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2.2 Managerial Decision making

2.2.3 Barriers to decision making

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Decision evaluation is useful whether the feedback is positive or negative. Feedback that suggests the decision is working implies that the decision should be continued and perhaps applied elsewhere in the organization. Negative feedback, indicating failure, means that either (1) implementation will require more time, resources, effort, or thought or (2) the decision was bad one. If the decision appears inappropriate, it's back to the drawing board. Then the process cycles back to the first stage: (re)definition of the problem. The decision-making process begins anew, preferably with more information, new suggestions, and an approach.

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One set of barriers that influence decision-making stems from human nature itself.Decision makers are far from objective in the way they gather, evaluate, and apply information toward making their choices. Following are some examples that represent documented subjective biases:

a) The Availability Bias

Managers tend to use only the information available and give more weight to more recent behavior. This is because of that, the managers use information readily available from memory to make judgments. The bias, of course, is that readily available information may not present a complete picture of a situation. For example, if you had a perfect on-time work attendance record for nine months but then were late for work four days during the last two months because of traffic, shouldn’t your boss take into account your entire attendance history when considering you for a raise?

b) Illusion of Control

It is a belief that one can influence events even when one has no control over what happen.

Gambling is one example: Some people believe they have the skills to beat the odds even though most people, most of the time, cannot. In business, such overconfidence can lead to failure because decision makers ignore risks and fail to objectively evaluate the odds success. Relatedly, they may have an unrealistically positive view of themselves or their companies believe they can do no wrong, or hold a general optimism about the future that can lead them to believe they are immune to risk and failure (Bateman and Snell, 2004).

c) The Representativeness Bias

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This is an example of the tendency to generalize from a small sample or a single event. The bias here is that just because something happens once, that doesn’t mean it is representative that it will happen again or will happen to you. For example, just because you hired an extraordinary sales representative from a particular university, that doesn’t mean that same university will provide an equally qualified candidate next time. Yet managers make this kind of hiring decision all the time ( Alateia, 2003).

d) Framing Effects

Framing effects refer to how problems or decision alternatives are phrased or presented, and how these subjective influences can override objective facts. In one example, managers indicated a desire to invest more money in a course of action that was reported to have a 70 percent chance of profit than in one said to have a 30 percent of loss. The choices were equivalent in their chances of success; it was the way the options were framed that determined the managers' choices. Thus, framing can exert an undue, irrational influence on people's decisions.

e) The Anchoring Bias

Managers tend to make decisions based on an initial figure. The bias is that the initial figure may be irrelevant to market realities. For instance, mangers will often give their employees a standard percentage raise in salary, basing the decision on whatever the workers made the preceding year.

They may do this even though the raise may be completely out of alignment with what other companies are paying for the same skills

(Dessler, 2004).

f) The Escalation of Commitment Bias

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If you really hate to admit you are wrong, you need to be aware of the whereby decision makers increase their commitment to a project despite negative information about it (Robbins, 2003).

This is called escalating commitment—continuation and renewed efforts on a previously chosen course of action, even though it is not working. Decision makers may rationalize negative feedback as a temporary condition, protect their egos by not admitting that the original decision was a mistake, or characterize any negative results as a “learning experience” that can be overcome with added future effort. The self-discipline required admitting mistakes and change direction, however, is sometimes difficult to achieve.

Escalating commitments are a form of decision entrapment that leads people to do things that the facts of a situation do not justify. We should be proactive in spotting “failures” and more open to reversing decisions or dropping plans that do not appear to be working. But again, this is easier said than done. Good decision makers know when to call it quits. They are willing to reverse previous decisions and stop investing time and other resources in unsuccessful courses of action.

Escalating commitment is reflected in the popular adage, “If at first you don’t succeed, try, try, again.” (Schermerhorn et al, 2002).

2.2.3.2 Time Pressures

While a certain amount of analysis is required to make informed, today’s fast changing business environment might not wait around for you to make a decision that takes too long. If you are slowing down the decision-making process in yourorganization to a snail’s pace, there’s a good chance that you’ve become someone who is resisting change rather than embracing it (Nelson and Economy, 2005). The most conscientiously made business decisions can become irrelevant

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and even disastrous if managers take too long to make them. A recent study of decision-making processes in microcomputer firms which are a high-tech, and fast paced industry, showed some important differences between fast –acting and slower-acting firms. The fast-acting firms realized significant competitive advantages without sacrificing the quality of their decisions (Bateman and Snell, 2004).

2.2.3.3 Social Realities

Many decisions are made by a group rather than by an individual manager. In slow-moving firms, interpersonal factors decrease decision-making effectiveness. Even the manager acting alone is accountable to the boss and to others and must consider the preferences and reactions of many people. Important managerial decisions are marked by conflict among interested parties.

Therefore, many decisions are the result of intensive social interactions, bargaining, and politicking (Alamry and Alghalby, 2007).

2.2.3.4 Organizational structure

There may be so much organizational red tape that decision-making is limited to decision by president. Department managers may lack sufficient authority to make decisions and may be required to submit to a committee process for some decisions. Decisions made in other departments may, in turn, affect their own, but they may have no influence in those areas. There may be a lack of sufficient coordination in decision making throughout the organization.

2.2.3.5 Degree of Certainty

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Degree of certainty under which decisions are made tends to impose limits on choice. Under conditions of high certainty, the risk involved in decision-making is low and decisions may become routine (Hareem, 2004). After they have been standardized through the use of policies, procedures, and rules, routine decisions may be made at lower levels of the organization.

Conditions of relative uncertainty obviously increase risk, and managers attempt to evaluate alternatives in terms of probable payoff (Alamryand Alghalby, 2007). Statistical analysis of data, market research, and forecasting are a few of the decision-making tools that may be employed in assessing comparative probability. Decisions made under great uncertainty involve the highest level of risk, and the burden for making such decisions belongs to the top echelons of the organization.