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BA 301

BA 301. Week 3, Part 1 Decision Making. Decision making…. Is rarely an “event” It’s a process that evolves over time, through discussion, evaluation, research Many managers make the mistake of neglecting the “process” in favor of an “event.”. What Affects Decision Making?.

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BA 301

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  1. BA 301 Week 3, Part 1 Decision Making

  2. Decision making…. • Is rarely an “event” • It’s a process that evolves over time, through discussion, evaluation, research • Many managers make the mistake of neglecting the “process” in favor of an “event.”

  3. What Affects Decision Making? Style or personality Complexity/urgency The scale or scope The categorical type of the decision Established decision models Personal and organizational bias BA 301, Nobles, Fall 2008

  4. Decision-Making Styles Rational thinking Using knowledge, skills and experience Applying logic to reach conclusions Analyzing issues to understand the whole picture Intuitive thinking Conclusions by hunch Being led by emotion and sensitivity Using imagination to create new ideas BA 301, Nobles, Fall 2008

  5. http://www.youtube.com/watch?v=fvNqZRymNmM&feature=related

  6. Rational or Intuitive Gene Hackman was? Denzel was? BA 301, Nobles, Fall 2008

  7. BA 301, Nobles, Fall 2008

  8. Types Of Decisions Programmed Things that have occurred often enough such that you can have rules and guidelines. Examples? Non-programmed Situations that are unique, poorly defined, unstructured, or all of the above. Examples? BA 301, Nobles, Fall 2008

  9. Decision-Making Models There are a number of different types of decision-making approaches, or models: The Classical Model (rational) The Administrative Model The Political Model The choice of models depends on: Personal management preference, or Programmed versus non-programmed decision, or Level of risk, uncertainty and ambiguity BA 301, Nobles, Fall 2008

  10. Decision-Making Models Classical Administrative Political -Clear-cut problems and goals -Condition of certainty -Full information about alternatives and outcomes -Rational choice by individual for maximizing outcomes -Vague problems and goals -Condition of uncertainty -Limited information about alternatives and outcomes -Satisficing choice for resolving problem usingintuition -Pluralistic; conflicting goals -Condition of uncertainty & ambiguity -Inconsistent viewpoints; ambiguous information -Bargaining and discussion among coalition members BA 301, Nobles, Fall 2008

  11. Which Is The Best Model? It depends… …but, know what they are, when to apply them, and what happens in your organization. Where does the PSU SBA framework fit in? Rational decision making is an ideal approach - but organizations are made up of people PSU-SBA identifies and involves corporate stakeholders PSU-SBA recognizes organizational complexities PSU-SBA capitalizes on political differences PSU-SBA is logical, rigid and thorough BA 301, Nobles, Fall 2008

  12. Sometimes… Decision opportunities are like garbage cans: Problems and solutions are dropped into the “can” independent of one another Problems, solutions and decision-makers are not necessarily related to one another Often it seems as if the solutions, the time needed, and the problems rely on chance alignments for completion. The real-world is often not rational, and decisions are made “seat of the pants” This is often best when: Participant involvement varies, and choices are inconsistent and ill-defined BA 301, Nobles, Fall 2008

  13. Set the Stage for successful decision making • Choose team members who represent different points of view • Stakeholders • Proponents/supporters • Opponents • Keep your team to about 6-8 people

  14. Set the stage… • Decide which model/approach you will use: • Consensus: all agree • Majority rule • Qualified consensus: team leader decides if no consensus is reached • Directive leadership: leader listens to discussion and makes ultimate decision

  15. Foster inquiry not advocacy

  16. PSU Problem Solving Process 1. Position 2. Sense 3. Uncover 4. Solve 5. Build 6. Achieve

  17. PSU Problem Solving Process 1. Position Explore the problem-solving context. 2. Sense • Mission, Vision, Values • Stakeholders • Decision-making Models • Impediments 3. Uncover 4. Solve 5. Build 6. Achieve BA 301, Nobles, Fall 2008

