Module1: Organizational Decision Making:

Definition, Nature of decision making: decision characteristics, types of decisions. Decision making process,
Problems in decision making process: misunderstanding a situation, rushing the decision Making
process.Improving decision making process: Improving the roles of individual, structured group decision
making process.Techniques of decision making. Models of Individual decision making: Classical, Behavioral
decision making models, Individual decision making process.

References
Singh, K. (2013). Organizational Behaviour. India: Dorling Kindersley Pvt. Ltd. Pp. 329-347.
Luthans, F. (1997).Organizational Behaviour. (7thed). New York: McGraw Hill International. Pp. 532-547
For full notes refer to AK Singh

Notes:
Organizational Decision Making
Definition:
Decision-making is the process of choosing between alternatives to achieve a goal​. It is a crucial
managerial function that involves selecting the best course of action from multiple options. Decision-making is
required at all organizational levels and is fundamental to planning, organizing, leading, and controlling.

●​ Decision making is defined as the process of choosing between alternatives to achieve a goal.
●​ The process of identifying and choosing alternatives to achieve a goal or solve a problem within a
business or other types of organizations.
●​ It is the solution selected after examining several alternatives chosen. - Manley H Jones
●​ Decision making is the selection based on some criteria from two or more possible alternatives. -George
R Terry
●​ Decision Making is the cognitive process of selecting a course of action, out of a set of available
alternatives, so as to achieve the goals of the organization.

Nature of decision making:

1.​ Decision characteristics

a.​ It is a selection process
b.​ It is a dynamic process: A particular problem may have different solutions, depending upon the
time and circumstances.
c.​ It is situational
d.​ Involves the evaluation of available alternatives through critical appraisal methods.
e.​ It is a selective process in which the optimal alternative is opted, among the various alternatives.
The selection of the alternative is done, only after evaluating all the alternatives against the
objectives.
f.​ As the decision making encompasses the application of intellectual abilities, such as analysis,
knowledge, experience, awareness and forecasting, it is a cognitive process.
 g.​ A decision is not always positive, sometimes even after analysing all the points a decision may
turn out as a negative one.
h.​ Evaluation of the possible alternatives using critical appraisal methods, is a part of the
decision-making process.

2.​ Decision Making process

​ Decision making is defi ned as the process of choosing between alternatives to achieve a goal.
While selecting among the alternatives, three distinct stages of the decision-making process
are identifi able. Th ese three stages can be put into a time frame of:
Decision-making Process by Herbert A. Simon (1960)
The decision making process can be catagorized into three stages:

●​ Based on time frame

○​ The past, in which problems developed, information accumulated, and the need for a
decision was perceived.
○​ The present, in which alternatives are found and the choice is made.
○​ The future in which the decisions will be carried out and evaluated.

●​ Based on activity by Herbert A. Simon (1960)

○​ Intelligence activity: Borrowing from the military meaning of intelligence, Simon
describes this initial phase as an attempt to recognize and understand the nature of the
problem, as well as search for the possible causes.
○​ Design activity: During the second phase, alternative courses of action are invented,
developed, and analysed in the light of known constraints.
○​ Choice activity: Th e actual choice between the available and the assessed alternatives is
made at this stage.

​ Henry Mintzberg and some of his colleagues (1976) have traced the phases of
some decisions actually taken in organizations. They have also come up with a
three-phase model.

1. The identification phase is the period during which the recognition of a problem and a
diagnosis is made. It was found that severe immediate problems did not have a very
systematic, extensive diagnosis but that milder problems did have.

2. The development phase is the phase during which there may be a search for existing
standard procedures, a ready-solution or the design of a new, tailor-made solution. It was
found that the design process was a grouping, trial-and-error process in which the
decision makers had only a vague idea of the ideal solution.

3. The selection phase is the phase during which the choice of a solution is made.
There are three ways of making this selection:
(1) by the judgement of the decision maker, on the basis of experience or intuition
rather than logical analysis,
 (2) by analysing the alternatives on a logical, systematic basis,
(3) by bargaining when the selection involves a group of decision makers. Once
the decision is formally accepted, an authorization is made.

