soci110 module 11 - decision-making processes

DECISION MAKING PROCESSES

OBJECTIVE

In this module you will learn

the principle of the classical model of rational decision making
the limitations of rational decision making and the important concept of bounded rationality
4 models of organizational decision making

the management science approach
the Cyert-March-Simon (aka Carnegie) model
the Mintzberg incremental decision process
the garbage can model

how the 4 decision making models can be integrated into a single contingency model of organizational decision making based on the 2 dimensions of

goal consensus (= degree of agreement on goals among managers)
technical knowledge (= knowledge of cause-effect relationships leading to goal attainment)

1. INDIVIDUAL DECISION MAKING (Rational Approach and Bounded Rationality)

1. Rational Approach

The rational approach to decision making is the systematic analysis of a problem and choice of a solution.

Q - Recall one episode in your life in which you feel you have made a decision rationally. Describe how you arrived at your decision. (Hint: Choosing a major? A place to live? A brand of bicycle to buy?)

Rational decision making takes place in 2 stages (problem identification and problem solution) and can be further broken down into 8 steps.

Exhibit: Steps in rational decision making

2. Bounded Rationality

Q - Recall an episode in which you could not choose/decide in a rational manner (systematically evaluating all the alternatives and choosing the optimal one). Describe how you arrived at the decision, and why you could not use the rational approach. (Hint: Choosing a brand of running shoes to buy? A book to read over the weekend?)

Definitions:

programmed decision: repetitive, well defined, procedures exist to find a solution
non programmed decision: novel, poorly defined, no procedure exists for finding a solution

The bounded rationality perspective on decision making recognizes that the rational approach is often inapplicable, because of bounded rationality (limited time & mental capacity, limited information, & limited resources), as well as personal & social constraints on the individual; bounded rationality constraints are especially important for non programmed decisions.

Exhibit: Constraints in non programmed decision making

Bounded rationality perspective explains the importance and pervasiveness of intuitive decision making, based on experience, gut feelings, etc., rather than a logical sequence of steps. EX: buying a tie

Q - "Intuitive decision making uses logic to make decisions." (TRUE/FALSE?)

2. ORGANIZATIONAL DECISION MAKING (Management Science Approach, Carnegie Mellon Approach, Incremental Decision Process, Gargabe Can Model)

Q - Recall an episode in which you made a decision together with one or several other persons. Describe the decision making process. How was the decision making process affected by the fact that several persons were deciding together?

In organizations, decisions are made by a collective rather than a single individuals, so that decision making processes are more complicated. The complication arises from the possibility of disagreement among influential members (such as managers) or factions within the organization.

4 types of decision making processes are distinguished.

1. Management Science Approach

Developed during World War II, the management science approach is the organizational analog of rational approach at the individual level. It is based on the use of statistical & mathematical models to find optimal solution to problem (aka operations research).

Minicase: Urgence Sante. This public agency schedules ambulance services in the Montreal area involving 80 ambulances and 700 workers with the goal of keeping costs as low as possible. Urgence Sante uses mathematical techniques to optimize scheduling according to the day of the week and the season.

EX: in the training of flight attendants by an airline decisions must be made concerning how often to schedule classes, and how large the classes should be, to minimize total cost of training.

The management science approach is best used for problems

that are analyzable
where variables can be identified & measured

Q - "Management science works best for decisions when problems are analyzable." (TRUE/FALSE?)

2. Cyert-March-Simon (aka Carnegie) Model

Developed by Richard Cyert, James March, and Herbert Simon, originally at Carnegie-Mellon University. This model is the organizational analog of the bounded rationality approach at the individual level. It emphasizes:

bounded rationality (limited time & mental capacity of managers, limited information & resources, so a rational solution often cannot be derived)
there is often disagreement among managers about goals, so decision making often necessitates the formation of coalitions of managers who agree on goals and priorities; thus the Cyert-March-Simon model emphasizes the political process involved in decision making
hence, managers tend to engage in a problemistic search (= looking around for a quick solution in the immediate, local environment, rather than trying to develop the optimal solution)
thus, solution is often chosen to "satisfice" (satisfy + suffice) rather than optimize

Exhibit: Cyert-March-Simon decision making model

NOTE: the C-M-S model was revolutionary when it appeared because it opposed two traditional assumptions about organizations:

the view that the organization makes decisions as a single entity (which presumes that decision making power is concentrated at the top)
the assumption that organizations optimize (as in the theory of the firm in economics)

Q - "Problemistic search means that managers look around in the extended environment for a solution to eventually resolve a problem." (TRUE/FALSE?)

