## [answered] Module 10 - Decision Making What's the benefit of stud

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Now, assume you have a sales job for an Information Technology (IT) company.? One of your customers has given you the specifications and a Request for Quotation (RFQ) for a project they plan to purchase.? After a couple days of work, you estimate the?cost?of this product (hardware and software development) will be \$100,000.? You get paid on commission; you receive 20% of the profit.? Profit is defined as the?selling price?minus the?cost?(cost in this case = \$100,000).

Question 1:?What price would you quote the customer?? What are some of the considerations that affect your decision?

Note: An?unacceptable?answer is something along the lines of, ?I would survey the market to determine what competitive firms are charging and quote accordingly.?? That would be a cop-out; what price would you charge?

Question 2:?Before you send in the quotation, you reconsider the above price and decide to increase it 5%.? Does this make you a ?greedy? person?

500/600 words.

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Module 10 - Decision Making What's the benefit of studying this topic?

All managers make decisions in order to be successful leaders. Because diversity and multi-cultural influences will

increase in most work units and teams, understanding the essential decision-making process from a view of diversity

Introduction:

Historically the concept of making business decisions can be broken down into two theories: the classical theory and the

behavioral theory. The classical theory focuses on what managers or leaders ?should? do. Economics 101 teaches that

mangers will act ?rationally? and they will seek to ?maximize profits.? Behavioral theory, on the other hand, holds that

?perception of the situation? plays a major role, and that ?satisfactory? profits are acceptable.

Henri Fayol (1930, Administration Industrielieet Generale) called decision-making the ?essence of management.? In

particular he used the French term prevoyance --- foresight; assessing the future and making provision.

Making decisions by managers in a diverse or multi-cultural setting can be particularly challenging. Earlier we saw that

one of Hofstede?s dimensions of difference was Power-Distance: the willingness of employees to accept the fact that

their supervisors have more power than they have. Another dimension was Individualism/Collectivism: whether

individuals define themselves primarily as separate individuals (Americans) or by close social networks (Japanese). At-a-glance definitions:

Decision: A determination, agreement, or declaration. Decisions can be viewed as findings and factual; but they can

also be thought about as a judgment or opinion or ruling.

Decision-making: An approach or process, often using five steps or activities, which include Set managerial objectives. What do we want to achieve in the process? This activity may also be called

recognizing the problem to solve.

Search for alternatives by gathering information. Don't just go with some have called &quot;the first right answer.&quot;

Compare and evaluate the alternatives.

Make a choice among the alternatives.

Implement the decision chosen. Follow-up or monitor progress. This is a sixth step frequently added to assure performance information and

accountability (Harrison, 1999). Decision Process Problem-Solving Cultures (often

associated with higher interests in

individuality, competition, and lower

attention to uncertainty) Situation Accepting Cultures (often

associated with higher interests in

groups/collective mindset,

cooperation, and higher attention to

longer time orientation) Determining whether or not

there's a problem I should change the situation. Some situations should be accepted for

what they are. Gathering Information to

define alternatives Emphasis on facts, data, and the

&quot;numbers&quot;. Emphasis on ideas and possibilities. Comparing alternatives as

options New and future-oriented alternatives, based Past and Present included in alternatives,

on adults can learn and change.

along with future, based on adults hold

values and expectation (little or no

change). Make a choice Act as quickly as possible. Act with deliberation. Emphasize delegation. Emphasize the role of authority or

positional power. Ruling Factors: Is the decision true or false?

Ruling Factors: Is the decision good or

Implementation Managed from the top to plan and guide. Managed through participation, using a

more collective, cooperative roll out. Each worker responsible for his part.

The group or team is responsible.

Decision-making Tools:

There are numerous quantitative tools to assist in making decisions, among them being: Payback; Net Present Value;

Decision Trees; Linear Programming; Weighted Assessment; et al. Here are two examples: Payback Period: Is perhaps the simplest method of looking at one or more investment possibilities. PP

represents the amount of time it takes for a capital budgeting project to recover its original cost.

PP = Cost of the Project / Annual Cash Inflows

All things being equal, the best alternative is the one with the shortest PP. Managers like it because it is

simple and easy to understand. Example: A \$200,000 investment that returns \$40,000 per year:

PP = \$200,000 / (\$40,000/year) = 5 years

Net Present Value: NPV asks the question, ?What amount of money would you accept today in lieu of various

income streams in the future?? For example, if you had \$10,000 to invest today for ten years at 6% interest,

which of the following three alternatives would you choose?

1) \$600 per year for nine years and \$10,600 at the end of the tenth?

2) \$1,358 per year for ten years?

3) No annual payments, but \$17,908 at the end of ten years?

Answer: There is no ?correct? answer. From an NPV analysis, each of the future revenue streams is

equivalent to having \$10,000 today. It would be a matter of personal preference. Constraints:

There are several factors that work against our taking the ideal approach to decision-making. These factors include: The myth of maximization. You may tend to believe that more information may lead to a better decision.