​
3.​ Types of Managerial Decisions
A manager is required to take different types of decisions. Th ese can be classified into three major
types:

a.​ Basic and routine decisions

I.​ Basic decisions are typically made once and have a lasting impact on the organization.
They involve critical choices that can significantly affect the organization's future, such
as starting a new venture, investment decisions, and establishing organizational policies.
Example: An entrepreneur deciding to start a new business venture, including
important choices such as the initial investment, location of the business, and the
establishment of organizational policies and guidelines. This decision has a long-lasting
impact on the organization and its future.

II.​ Routine decisions, in contrast, are made on a day-to-day basis and typically do not have a
major impact on the long-term functioning of the organization. These decisions are often
made at lower levels of the organization and pertain to repetitive, well-defined tasks.
Example: A lower division clerk in the organization making day-to-day decisions
such as approving employee leave requests, ordering office supplies, or scheduling
meetings. These decisions are part of the routine functioning of the organization and do
not typically have long-term impacts.

b.​ Personal and organizational decisions

Personal decisions are made to achieve personal goals, while organizational decisions are made
to achieve organizational goals.
 However, there can be overlap between the two, as personal decisions can indirectly influence
the organization. Personal decisions are typically not delegable, while organizational decisions
can often be delegated to others. Personal decisions cannot ordinarily be delegated to
others, whereas organizational decisions can often, if not always, be delegated.
Personal Decision Example: A manager deciding to take a two-year leave of absence
from the organization to pursue higher studies. This decision serves personal goals and directly
impacts the individual's career and development.
Organizational Decision Example: The senior management team deciding to implement a
new performance appraisal system to align employee goals with organizational objectives. This
decision aims to achieve organizational goals and long-term success.

c.​ Programmed and non-programmed decisions.

I.​ Programmed decisions are routine and repetitive, typically managed through established
bureaucratic procedures. They are often made at lower management levels and relate to
predefined processes and tasks.
For example, granting leave to employees, purchasing spare parts etc are
programmed decisions where a specific procedure is followed or A team lead using
established company procedures to allocate work tasks to team members based on their
skills and availability. This decision follows routine processes and is repetitive in nature.
II.​ Non-programmed decisions are made by individuals based on available information and
judgment, often in crisis situations and under time pressures. These decisions require
considerable thought and are more likely to be made by upper management.
For example, opening a new branch office will be a non-programmed decision or
The CEO making a critical decision to acquire a competitor in response to market
changes, using available information and judgment to address an unstructured and highly
impactful situation.

Another type of classification is based on two dimensions:

●​ Problem complexity: It refers to the amount of information processing required to
arrive at a decision. If the decision is simple, it requires lesser analysis of data and
therefore, can be classifi ed as low on problem complexity.The other end of the continuum will
have problems with high complexity.
●​ Outcome uncertainty: This refers to the certainty with which the outcome of the decisions can
be placed. If the outcome of the decision is certain, the decision is said to be high on certainty,
and if the outcome cannot be outlined, it is said to be low on outcome certainty
Based on this dimensions, different types of decision can be:
●​ Mechanistic Decisions: While taking a mechanistic decision, the decision maker is sure of the
decision alternatives and the outcome of each of the alternatives.
Example: A manufacturing manager deciding to invest in a new automated assembly line
due to its clear cost savings and efficiency benefits. The decision maker is confident about the
available alternatives and the expected outcome of each choice.

●​ Analytical Decisions: An analytical decision needs to be taken in a situation where a large

number of alternatives can be generated since a lot of information is available and the outcome
of each of the alternatives can be calculated.
Example: A marketing manager analyzing various promotional strategies for a new
product launch. By evaluating a large number of alternatives and considering extensive market
research data, the manager can calculate the potential outcomes of each strategy to make an
informed decision.

●​ Judgement Decisions: In the process of judgemental decision making, a limited number of

alternatives are available to solve the problem. The outcomes of the decision alternatives are also
unknown.
Example: A project manager, faced with a sudden equipment malfunction, must choose
from a limited number of quick solutions to keep the project on track. The outcomes of the
available alternatives are uncertain, requiring the manager to rely on judgment and experience to
select the best course of action.

●​ Adaptive Decision: In the case of adaptive decision, a large number of alternatives are available
and their outcome is not known.
Example: A strategic planner for a retail company assessing potential locations for a new
store. With numerous location options and varying market conditions, the planner must make
adaptive decisions without clear knowledge of the outcome for each alternative, adjusting
strategies as new information becomes available.
Models of Decision Making Process

Econologic Model or Rational Decision-making Model

It is assumed that people are economically rational and that they are making an attempt to
maximize their outcomes in all situations.

