ITM 207 Lecture Notes - Lecture 9: Self-Justification, Mental Model, Sunk Costs
9 May 2018
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MHR Chapter 7 – Decision Making
Lac-Megantic Case Study:
- Many poor decisions led to the accident which included a procedure of allowing
engineers to leave a running locomotive with 9.1 million litres of explosive crude oil
unattended w/an unlocked locomotive cab
- Case reveals importance of decision making
- All businesses, governments and non-profit organizations depend on employees to
foresee and correctly identify problems, to survey alternative responses and pick the
best one based on a variety of stakeholder interests and to execute those decisions
effectively.
- Decision making is a vital function for an organizations health that it be equated
w/importance of breathing to a human being
- Organizations encourage teaching employees at all levels to make decisions more
effectively.
7.1 Rational Choice Paradigm of Decision Making:
- Decision making is the conscious process of making choices among the alternatives with
the intention of moving towards some desired state of affairs
- All organizations depend on employees to foresee and correctly identify problems, to
survey alternatives and pick the best one based on a variety of stakeholder interest and
to execute those decisions effectively.
- Effective decision making involves identifying, selecting, and applying the best possible
alternative (choose alternative w/highest value such as the highest expected
profitability, customer satisfaction, employee well-being etc.)
- Rational choice paradigm: the view in decision making that people should and typically
do use logic and all available information to choose the alternative with the highest
value
- Rational choice paradigm selects the choice w/highest utility through the calculation of
subjective expected utility (SEU)
- Subjective expected utility: the probability (expectancy) of satisfaction (utility) resulting
from choosing a specific alternative in a decision.
- All decisions rely on rely to some degree:
o A. the expected value of the outcomes (utility)
o B. the probability of those good or bad outcomes occurring (expectancy)
Rational Choice Decision making Process:
- Rational choice paradigm assumes that decision makers follow the systematic process
- 1. Identify the problem or recognize the opportunity
o Problem is a deviation between the current and desired situation, the gap b/w
hat is ad hat ought to e goal
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o Opportunity is the deviation b/w current expectations and a potentially better
situation that was not previously expected,
- 2. Choosing the best decision process
o Meta-decision-deciding how to decide-because it refers to choosing among
different approaches and processes to make the decision
o Example of met-decision: whether to solve the problem alone or involve others
in the process
o Whether to assume decision is programmed or non-programmed
▪ Programmed decisions follow standard operating procedures, been
resolved in the past etc., optimal decision has already been documented
▪ Non-programmed decision requires all things in the decision model b/c
the problem is new/complex/ ill defined
- 3. Identify and/or develop a list of possible choices
o Searching for ready-made solutions such as practices that have worked well on
similar problems
o If acceptable decision cannot be found, then decision makers need to design a
custom-made solution or modify an existing one
- 4. Select the choice with the highest SEU
o Calls for all possible alternatives and their outcomes, this paradigm assumes this
can be accomplished with ease
- 5. Implement the selected alternative
- 6. Evaluating
o hether the gap has arroed etee hat is ad hat ought to e
o Info comes from systematic benchmarks, feedback is objective and easily studied
Problems with the rational choice paradigm:
- Seems logical, yet it is impossible to apply in realty because people are not and cannot
be perfectly rational
- Identifying
7.2 Identifying Problems and Opportunities
- Einstein was asked how he would save the world in one out, he replied that the first 55
minutes should be spent defining the problem and the last 5 minutes solving it
- Problem identification is not just the first step in decision making, its also the most
important
Problems with problem identification
- Problem identification stage is filled with problems itself
- 1. Stakeholder farming
o Employees, suppliers, customers and other stakeholders present (or hide)
information in ways that makes the decision maker see the situation as a
problem, opportunity or steady sailing
o Employees point to external factors rather than their own faults as the cause of
production delays
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o Suppliers market their new products as unique opportunities and competitor
products as problems to be avoided
o Stakeholders offer a concise statement of the situation as a problem or
otherwise in the hope the decision maker will accept their verdict without any
further analysis
- 2. Diverse leadership
o Executives are evaluated by their decisiveness, including how quickly they
determine that the situation is a problem, opportunity or nothing worth their
attention
o Leaders announce problems or opportunities before having a chance to logically
assess the situation
o Result is often a misguided effort to solve an ill-defined problem by wasting
funds on a poorly identified opportunity
- 3. Solution focused problems
o When decision. Makers recognize that the situation does require a decision they
sometimes describe the problem as a veiled solution
▪ E the prole is that e eed ore otrol oer our suppliers this
is’t a prole it’s a rephrased stateet of a solutio to a prole that
has not been properly diagnoses
▪ Engage in solution- focused problem identification b/c it provides
comforting closure to the problem
▪ People with strong need for cognitive closure are particularly prone to
solution focused problem
- 4. Perceptual Defence
o People sometimes fail to become aware of problems b/c they back out bad news
as a coping mechanism
o Brain refuses to see threatening information
o Varies form one situation to the other
o More common when limited options to solve the problem
- 5. Mental models
o Mental models are visual representations of the external world they fill in info
that e do’t iediatel see
o Many mental images are also porotypes – represent models of how things that
are dissimilar to the mental model
o Can blind us from seeing unique problems or opportunities b/c they produce a
negative evaluation of things that are dissimilar to the mental model
o If idea does’t fit he eistig etal odel of ho thigs should ork. The it is
quickly dismissed as unworkable or undesirable
o Mental models cause missed opportunity
Identifying problems and opportunities more effectively
- 1. Become aware of the five problem identification biases described above
- 2. Require considerable will – power to resist temptation of looking decisive when a
more thoughtful examination of the situation should occur
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Many poor decisions led to the accident which included a procedure of allowing engineers to leave a running locomotive with 9. 1 million litres of explosive crude oil unattended w/an unlocked locomotive cab. All businesses, governments and non-profit organizations depend on employees to foresee and correctly identify problems, to survey alternative responses and pick the best one based on a variety of stakeholder interests and to execute those decisions effectively. Decision making is a vital function for an organizations health that it be equated w/importance of breathing to a human being. Organizations encourage teaching employees at all levels to make decisions more effectively. Decision making is the conscious process of making choices among the alternatives with the intention of moving towards some desired state of affairs. All organizations depend on employees to foresee and correctly identify problems, to survey alternatives and pick the best one based on a variety of stakeholder interest and to execute those decisions effectively.
