Models of Decision Making - Essay Example

Observation Review Name Class Unit Situation In management, decision making is a very vital process due to the impacts it has on the firm. I was able to witness a decision being made by a manager. I worked in a company that was facing financial problems and management had to act on it. The manager had been pressured by the stakeholders to make a decision that will save the company from bankruptcy. According to the stakeholders, sustaining the wage bill under the current firm performance was become hard. The manager was required to look for ways in which the company could reduce their wage bill and improve on their market perfoamcne. The manager had to make a decision within a limited time frame. The manager came up with a decision to lay off the employees in all departments with those in the production section being the most affected. The production team was the biggest group of employees in the company. The decision was affected by limited time frame, lack of enough resources and heuristic biases. The pressure from the stakeholders also played a major part in his decision. The manager came up with the decision to lay off workers in order to satisfy but it was not the optimal decision. Despite the management decision to downsize, the organisation productivity did not improve. The organisation continued to underperform. The organisation efficiency went down as few employees were available. The organisation had fewer employees to perform the work which led to overload and burnout. The employees’ commitment went low and there was fear of job security among workers. The reduced level of trust by the employees led to some of the workers looking for jobs while still in the company. This affected the organisation employee retention capability. Analysis There are various models of decision making. Rational decision making is the ideal form of decision making where it is assumed that one have knowledge on all alternatives and their associated consequences (Hutchinson & Gigerenzer, 2005). The model assumes that one is able to have the computational ability which enables comparing the alternatives. This model does not work in the real life. This is due to constraints faced when making decisions such as limited computational power. This led to the introduction of the bounded rationality concept in decision making. This is due to fact that people uses judgemental heuristics when making decisions (Fitzgerald, 2013). This is due to uncertainty, limited time and complexity of decision which affects the ability of coming up with an optimal decision. In this case, the manager had limited time to make a decision. There was also a lot of pressure from the stakeholders who wanted a decision to be made. The manager was affected by heuristics in order to cope with the decision making within a limited time frame. The use of heuristics in decision making introduces bias (De Neys, Vartanian & Goel, 2008). Research has proved that though heuristics provides an effective way of decision making, they can lead to severe errors in judgement. The manager did not have enough time to utilise his thinking efforts and analyse the layoff which led to utilising heuristics. Downsizing is a very vital decision that should be undertaken with a lot of care. This is due to the effects that it has on the organisation. The manager did not follow the right process in downsizing. The process should be implemented gradually and in an incremental way. The manager used rapid downsizing which affected the organisation processes leading to loss. Making effective solutions is the main aim of an organisation and success is based on the type of decision made. Decision makers rarely balance the costs and benefits in decision making. Research has proved that managers do not always behave based on utility theory assumptions. This is due to fact that they do not look at all related outcomes. In this case, the decision was made before all relevant information was gathered. The manager was occupied with concerns which affected his final decision. In most cases, decision makers use prior beliefs and focuses only at the selected interests. This leads to the management ignoring conflict of information (Slovic & Västfjäll, 2010). The manager in this case focuses only on the selected interest to come up with the decision. The manager overestimated the importance of information that he was able to easily gather. This led to him using the information that was readily available and failed to look for more information. It seems that the manager overestimated his control on the outcomes of his decision. At the management level, the decisions are more complex and lack a proper structure. This may lead to the decision maker relying on intuition and heuristics. This makes the decision maker to be bounded due to environment, biases and memory constraints (Ariely, 2008). The manager lacked time to challenge the decision he made and assumptions he used. According to prospects theory, managers decisions tend to simplify their choices satisficing instead of maximising (Starcke & Brand, 2012). Human decision makers are affected by information processing leading to poor optimisation. Through use of heuristics, it is