Q - "The Cyert-March-Simon (aka Carnegie) model of organizational decision making says that coalition building is important only at lower levels of management." (TRUE/FALSE?)

Q - A small university department was comprised of six male faculty members. During faculty meetings when the department was faced with a difficult decision, a faculty member would suggest they take a break. During the break, four faculty members would adjourn to the rest room and agree on the decision that would be made. This an example of what aspect of the C-M-S (aka Carnegie) model?

3. Incremental Decision Process Model

Developed by Henry Mintzberg at McGill University on the basis of empirical research into the actual decision making process of firms developing new products. The incremental decision process model emphasizes the structured sequence of activities leading to the solution to a problem. Major decisions are broken down in small steps taking place in three major phases: the identification, development, & selection phases.

Exhibit: Incremental decision process model

Contrasting the C-M-S & incremental decision models reveals that the 2 models differ in their emphasis on

problem identification (emphasized in C-M-S)
problem solution (emphasized in incremental decision process)

Exhibit: Problem identification versus problem solution

Q - "The incremental decision process model emphasizes political factors." (TRUE/FALSE?)

Q - "In the incremental decision process, a decision interrupt occurs when an organization must cycle back through a previous decision and try something new." (TRUE/FALSE?)

4. Garbage Can Model

The garbage can model was developed by Michael Cohen, James March, & Johan Olsen to describe organizations characterized by organized anarchy (= high uncertainty in both problem identification and problem solution), such as universities.

Organized anarchies have 3 characteristics:

problematic preferences (i.e., substantial disagreement on goals)
poorly understood technology (= cause & effect relationships difficult to identify)
rapid turnover of participants

EX: a university dealing with the "parking problem", the "minority enrollment" problem, the "intellectual climate" problem, etc.

The garbage can model is embodied in a computer simulation with 4 streams of events:

problems (= point of dissatisfaction with current situation)
potential solutions (= ideas proposed by someone)
participants (= employees who come & go)
choice opportunities (= occasions for decisions)

Exhibit: Garbage can model

Examination of the results of the computer simulation reveal the consequences of the model. The results include

solutions without problems (EX: "let's put it on the web")
choices made which do not solve problem (EX: changing fraternity rush to improve the intellectual climate)
persisting unsolved problems (EX: the parking problem)
some problems are resolved (EX: ?)

Q - Which of the following are characteristics of organizational anarchies?

clearly defined problems (Y/N)
routine technology (Y/N)
slow change (Y/N)
ambiguous goals (Y/N)
rapid turnover (Y/N)

Q - "In the garbage can model solutions may be proposed even when problems do not exist." (TRUE/FALSE?)

3. CONTINGENCY FRAMEWORK FOR DECISION MAKING

The contingency framework is based on 2 dimensions:

goal consensus (= degree of agreement on goals among managers)
technical knowledge (= knowledge of cause-effect relationships leading to goal attainment)

The contingency framework is shown in 2 steps.

Exhibit: Decision situations

Exhibit: Decision making processes in 4 decision situations

Exhibit: Consolidated contingency framework for decision making

Q - In the contingency approach to decision making, when there is a high degree of agreement among managers concerning goals, but there is uncertainty about cause-effect relationships leading to goal attainment, what is the appropriate decision making process?

Q - In the contingency approach to decision making, when there is disagreement among managers concerning goals, but there is no uncertainty about cause-effect relationships leading to goal attainment, what is the appropriate decision making process?