The need for &quot;satisficing.&quot; If you have taken other management courses, you may be familiar with this term. It

means, simply, &quot;I can live with it.&quot; Satisficing occurs when the organization opts for a course of action that may

not be the ideal (the maximized) but is acceptable.

Time and cost. In this highly competitive environment, we don't always have the luxury of gathering exhaustive

amounts of information. More than one company (IBM, for example) has learned the hard way that sometimes it

is necessary to go with incomplete information in order to get one with it. Tom Peters (1994) refers to this as the

&quot;Ready, Fire, Aim&quot; approach -- an approach that he says is necessary in today's frenetic workplace.

Communication failures. Miscommunication can take many forms -- failure to listen; overload and &quot;noise;&quot;

failure to present an unambiguous message, etc.

Precedent. Often, how people make decisions depends on what occurred previously. For example, if Company

A had great success with a direct mail marketing campaign for one product, its marketing people may assume

that such an approach will work the next time. Mindset or perception traps:

How people gather information and the interaction between minds and the situation is selective and complex.

Perception can lead people into errors or what decision science experts term &quot;traps&quot;. The Anchoring Trap: Use of familiar facts or data to set up and credential a determination or a decision Here's how it

works when you answer these two questions together &quot;Is the population of New York greater than 15 Million people?&quot;

&quot;What's your best estimate of the population of New York?&quot; The chances are that your answer to the second question will be influenced by the first question. If the first question

had used &quot;20 Million&quot; many people would have then replied with a larger number (and have fallen into how information

was anchored). The Status Quo Trap. Each of us has our own biases, and these biases affect the decisions we make. When given a

set of alternatives, we will tend toward those that perpetuate the status quo, in part because we feel safer with the

known than the unknown.

The Sunk-Cost Trap. Have you ever held onto a stock long after it had real worth? Or retained an employee, even

though we knew at some level that he or she was not going to work out? That's the &quot;sunk-cost trap.&quot;

The Confirming-Evidence Trap. For years, IBM was convinced that it was virtually invincible. So when the CEO went

around to various IBM sites, he asked staff how it was going. The answer was just what he wanted to hear: Everything

is going great. (Hammond, Keeney and Raifa, 1998)

Judgment under Uncertainty:

Bazerman (2006) a recognized researcher on decision methodologies, believes that decision makers look for certainty

even though many decisions are made in the face of uncertainty. The main premise of Bazerman is understanding risk

and uncertainly will increase the likelihood of a quality decision-making process. Two concepts determine alternatives

under uncertainty: Probability (the likelihood that any particular outcome will occur); and

Expected value (weighing all potential outcomes associated with the alternative by their probabilities and

summing them). When approaching uncertainty, Bazerman identifies systematic ways to increase your awareness of uncertainty and

risk. He concludes that the process of framing is critical in developing a manager's ability to make effective decisions.

Decision Tree Tool: Earlier the Decision Tree was mentioned as one of the tools used in quantitative analysis. It is

useful in decisions involving uncertainty. The figure below illustrates the first steps in developing the decision tree on a

firm?s decision to comply or not comply with a new regulation. If the decision is made to comply, there is a probability of

being inspected or not being inspected, the sum of which must equal one. If the firm complies and there is no

inspection, the branch ends. If there is an inspection, there are probabilities that they may or may not be found to be in

compliance. A similar scenario applies for the decision not to comply. Found to be in

compliance

P = .01

Inspected

P = .05

Don?t Comply Found not to be in

compliance

P = .99 Not Inspected

P = .95 Decision:

Comply with a

regulation? Comply Inspected

P = .05 Not Inspected

P = .95 Found to be in

compliance

P =.9 Found not to be in

compliance

P = .1

P To date, there's little psycho-social research examining the impact of cultures which appear to place priorities on

reducing uncertainty. However, as cultural awareness grows, interest can expand around the use of risk and holding

expectations for avoiding as much uncertainty as possible. Those who are acculturated to pay particular attention to

avoiding unknowns or uncertainties can contribute ideas to deliberation when crossing cultural borders. Their critical

thinking and drive for added discussion/information gathering may shape future decision-making processes in important

ways. In the meantime, you as a manager can be especially thoughtful about how and how much time to spend on

gathering information, thinking critically about that information, to make good decisions. Decision-making: Hindsight Bias and the Assessment of Human Performance:

Alex Agase, former Northwestern University football coach, once quipped if you want to give him advice, do it on

Saturday between 1 and 4 o'clock, during the 25 seconds between plays. Not on Monday. He knew the right thing to do

on Monday.

Despite Agase's lament, Monday morning quarterbacking is still a favorite American pastime at work. Clearly, the

interception could have been avoided by running the ball. Since the outcome is so clear, Monday morning quarterbacks

question why the coach couldn't anticipate it. We tend to expect that others should know by foresight what we have

learned by hindsight. The problem is that this bias is not confined to football. It is quite pervasive and has the potential to

adversely impact a wide variety of human behaviors, particularly turning leaders away from telling more of the plan's

story.

