Decision Making in Organization

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Key Terms
Organizational Decision Making:
The process of identifying and solving problems.
Problem Identification
Information about environmental and organizational
conditions is monitored to determine if performance is
satisfactory and to diagnose the cause of shortcomings.
Problem Solution
When alternative courses of action are considered and one
alternative is selected and implemented.

Decision Environments
1. Certain environment
Enough info to predict expected results of
decision-making alternatives
Uncommon decision-making environment

2. Risk environment
No complete certainty about outcomes but
can identify probabilities of expected results
associated with various actions
Common decision environment

Decision Environments
3.

Uncertain environment
So little info that cannot even assign probabilities to
predict outcomes
Most difficult decision environment
Requires creativity in problem-solving
E.g., organized anarchy: a division or firm in
transition and characterized by rapid change and no
legitimate hierarchy

Organizations can use systematic process to

assess degree of risk in various aspects of
operations and environments, then develop
contingency plans

Programmed and Nonprogrammed

Decisions: A Comparison
Programmed
Decisions
Repetitive, routine,
Types of frequent; decisions
problems made according to
specific procedures
Depend on policies and
Procerules
dures

Example
s

Business firm: Periodic

reorders of inventory
Health care: Procedure
for admitting patients
University: Necessary
GPA for good academic
standing

Nonprogrammed
Decisions
Novel, complex,
difficult, infrequent;
decisions require
original thinking
Require creativity,
intuition, tolerance for
ambiguity
Business firm:
Diversification into new
products and markets
Health care: Purchase
of experimental
equipment
University:
Construction
of new
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Programmed vs. Non-programmed Decisions

Characteristics

Programmed
decisions

Non-programmed
decisions

Type of problem

Structured

Unstructured

Managerial level

Lower level

Upper level

Frequency

Repetitive

New, unusual

Information

Readily available

Ambiguous or
incomplete

Time frame for

solution

Short

Relatively long

Solution relies on

Procedures, rules,
and policies

Judgment and
creativity
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Organizational Decision
Making
Organizations are influenced by a number of
factors, particularly the organizations own internal
structures and the degree of stability or instability of
the external environment.
Four primary decision- making processes:
1.Management Science Approach
2.The Carnegie Model
3.Incremental Decision Process
4.The Garbage Can Model

Rational Approach

Management Science Approach

Similar to the rational approach at the

individual level

Based on the use of statistical and mathematical

models to find optimal solutions to a problem
Developed during WWII
When do we use it?
Problems that are analyzable
When variables can be identified & measured
When there are too many variables for human
processing

The Carnegie Model

Coalitions
Why are they needed?
Implications for organizational decision making:
Satisficing accepts satisfactory rather than optimal
Short-term outlook - Problemistic Search
Discussion and bargaining

Useful at problem identification stage and for

smooth implementation

Choice Processes in the

Carnegie Model
Uncertainty
Information is
limited
Managers have
many constraints

Conflict
Managers have
diverse goals,
opinions, values,
experience

Coalition Formation
Hold joint discussion
and interpret goals
and problems
Share opinions
Establish problem
priorities
Obtain social support
for problem, solution

Search
Conduct a simple,
local search
Use established
procedures if
appropriate
Create a solution
if needed

Satisficing

2000
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e

Adopt the first

alternative
that is acceptable
to the coalition
11-7

Incremental Decision Model

Focus on structured sequence of activities
from discovery to solution
Large decisions are a collection of small
choices
Decision interrupts are barriers
Identification Phase
Development Phase
Selection Phase
Dynamic Factors
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Models of Organizational
Decision Making (cont.)

The incrementalist model: managers

select alternative courses of action that are
only slightly, or incrementally, different from
those used in the past

Perceived to lessen the chances of making a

mistake
Called the science of muddling through
They correct or avoid mistakes through a
succession of incremental changes
Tries to explain how organizations improve their
programmed decisions over time
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The Learning Organization

Organizations functioning in a rapidly changing

external business environment
Marked by a lot of uncertainty at both the problem
identification and problem solution stage

Two Approaches to cope with the uncertainty

and complexity:
Combined Incremental Process & Carnegie Model
Garbage Can Model

Problem Identification and

Problem Solution
When problem and problem solution are uncertain

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Garbage Can Model

Solutions
Problems
Participants

Garbage Can Model Cohen,March,Olsen

a theory that contends
that decisions in
organizations are
random and unsystematic

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Choice
opportunitie

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Models of Organizational
Decision Making (cont.)
The garbage can model: a view of decision making
that takes the unstructured process to the extreme
Decision makers are as likely to start decision making
from the solution side as the problem side
Create decision-making opportunities that they can solve
with ready-made solutions based on their competencies
and skills

Different coalitions may champion different alternatives

Decision making becomes a garbage can in which
problems, solutions, and people all mix and contend for
organizational action
Selection of an alternative depends on which persons
or groups definition of the current situation holds sway
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Garbage Can Model

Pattern or flow of multiple decisions
Think of the whole organization
Explain decision making in high
uncertainty - organized anarchy:
Problematic preferences
Unclear, poorly understood technology
Turnover

Streams of events instead of defined

problems and solutions
20

Illustration of Independent Streams of Events in

the Garbage Can Model of Decision-Making

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Contingency Decision Making

Decision-making approach is contingent on the organization setting.
Two characteristics of organizations that determine the use of decision
approaches:
Individual Prerequisites
Decision structure
Source of decision knowledge
Decision commitment
Risk of conflict
1. Problem Consensus
Agreement among managers about the nature of a problem or opportunity
and about which goals and outcomes to pursue.
2. Technical Knowledge about Solutions
Understanding and agreement about how to solve problems and reach
organizational goals.

Contingency Framework
Certain
Certain

Solution
Knowledge

Uncertain

Problem
Consensus

Individual:
Rational Approach
Computation
Organization:
Management Science

3 Individual:
Judgment, Trial-and-error
Organization:
Incremental Decision
Process Model

Uncertain

Individual:
Bargaining, Coalition
Formation
Organization:
Carnegie Model

4 Individual:
Bargaining and Judgment
Inspiration and Imitation
Learning Organization:
Carnegie and Incremental
Decision Process Models,
Evolving to Garbage Can

Special Decision Circumstances

Todays environment presents highstakes, quick decisions
Managers must deal with:
High-velocity environments
Learning from decision mistakes
Understanding cognitive and personal biases
Escalating commitment
Prospect theory
Groupthink
Evidence-based management
Encourages dissent and 24diversity

Providing
challenges
Encouraging
risk taking

Providing
organizational
support

Establishing
a Creative
Atmosphere
Involves. . .

Providing
encouragement

Allowing
freedom

Allocating
ample
resources

Creativity!
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