The model suggests the following orderly steps in the decision-making process:
1. Identifying the problem that requires a decision.
2. Determining the criterion to evaluate the alternatives that are going to be generated.
3. Develop and list all the alternatives related to the problem in hand.
4. Evaluate the prospects and consequences of each of the alternatives.
5. Based on the analysis, select the best alternative by evaluating its consequences and
comparing it with the criterion generated earlier. Implement the decision.

Strengths of the Rational Decision-Making Model

●​ The model provides a clear and systematic approach to decision making through defined
steps—identifying the problem, evaluating alternatives, and selecting the best option—helping
decision makers stay organized and focused.
●​ When conditions permit (e.g., complete information and time), following the steps of the model
can lead to optimal decision outcomes, as it emphasizes thorough analysis and evaluation.
●​ By establishing clear criteria for evaluating alternatives, the model encourages objective
analysis, which helps in making justifiable decisions.

Weaknesses of the Rational Decision-Making Model

●​ The model assumes complete rationality and access to all pertinent information, which is rarely
achievable in real-world scenarios. Decision makers often operate under constraints, including
limited time and information.
 ●​ Human decision-making is influenced by emotions, biases, and other psychological factors that
the rational model does not adequately address.
●​ The thorough analysis required by the model can be time-intensive, potentially delaying critical
decision-making processes when swift actions are needed.
●​ Due to cognitive limitations and biases, decision-makers might fail to identify all relevant
alternatives or may not evaluate them adequately, leading to suboptimal choices.
●​ The model does not account for the dynamic nature of environments in which organizations
operate, which means it may not be effective for situations requiring rapid adaptations to new
information or changing circumstances.

Bounded Rationality Model or Administrative Man model by Simon (1997)

This Model assumes that people are bounded by certain constraints, and though they may seek
the best solution, they usually settle for much less because the decisions they confront typically demand
greater information-processing capabilities than they possess.

They seek a kind of bounded (or limited) rationality in decisions.

These constraints force a decision maker to be less than completely rational.

●​ Step-by-step selection of alternatives

The assumption here is that people examine possible solutions to a problem in a
step-by-step manner. They identify the alternatives and evaluate them one by one. If the
first alternative fails to satisfy, it is rejected, and then another one is considered. When an
acceptable (that is, “good enough” and not necessarily “the best”) solution is found, the
search behaviour is discontinued.
●​ Heuristics
A heuristic is a rule that guides the search for alternatives into areas that have
a high probability of yielding satisfactory solutions. According to the bounded
rationality model, decision makers use heuristics to reduce large problems to manageable
propositions so that decisions can be made rapidly. They look for obvious solutions or
previous solutions that worked in similar situations.
●​ Satisfaction
Whereas the rational model focuses on the decision maker as an optimizer,
this model sees him as a satisfier.
An alternative is optimal if
(1) there exists a set of criteria that permits all alternatives to be compared
(2) the alternative in question is preferred, by these criteria, to all othe
alternatives.
An alternative is satisfactory if:
(1) there exists a set of criteria that describes minimally satisfactory alternatives,
(2) the alternative in question meets or exceeds all these criteria.
 Based on these three assumptions about decision makers, decision-making process based
on bounded rationality model are:

Implicit Favourite Model or Gamesman by Soelberg

The entire process is designed to justify to the individuals, through the guise of scientific rigour, a non
programmed decision that has already been made in an intuitive fashion. The entire process is designed to
justify to the individuals, through the guise of scientific rigour, a non-programmed decision that has already
been made in an intuitive fashion. By doing so, they become convinced that they are acting in a rational fashion
and making a logical, reasoned decision on an important topic.