  18. Smart People, Bad Decisions Intuition, gut feel, experience, instinct – good or bad? Patterns, rules of thumb, prioritization Quicker problem solving & decision-making Good in automatic processes But, it can often lead to the wrong solution Cognitive bias can lead to inaccurate and irrational decisions – judgment error BA 301, Nobles, Fall 2008

  19. Judgment Error #1 Which of these groups had the largest total sales volume in 2006? Group B Which of the following causes more deaths per year in the U.S., stomach cancer or car accidents? Stomach Cancer – 2:1 Availability Bias (a cognitive bias) Things that are more “available” to us, are likely to be interpreted as more frequent or important Group A Hilton Hotels eBay Apple Computer Gap Group B Valero Energy Cardinal Health Albertson’s American International BA 301, Nobles, Fall 2008

  20. Judgment Error #2 What if I told you the best student in the MBA class this past term writes poetry and is rather shy? What was their undergraduate major – fine arts or business? Business (most MBA students have business degrees) Representative bias (a cognitive bias) A motorcycle rider argues against helmets laws because he has never had an accident. He’s been riding without a helmet for 25 years. So what – one person’s experience does not override the data. Hasty Generalization fallacy (a special case of representative bias) BA 301, Nobles, Fall 2008

  21. Judgment Error #3 Think about the last four digits of your social security number. How many doctors are there in New York? Research shows that there is typically a 0.4 correlation between your answer and the SSN number. This is an anchoring bias – the brain is “anchored” to a number or idea. Think about how this affects negotiation… Who threw out the first number? BA 301, Nobles, Fall 2008

  22. Judgment Error #4 Look at this series of numbers. It conforms to a rule. What is the rule? Propose a new set of numbers. 2, 4, 6 The rule – three ascending numbers. Confirmation bias – a tendency to collect confirming rather than disconfirming information. BA 301, Nobles, Fall 2008

  23. Judgment Error #6 Consider these facts: 80 percent of students believed they were in the top 30 percent of safe drivers. A survey asked 829,000 high school students to rate their own ability to “get along with others,” and less than 1 percent rated themselves as below average. Further, 60 percent rated themselves in the top 10 percent, and 25 percent rated themselves in the 1 percent. This is Overconfidence bias – we just think we’re special… BA 301, Nobles, Fall 2008

  24. Judgment Error #6 Consider the following: What is the probability of tossing a “tail”? 0.5 What is the probability of HHHHH? 0.5x0.5x0.5x0.5x0.5 After four heads in a row, what is the probability of a fifth head? 0.5 (counterintuitive to many people) Probability bias – intuition overcomes rationality BA 301, Nobles, Fall 2008

  25. Judgment error #7 • A group of people were given gifts. Half received a mug and half received a chocolate bar. They were told they could exchange for the other gift. What percentage did? • Only 10% • Status Quo trap

  26. Avoiding Decision Bias Do not jump to conclusions. Do not assume a relationship is a cause; record and test your decision outcomes. Do not base your conclusion only on your experience. Do not just look to support your case; look for non-supporting evidence too. Do not fall prey to overconfidence; get confidence evidence and ranges. BA 301, Nobles, Fall 2008