possible to save time and effort in decision making. The main problem with use of heuristics is their effect on accuracy. Through heuristics, managers can save time at the expense of some loss in accuracy (Fitzgerald, 2013). In some instances, the trade off is rational. This occurs when the decision being made is not important enough to warrant time and effort. In some cases, the cost of getting the information and analysing it is higher than the loss in accuracy. Biases in decision making are a major problem in effective problem solving (Ariely, 2008). This is due to the fact that little concern is given to information gathering and processing. The decision makers are left with processes which are confounded as they try to come up with solutions. The ability to make a good decision under bias lies on the ability to challenge the assumptions that bound the decision making process. Assumptions are the main causes of differing decisions. The manager is supposed to critically evaluate a situation before coming up with the final decision (Stanovich & West, 2008). The manager in this case failed to critically evaluate the situation leading to poor decision which had severe consequences. Reflection In this case, I would have looked at downsizing as the last resort in my decision making. I would have come up with decision to reduce the employees’ salaries after consulting them and explaining the need for wage cut. This decision can only be accepted by employees if they are explained on other alternatives available such as downsizing. This is a decision that I would base on the expected utility theory (EUT). According to EUT, it involves making decision after comparing the expected utility values. This would help in eliminating risky choices such as abrupt downsizing. I would have ensured that I have utilised the limited time available in making consultations among the employees on their input to save the company. When the decision being made will have great impact on the employees, it is very vital to involve them to eliminate resistance. I would ensure that I try to avoid using the simplest process to come up with the decision. The manager in this case, looked for the easiest process to come up with his decision. I would try to use the processes used in rational decision making despite the fact that they are time consuming. Though rational model is not realistic in real life situations, one can enhance decision making using some of its principles. This can be done by ensuring that I utilise the little time available more effectively. I would gather information from the case studies on the best method to save the company revenue and also consult other employees. Information gathering process is very vital in decision making. This would have been followed by analysis of the information gathered and coming with the right solution based on careful consideration. This was a major decision which cannot be traded off with heuristics. As I gather information, I would ensure that I am not distracted by the highly visible information. The evaluation of information would have been carried consistently and eliminate all preconceived opinions. I would have not relied on preferences as seen in this case where the manager used downsizing. I would have achieved this by eliminating biases and misjudgement by quality information gathering and processing. Despite the fact that the time was limited and there was intense pressure from stakeholders, major decisions cannot be made in a rush (Jeremy & Stéphane, 2013). I would have informed all stakeholders the need for patience as the right decision is being made. I would have minimised the bias during the process through looking at diverse viewpoints and looking at different solutions available. Before coming up with the decision to cut wages, I would analyse it rigorously. This is through describing to the stakeholders how I will carry out the decision to cut wages and justify to them based on data that will be available. References Ariely, D. (2008). Predictably Irrational: The hidden forces that shape our decisions. Harper Collins. De Neys, W., Vartanian, O. & Goel, V. (2008). Smarter than we think: when our brains detect that we are biased. Psychological Science, 19(5), 483-489. Fitzgerald, M. (2013). (Editor), Managing Under Uncertainty: A qualitative approach to decision-making, 2nd Edition, Pearson. Hutchinson, J.M.C. & Gigerenzer, G. (2005). Simple heuristics and rules of thumb: where psychologists and behavioural biologists might meet. Behavorial Processes, 69(2), 87- 124. Jeremy, A. Y. & Stéphane, C. (2013). The Emotionally Intelligent Decision Maker: Emotion Understanding Ability Reduces the Effect of Incidental Anxiety on Risk Taking. Psychological Science, 24(3), 48-55. Slovic, P., & Västfjäll, D. (2010). Affect, moral intuition, and risk. Psychological Inquiry: An International Journal for the Advancement of Psychological Theory, 21(4), 387-398. Stanovich, K. E, & West. R. F. (2008). On the relative independence of thinking biases and cognitive ability. Journal of Personality and Social Psychology, 94(4), 672-695. Starcke, K, & Brand, M. (2012). Decision making under stress: a selective review. Neuroscence Biobehaior Review, 36(4):1228-48. Read More