Steps of decision making process based on Implicit Favourite Model-

1.​ Initial Preference: The decision-maker identifies a preferred alternative (the implicit favourite) early in
the process, often based on instinct or previous experience.
2.​ Search for Alternatives: While they continue looking for other options to validate their preference, the
decision-maker often seeks out information that confirms their initial bias rather than neutrally
evaluating alternatives.
3.​ Confirmation Candidates: When evaluating alternatives, individuals tend to seek "confirmation
candidates" that validate their choice of the implicit favourite. This may involve cognitive distortion,
where the decision-maker emphasizes the strengths of the implicit favourite while downplaying the
merits of other alternatives.
4.​ Rationalization: Ultimately, decision-makers construct rational justifications for their choice using
decision rules that favor the implicit favourite. This rationalization creates an illusion that the decision
made was thoroughly reasoned and objective, even if it was primarily influenced by their initial
preference.
Garbage Can Model
This model assumes an organization to be like a garbage can in which the problems, solutions, choices,
players, and opportunities move around randomly. If these factors happen to confront and connect, the decision
is made. The model likens organizations to a garbage can where multiple problems, solutions, and
decision-makers are randomly tossed together. Decisions are made when various elements intersect or align
fortuitously, not through a systematic or linear process.
In this model, decision-making is not a straightforward sequence of steps (like problem identification,
evaluation of alternatives, and selection). Instead, it often occurs without a specific structure, making it
unpredictable and opportunistic.

Elements of the Model:

The Garbage Can Model consists of four primary elements:
●​ Problems: Issues needing resolution that can arise independently within the organization.
●​ Solutions: Pre-existing alternatives or solutions that are available regardless of whether they directly
address the problems at hand.
●​ Participants: Individuals within the organization who have varying levels of commitment to the decision
process, influencing how solutions are selected.
●​ Opportunities: Moments when problems and solutions come together, allowing decisions to be made

Problems in decision making process: misunderstanding a situation, rushing the decision Making process

●​ Overconfidence Bias
Overconfidence bias refers to the tendency of individuals to overestimate their own
abilities, knowledge, or the accuracy of their predictions. This bias is prevalent in
decision-making where people believe they know more than they do.
Example: In financial markets, investors often overestimate their skills in predicting stock
movements. This may lead some to invest heavily in poorly assessed stocks, assuming they can
outperform the market. As noted in the documents, research highlights how overconfident
managers can overlook critical data, leading to financial misjudgments.
Implications:
●​ Decision Quality: Overconfidence often leads to a lack of proper risk assessment
and can result in poor decision-making outcomes.
 ●​ Group Dynamics: When teams are overconfident, they may ignore dissenting
opinions, leading to groupthink and stifling innovative solutions.

●​ Anchoring bias
A tendency to fixate on initial information, from which one then fails to adequately adjust
for subsequent information. Anchoring bias is the cognitive tendency to rely too heavily on the
first piece of information encountered (the “anchor”) when making decisions. Subsequent
judgments get unduly influenced by this initial information.

Example: In salary negotiations, a job candidate might state their previous salary as a
negotiating anchor. For instance, if a candidate previously earned $70,000, any negotiation for
their new position will likely stay around that figure, even if the market rate is higher or lower, as
seen in the example of the pilots in the uploaded documents.

Implications:
●​ Decision Rigidness: Anchoring can lead to suboptimal decisions, as individuals
fail to adjust their expectations effectively away from the anchor.
●​ Negotiation Strategies: Awareness of anchoring can be strategically employed in
negotiations to guide discussions toward favorable outcomes.

●​ Confirmation bias
The tendency to seek out information that reaffirms past choices and to discount
information that contradicts past judgments. Confirmation bias is the tendency to seek out,
interpret, and remember information in a way that confirms one’s pre-existing beliefs or
hypotheses while disregarding contradictory information.

Example: A manager who believes that their sales strategy is working might only focus
on data that supports this view while ignoring negative feedback or indicators of a declining
market share. The documents illustrate that individuals often accept information that confirms
their views at face value while remaining skeptical of opposing perspectives.

Implications:
●​ Strategic Blindness: This bias can lead organizations to miss critical changes in
the market or operational failures, perpetuating ineffective strategies.
●​ Team Dynamics: Teams may reinforce biases by selectively sharing information
that aligns with group consensus, stifling innovation and adaptability.

●​ Availability bias
The tendency for people to base their judgments on information that is readily available
to them. Availability bias refers to the cognitive phenomenon where individuals base their
judgments on immediate examples that come to mind rather than on a complete analysis of the
information.