  27. http://en.wikipedia.org/wiki/List_of_cognitive_biases anchoring - the tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions. bandwagon effect - the tendency to do (or believe) things because many other people do (or believe) the same. belief bias - the tendency to base assessments on personal beliefs (see also belief perseverance and Experimenter's regress) bias blind spot - the tendency not to compensate for one's own cognitive biases. confirmation bias - the tendency to search for or interpret information in a way that confirms one's preconceptions. contrast effect - the enhancement or diminishment of a weight or other measurement when compared with recently observed contrasting object. disconfirmation bias - the tendency for people to extend critical scrutiny to information which contradicts their prior beliefs and accept uncritically information that is congruent with their prior beliefs. endowment effect - the tendency for people to value something more as soon as they own it. hyperbolic discounting - the tendency for people to have a stronger preference for more immediate payoffs relative to later payoffs, the closer to the present both payoffs are. illusion of control - the tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot. impact bias - the tendency for people to overestimate the length or the intensity of the impact of future feeling states. just-world phenomenon - the tendency for people to believe the world is "just" and so therefore people "get what they deserve." loss aversion - the tendency for people to strongly prefer avoiding losses than acquiring gains (see also sunk cost effects) mere exposure effect - the tendency to express undue liking for things merely because they are familiar with them. color psychology - the tendency for cultural symbolism of certain colors to affect affective reasoning. planning fallacy - the tendency to underestimate task-completion times. pseudocertainty effect - the tendency to make risk-averse choices if the expected outcome is positive, but risk-seeking choices to avoid negative outcomes. rosy retrospection - the tendency to rate past events more positively than they had actually rated them when the event occurred. selective perception - the tendency for expectations to affect perception. status quo bias - the tendency for people to like things to stay relatively the same. Von Restorff effect - the tendency for an item that "stands out like a sore thumb" to be more likely to be remembered than other items. BA 301, Nobles, Fall 2008

  28. Group Activity Notes Get together in your groups and discuss personal experiences with organizational decision models and cognitive bias. In your own work environment, is there an obvious decision-making model in place? Does it change depending on the situation? Provide examples. Discuss and reflect on personal examples of cognitive bias. Discuss the Cognitive Bias quiz. Were you surprised by the results, and why or why not? BA 301, Nobles, Fall 2008

  29. BA 301 • Week 3, Part 2 • Find, Define and Prioritize Problems

  30. PSU Problem Solving Process 1. Position 2. Sense Find and prioritize problems 3. Uncover • Problem Identification • Problem Prioritization • Problem Finding 4. Solve 5. Build 6. Achieve

  31. Think Before You Solve • Breakdowns in problem solving: • Fixing symptoms rather than problems. • What IS the real problem? • Solving the wrong problems. • Reacting to problems rather than planning for problems. • SENSE is all about finding, defining and prioritizing • Neglecting this step inevitably wastes TIME & MONEY.

  32. What Is The Problem? • Junior is getting poor grades in school • DAD: “He just doesn’t apply himself.” • MOM: “I know. He really isn’t interested. His mind wanders.” • DAD: “I’m tired of harping about it all the time.” • MOM: “Me, too. It doesn’t seem to have any effect.” • DAD: “Maybe he needs tutoring in how to study.” • MOM: “Lord knows it wouldn’t hurt. He has terrible study habits.” • DAD: I’ll call the school tomorrow and arrange something.” • MOM: “Good. I’m sure it will help him.” • How do they define the problem? • Junior’s lack of interest and a wandering mind. • These may be symptoms of a deeper problem. • All we know is that there is a lack of motivation.

  33. Problems Versus Symptoms? • How would you define “problem”? • A gap between the desired and the actual situation. • In business - declining profits, high failure rates, employee attrition. • How do you define “symptom”? • In engineering, it is an undesirable effect occurring in a system. • Trace the symptom to it’s cause, through the cause’s cause – until you get to the root.

  34. What Is The Problem? • Hospital is getting complaints about the food. • Problem: Bad food? • Solution: Outsource food service. • Ask some questions first: • Is the problem with all the food? • No, just breakfast. • What’s wrong with breakfast? • It arrives cold. • All servings in each breakfast? • No, just the eggs. • Solution: • Put procedures in place to ensure warm eggs! • Result – no more complaints.

  35. Improving Problem Definition Collect and analyze information and data. Explore the origins of the problem. Use the Present State/Desired State technique. Try stating and restating the problem. BA 301, Nobles, Winter 2009

  36. 1.) Collect And Analyze • Learn as much as you can about the problem. • Write down everything you can think of. • Determine what is missing and what is extraneous. • Use sketches, drawings, and graphs – make the data talk! BA 301, Nobles, Winter 2009

  37. 1.) Collect And Analyze • Talk with people familiar with the problem. • Look past the obvious. • Challenge the basic premise. • Dumb questions can produce profound results. • Ask for clarification when you don’t understand. BA 301, Nobles, Winter 2009