Being Smart After the Fact

Proclamations about human error are most always made &quot;after the fact,&quot; rarely before. As noted by Reason (1990), the

most significant psychological difference between individuals who were involved in events leading up to a disaster and

those who are called upon to investigate after it occurred is knowledge of the outcome. Investigators have the luxury in

hindsight of knowing how things are going to turn out; front line operators and their supervisors do not. While most

people would not expect much credit for picking a horse after it has won the race, many investigators are unaware of the

influence of outcome knowledge on their perceptions and reconstruct ions of the incident. Given the advantage of a

known outcome, what would have been a bewildering array of non-convergent events becomes assimilated into a

coherent, causal framework for making sense out of what happened. In fact, it may be difficult to imagine it happening

any other way. &quot;Why couldn't they see it?&quot; is the question that is often asked. Such hindsight results in expectations by

investigators that participants should have anticipated the incident by foresight; it also blinds them to what actually

would have been known had the roles been reversed. If investigations of human error are to be fair and impartial, appropriate actions and decisions need to be determined before the mishap; not from the comfortable vantage point of

hindsight.

Framing

Can even the way questions are framed influence the reconstructive process? The research of Elizabeth Loftus (1980)

on memory and on the reliability of eyewitness testimony provides a resounding &quot;yes&quot; to the above question. Loftus

described the problem this way:

Human memory does not work like a videotape recorder or a movie camera. When a person wants to remember

something, he or she does not simply pluck a whole memory intact out of a &quot;memory store.&quot; The memory is constructed

from stored and available bits of information; any gaps in the information are filled in unconsciously by inferences.

When these fragments are integrated and make sense, they form what we call &quot;memory&quot; (p. 31).

Loftus' statement serves as a reminder that it is not just the shadowy figures of the underworld or those of dubious

integrity that are likely to give unreliable testimony. Honest and otherwise reliable people can sincerely affirm as true

what is actually false. When our memories are put to the test, we do not discriminate very well what was actually

encoded from what we reconstructed to make sense of the event. Thus we can quite sincerely testify as having

observed something that never took place because we may be relying on an active retrieval process that fills in the

gaps. This process is a normal and integral aspect of our memory. There are many factors that influence the way the

gaps are filled in. Many of these factors are subtle and contextual in nature. And outcome knowledge is one of the key

ingredients in shaping context.

In one of her experiments, Loftus showed how the framing of a question could influence what is subsequently reported.

With the cooperation of the Seattle Police Department, Loftus and Palmer (1974) had people view realistic films of

actual and staged automobile accidents and then answer questions about what they saw. One of the questions was

&quot;About how fast were the cars going when they smashed into each other?&quot; This question elicited a different estimate of

speed than questions using the verbs collided, bumped, hit, or contacted in place of smashed. Although the subjects

saw the same films, cars which were framed by the word smashed were found, on average, to be traveling nine miles

per hour faster than cars which merely contacted. Smashed provided some other information as well. A week later,

experimental subjects were called back and asked, &quot;Did you see any broken glass?&quot; Fourteen percent of the subjects

whose question was framed with the verb hit reported seeing broken glass, while 32% of the subjects whose question

was framed with smashed reported seeing broken glass. As the reader may have already guessed, there was no footage of broken glass in the films seen by these &quot;eyewitnesses.&quot; Leadership and Decision-making:

What is the role that leaders can and should play in organizational decision-making? Here are five suggestions:

Recognize that decision-making is a continuum. Who makes the decision is not an either/or question. It's more

complex than that. The continuum runs all the way from Leader makes the decision unilaterally, to Leader gathers

information and then makes the decision to lead and his or her team make the decision jointly, to Leader delegates the

final decision to others.

Effective leading does not depend on you having all the answers. Look around for who may also have ideas and

insights. Leaders who are comfortable with themselves are also comfortable in empowering others.

Consider a brainstorm and participation/negotiation. Decisions should involve a group when the choice may be

unpopular; or when it would be helpful to gather additional information prior to making a decision, or when you as a

manager know that you don't have important data, observations or direct experience. (Note: Decision making ties into

negotiation activities and skills see module on that topic).

Know when to delegate the decision-making process. Not every decision needs a committee. Consider who needs

to take the lead. Staff is often quite willing to have the CEO make some decisions; it gives them a sense that someone

is in charge. Leadership and organizational culture are two sides of the same coin. Know whether your work culture is more

hierarchical or more team focused. If the organizational culture is participatory/team-centric or one in which it is OK to

speak up. You will observe workers doing so. As a result, the leader is more likely to get the information needed to

make an informed decision.

If, on the other hand, the culture is characterized by &quot;shoot the messenger&quot; with decisions handed down, only the

foolhardy are likely to want to be a player when it comes to making tough decisions. The culture of strict hierarchy is

changing in many organizations, but your work as a leader means that you will observe and become skilled at knowing

when you can involve others in decisions, and when you must be seen as the decision-maker.

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