Example: Consider a manager who overestimates the risk of plane crashes after seeing
news reports about a recent air disaster. This bias can skew risk assessment, leading to excessive
 caution in planning travel for business when statistical evidence shows flying is safer than
driving.

Implications:
●​ Decision-making Limitations: Availability bias can lead to misjudgment of risks
and opportunities, affecting overall strategy and planning efforts.
●​ Performance Management: Managers may overemphasize recent employee
performance, creating evaluations based on the most readily available information
rather than an objective review of a longer time frame.

●​ Escalation of commitment
An increased commitment to a previous decision in spite of negative information.
Escalation of commitment occurs when decision-makers continue to invest in a failing course of
action, often due to the resources already committed (time, money, effort) rather than an
evaluation of the current situation.

Example: The financial meltdown of 2008 illustrated escalation of commitment, as

numerous financial institutions continued to support failing investments based on the significant
resources previously dedicated, despite clear signs of impending failure.

Implications:
●​ Resource Wastage: This bias can lead to continued investment in non-promising
projects, leading to severe organizational losses.
●​ Decision Rationalization: Decision-makers may rationalize their continued
support for failing projects to avoid admitting previous mistakes.

●​ Randomness error
The tendency of individuals to believe that they can predict the outcome of random
events. Randomness error is the misconception that random events can be identified or predicted,
leading individuals to perceive patterns where none exist.

Example: In gambling, players often believe they can "turn the odds" by betting patterns
based on previous outcomes, thinking that a win or loss is due after a series of losses (the
gambler's fallacy).

Implications:
●​ Misguided Decision-Making: This error leads to poor decision-making based on
faulty assumptions about chance and luck, particularly in high-stakes scenarios.
●​ Sports Management: Coaches may rely on perceived patterns in player
performance based on random data rather than objective assessment statistics.

●​ Risk aversion
The tendency to prefer a sure gain of a moderate amount over a riskier outcome, even if
the riskier outcome might have a higher expected payoff. Risk aversion is the tendency to prefer
 outcomes that are certain over uncertain ones, even when the uncertain outcome may lead to a
better expected result.

Example: When presented with two options—a guaranteed $50 win versus a 50% chance
to win $100—many individuals will opt for the guaranteed win, even though the expected value
is higher with the risky option. Organizations often exhibit risk aversion by sticking to traditional
practices instead of innovating.

Implications:
●​ Innovation Stifling: Excessive risk aversion can prevent organizations from
pursuing new opportunities or implementing change, limiting growth potential
and adaptability in evolving markets.
●​ Strategic Planning: Decision-makers may prioritize safe options over those that
present potential for higher returns, impacting long-term strategy.

●​ Hindsight bias
The tendency to believe falsely, after an outcome of an event is actually known, that one
would have accurately predicted that outcome. Hindsight bias refers to the tendency for
individuals to see past events as having been predictable or inevitable after they have already
occurred, often leading to an overestimation of foresight.

Example: After a significant market downturn, investors may claim they "knew" the
crash was coming, despite having shown confidence beforehand. Reports and retrospective
analyses often highlight predicted downturns as obvious in hindsight, though these predictions
were not commonly articulated prior to the events.

Implications:
●​ Learning and Growth: Hindsight bias can hinder learning from past mistakes
because individuals believe they should have seen the outcomes coming, which
can discourage taking necessary risks.
●​ Performance Assessment: Managers may unfairly evaluate decisions made under
uncertainty as poor when contextual hindsight is applied, ignoring the inherent
unpredictability of the decision environment at the time.

Influences on Decision Making: Individual Differences and Organizational Constraints

Individual Constraints:

●​ Personality: Specific personality traits can influence an individual's decision-making

process. For example, achievement-striving individuals may escalate commitment, while
dutiful individuals are less likely to do so.
●​ Gender: Women tend to ruminate more than men, which can lead to overthinking
problems and increased difficulty in making decisions.
 ●​ Mental Ability: While higher mental ability can help avoid some decision errors, it
doesn't prevent biases like anchoring or escalation of commitment.
●​ Cultural Differences: Cultural background can significantly influence the
decision-making process, affecting problem selection, depth of analysis, and the role of
logic and rationality.