  38. 1.) Collect And Analyze • View the problem first-hand • Don’t rely solely on interpretations. • “You can see a lot just by looking.” – Yogi Berra. BA 301, Nobles, Winter 2009

  39. 2.) Explore The Problem Origins • When given a problem by someone else… • Where did it originate? • Who posed it in the first place? • Can that person explain the reasoning? • Are the reasoning and assumptions valid? • Has that person considered different viewpoints? • Has information been collected about the problem? BA 301, Nobles, Winter 2009

  40. 3.) Present State/Desired State • Break your problem statement into three parts: • Part 1 – description of the ideal scenario (goals, desired state, or values), from a stakeholder perspective. • Part 2 – description of the present state. • Part 3 – the consequences of no change • Make sure that the parts are framed consistently: • Reworking is a technique that increases the probability of getting to the true problem statement. BA 301, Nobles, Winter 2009

  41. 4.) Statement & Restatement A Fuzzy Mess • Restating a problem: • New ideas, not just a new word order • Use restatement TRIGGERS. BA 301, Nobles, Winter 2009

  42. 4.) Statement & Restatement • Original Problem Statement: Cereal is not getting to market fast enough to maintain freshness. • Trigger #1 – vary the stress pattern: • Cereal is not getting to market fast enough to maintain freshness. • (Do other products we have get there faster?) • Cereal is not getting to market fast enough to maintain freshness. • (Can we make the distance or time shorter?) • Cereal is not getting to market fast enough to maintain freshness. • (Can we distribute from a centralized location?) • Cereal is not getting to market fast enough to maintain freshness. • (How can we keep cereal fresher, longer?) BA 301, Nobles, Winter 2009

  43. 4.) Statement & Restatement • Original Problem Statement: Cereal is not getting to market fast enough to maintain freshness. • Trigger #2 – substitute for an explicit term: • Breakfast food that comes in a box is not getting to the place where it is sold fast enough to keep it from getting stale. • (this makes us think about the box and staleness…what changes might we make to the box?) BA 301, Nobles, Winter 2009

  44. 4.) Statement & Restatement • Original Problem Statement: Cereal is not getting to market fast enough to maintain freshness. • Trigger #3 – make the opposite statement: • How can we find a way to get the cereal to market so slowly that it will never be fresh? • (Makes us think about how long we have to maintain freshness and what controls it.) BA 301, Nobles, Winter 2009

  45. 4.) Statement & Restatement • Original Problem Statement: Cereal is not getting to market fast enough to maintain freshness. • Trigger #4 – use an equation or a picture: • Freshness is inversely proportional to the time since the cereal was baked, i.e., • (Freshness) = k/(Time Since Baked) • What does k, the proportionality constant, depend on? • How can we change the value of k – storage conditions, packaging? • How can we shorten the time component – delivery time, time to sell? BA 301, Nobles, Winter 2009

  46. Evaluate The Problem Definition • Have all of the pieces been identified? • Have all of the constraints been identified? • What is missing from the problem definition? • What is extraneous to the problem definition? • Have you challenged the assumptions and information? • Have you distinguished fact from opinion? BA 301, Nobles, Winter 2009

  47. PSU Problem Solving Process 1. Position 2. Sense Find and prioritize problems 3. Uncover • Problem Identification • Problem Prioritization • Problem Finding 4. Solve 5. Build 6. Achieve

  48. Solve The Right Problems Urgent Not Urgent Must be solved immediately in order to meet our mission Must be solved “at some time” in order to meet our mission Mission Critical Address immediately, resources permitting Not Mission Critical At your discretion

  49. Improving Prioritization • Use problem-solving teams • Key managers and stakeholders • Diversity aids in problem finding & prioritization • Actively review problem portfolios • Know mission, vision and values and stakeholder interests • Review urgency and mission criticality • Prepare time and resource allocation plans • Formalizing the process improves efficiency

  50. PSU Problem Solving Process 1. Position 2. Sense Find and prioritize problems 3. Uncover • Problem Identification • Problem Prioritization • Problem Finding 4. Solve 5. Build 6. Achieve

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