternative solutions and outcomes

  • Satisficing decision making - managers select the alternative solution that satisfies “minimal” decision criteria and seems “good enough”

A.Organizational Decision Making (cont’d)

  • Classical procedures – associated with high performance in stable environment

  • Behavioral procedures – associated with high performance in unsuitable environments where decisions made under more complex and difficult conditions within a short time span

A.Organizational Decision Making (cont’d)

  • 2. Two Types of Decisions to be Made

    • Programmed:

      * decisions made routinely/recurring basis

      * most often do not require huge expenditures

      * less complex in nature (buying copy paper/stocking the supply cabinet)

    • Nonprogrammed:

      * have no precedents/situations not dealt with previously

      * have no rules, procedures or policies for manager to follow

A.Organizational Decision Making (cont’d)

  • 3. Personal v. Organizational Decisions – follow proper protocol to make sure the two areas do not collide!

  • 4. Business Decisions

    * leaders are expected to act in a totally rational manner

    * moral responsibility of management – making decisions that affect the work lives of others

    * emotions and intuition enter into the making of business decisions

A.Organizational Decision Making (cont’d)

* need for rational behavior – follow a well- established logical process

* most decisions combine objectivity and subjectivity

* use of decision-making aids

- computers

- statistics

- decision trees

B. Critical Thinking

  • Definition: means using evidence and reason to evaluate claims, dilemmas, or choice options

    * rational decision making requires critical thinking

    * unique, unanticipated, not encountered before – requires a more detailed process to define, analyze and solve “nonprogrammed” decisions

  • 1.Scientific Method – steps of critical thinking; method of research follows scientific rules that knowledge can be obtained in an unbiased manner

B. Critical Thinking (cont’d)

  • 2. Logical Reasoning Using the Scientific Process

    a. Identifying/defining problem – most important step!

    * reasons for failure to identify real causes: 1) haste; 2)work pressure; 3)discomfort with ambiguous, vague and ill-defined situations

    * results of failure to identify real cause

    b. Gathering information about the problem – investigate fully the circumstances

B. Critical Thinking (cont’d)

  • c. Developing alternative solutions

    * need for clear objectives – clear statement of the objective must be developed

    * need for creative solutions

    – brainstorming = technique designed to help individuals become freer in exercising their creativity

    - brainwriting = individuals write down their ideas independently; group reviews and critiques each idea

B. Critical Thinking (cont’d)

* need for alternative scenarios – an analytical method with the advantage being the ability of the manager to examine multiple possibilities rather than selecting one path to follow

  • d. Evaluating alternatives – test of logic requires that alternatives be evaluated according to same set of standards

    * decision criteria – stated in quantitative or qualitative terms

    1. statistical analysis – the term “statistics” is used generally to mean DATA (characteristics) for a sample (subset) of a population; statistical analysis is a set of methods or techniques for collecting, organizing and interpreting the data (graphs/tables)

B. Critical Thinking (cont’d)

The way data data are displayed can aid the reader to derive meanings from the data:

* Graphs – data organized and presented in terms of: 1) most common plot, or 2) total volume per time period

* Tables – data organized into arrays by chronology, size, location or some other characteristic

B. Critical Thinking (cont’d)

* Inferential statistics – provide techniques for calculating the odds, or probabilities that certain events will happen

* Payoff tables or matrices – show results of a comparison of different alternatives; arranges information so that comparisons of outcomes can be examined simultaneously

* Computers have made the preparation of payoff tables and matrices a much simpler process (Fig. 1-3)

B. Critical Thinking (cont’d)

2.Operations research – includes a wide range of mathematical formulas and techniques for analyzing a complex decision problem

* linear programming – used to find the best answer to situations where many known elements may be put together in different combinations that yield different profits

3.Qualitative factors – are those which cannot be measured directly in quantitative terms

B. Critical Thinking (cont’d)

a. certainty – all possible alternatives must be known, direct and predictable methods and all possible outcomes must be known

* Question in the realm of certainty = “What is the least expensive way to ship a package from point A to point B?”

* uncertainty – we have little or no information about possible alternatives or outcomes

* limited certainty – decision maker has some knowledge about some alternatives but has little information about outcomes

B. Critical Thinking (cont’d)

b. Risk – where alternatives, the possible outcomes, and the probabilities of those outcomes occurring are known, the problem can be converted to one of “gambling” or risk

4.Analytical tools for decision making

* Decision trees – powerful method of graphing complex decision problems, especially in which one is considering a sequence of decisions to be made across a period of time

* VROOM MODEL – most common decision-making tree developed by Vroom and Yelton

B. Critical Thinking (cont’d)

* Decision making using groups – T group, Delphi technique, nominal group technique, quality circles, brainstorming (all covered in Ch. 8)

* Computerized decision making – decision support system (DSS) is an interactive computer-based system that aids decision makers in solving problems

e. Choosing an alternative – final step

* use judgment as it is needed in addition to quantitative data

* consider possible negative consquences

* personal values – bias, attitude toward risk, ambition, fear of public opinion –come into play in the act of choosing the alternative

B. Critical Thinking (cont’d)

* use of groups or committees for implementation – compromise, trading votes, filibustering are all involved in the process of making important decisions

* implementing the decision (decision has been made)

* monitoring the decision

- feedback: either positive (decision was appropriate) or negative (poor decision)

* internal and external environments (evaluate outcomes)

B. Critical Thinking (cont’d)

3.Logical Thinking Patterns

a. Inductive reasoning – defines the problem then moves to identify factors or variables inherent to the problem;

b. Deductive reasoning – thought processes move from a general premise toward specific conclusions

c. Comparison – key is to use the same procedures for comparing all objects or attributes being investigated

d. Causation – most difficult thought process

C. Creative Thinking in Organizational Decision Making

CREATIVITY – generation of new ideas;

INNOVATION – is the translation of a new idea into a new product, service, method of production or even a new organization

Creativity and innovation need to be encouraged and fostered by individuals and organizations.

C. Creative Thinking in Organizational Decision Making (cont’d)

  • Individual creativity – manager has the awesome task of identifying people within the organization who are creative and fostering that creativity

    *Highly creative people tend to be:

    - more original in thought and ideas;

    - willing to shift from one approach to another;

    - more flexible and less rigid with time, resources;

    - more independent in their pursuit of solutions

    - more apt to disobey orders that make no sense

    - more difficult to manage (question authority)

C. Creative Thinking in Organizational Decision Making (cont’d)

  • Creative process in Organizations

    a. Idea generation – variety of sources: outside consultants, employees, new employees, etc.

    b. Idea development or problem solving –supported or inhibited

    c. Implementation of creative ideas – high degree of integration is required among units of an organization

    d. Monitoring of innovation – enables the organization to examine the results to see if further research is needed





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