Organizational Constraints:

●​ Performance Evaluation: Managers may make decisions based on how they are
evaluated, potentially distorting choices.
●​ Reward Systems: The organization's reward system can influence decision-making by
suggesting which choices have better personal payoffs.
●​ Formal Regulations: Rules and policies can limit decision choices by standardizing
procedures.
●​ Time Constraints: Deadlines can hinder the ability to gather information and make
well-considered decisions.
●​ Historical Precedents: Past decisions can serve as precedents, potentially limiting
choices.

Improving decision making process: Improving the roles of individual, structured group decision making
process.

Several factors can impede effective decision-making in organizations:

●​ Perceptual Biases: The perception process can be distorted by selective perception, the halo effect,
stereotyping, contrast effects, and other biases, leading to misinterpretations of information and, in turn,
to poor decisions.
●​ Decision-Making Errors: Common biases and errors in decision-making include overconfidence bias,
anchoring bias, confirmation bias, availability bias, escalation of commitment, randomness error, risk
aversion, and hindsight bias. These biases can lead to irrational and suboptimal decisions.
●​ Bounded Rationality: The rational decision-making model is often unrealistic because individuals have
limited information-processing capabilities and act under uncertainty. This can lead to satisficing
(choosing the first acceptable alternative rather than the optimal one) and other deviations from
rationality.
●​ Intuition: Intuitive decision-making, while sometimes valuable, can lead to errors because it is based on
distilled experience and may not be fully informed by rational analysis.
●​ Organizational Constraints: The organization itself can constrain decision-making through
performance evaluations, reward systems, formal regulations, system-imposed time constraints, and
historical precedents, which can lead to deviations from the rational model.

Techniques of decision making.

●​ Brainstorming: It involves the use of groups whose members are presented with a problem and are
asked to develop as many potential solutions as possible. Brainstorming is based on the premise that
when people interact in a free and uninhibited atmosphere, they will generate creative ideas.
 ●​ Synectics: The term synectics is derived from a Greek word meaning “the fitting together of diverse
elements”. The basic objective of synectics is to stimulate novel alternatives through the joining together
of distinct and apparently irrelevant ideas.
●​ Nominal Group Technique: Nominal group technique does not rely on free association of ideas, and it
purposefully attempts to reduce verbal interactions. From this latter characteristic, a nominal group
derives its name; it is a group “only in name.”
●​ Delphi Technique: This is the technique of decision making which does not require experts to be
present at the same venue while the decision is taken.

Models of Individual decision making:

Classical decision making
●​ Rational Decision-Making Model
●​ Econological Model
●​ Normative Models:
These models are prescriptive, suggesting how decisions should be made based on the
best possible practices, such as:
●​ Expected Utility Theory: Decision-making under uncertainty, where options are
evaluated based on their expected outcomes and the preferences of the decision-maker.
●​ Multi-Criteria Decision Analysis (MCDA): A method for evaluating different alternatives
against multiple conflicting criteria.

Behavioral decision making models

●​ Bounded Rationality
●​ Garbage Can Model
●​ Implicit Favourite Model
​
Individual decision making process.
The Individual Decision-Making Process is generally characterized by a sequence of steps that
individuals follow when faced with a decision. Specific details mentioned in the documents include the formal
stages along with the influences that might affect the decision-making outcomes.
Steps:
1.​ Problem Recognition:
Identifying that a decision needs to be made or that there is a problem that requires a solution.
This is the initial step that sets the entire process in motion.

2.​ Information Search:

Gathering relevant information about the problem context, potential alternatives, and
consequences associated with each option. This includes both external sources (like market
research) and internal data (past experiences).

3.​ Identifying Alternatives:

Developing a list of possible options or courses of action that can address the problem identified
in the first step. This can involve brainstorming and creative thinking.

4.​ Evaluating Alternatives:

 Critically assessing each alternative against predetermined criteria such as feasibility,
cost-effectiveness, potential benefits, and risks. This is where biases, heuristics, and individual
preferences can significantly influence outcomes.

5.​ Decision Making:

Choosing the most appropriate alternative based on the evaluation. This step may involve a
degree of statistical and logical reasoning to determine the best choice.

6.​ Implementation:
Putting the chosen alternative into action, which may require planning, delegation, and the
mobilization of resources.

7.​ Review and Reflection:

Assessing the outcomes of the decision and reflecting on the effectiveness of the process. This
step helps in learning from experience to inform future decision-making.