case study/journal

MGT 3303, Managerial Decision Making 1

Course Learning Outcomes for Unit VIII

Upon completion of this unit, students should be able to:

1. Summarize the foundational theories of managerial decision-making.

2. Examine the rational decision-making process.

3. Explore the psychological aspects of decision-making.

4. Describe the role of fairness and ethics in managerial decision-making.

5. Explain how motivation and emotion impact managerial decision-making.

6. Outline the decision-analysis approach to negotiations.

7. Discuss the methods for improving managerial decision-making.

8. Summarize best practices for managerial decision-making.

Reading Assignment

Chapter 12: Improving Decision Making

In order to access the following resource, click the link below.

Bartram, P. (2014). 8 ways to…improve the decision-making process. Financial Management (UK), 44–45.

n95108&sid=AONE&xid=9acb8567

Unit Lesson

Improving Decision-Making

In this course, we have reviewed the rational decision-making process and the steps that should be followed
to make a high-quality decision. We have studied a great deal about judgment biases and learned much
about how decisions are made. The discussion of cognitive bias covered approaches for minimizing the
biases that can negatively influence the decision process. Several tactics for building consensus and avoiding
groupthink were presented in Unit III on group decisions under bounded awareness. In this final lesson, we
cover some additional areas of best practice that help people and organizations make effective decisions.

Creativity

Creativity is an integral part of decision-making. One of the benefits of group decision-making is the diversity
of views, knowledge, and expertise that can be brought to bear on a problem, but it is not always easy to take
advantage of a group’s potential to come up with new approaches or novel solutions. There are three
techniques that can enhance a group’s creative capability to generate ideas and reach better decisions.
These techniques are brainstorming, decision-support systems, and analytics.

UNIT VIII STUDY GUIDE
Improving Decision-Making

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Brainstorming: Brainstorming encourages idea
generation through noncritical discussion.
Certain rules and practices apply that are
intended to lower participants’ reluctance to
share their thoughts for fear of disapproval.
These include the belief that no idea is too silly
or “out there;” even extreme ones are welcome.
Another supportive practice is that each idea,
once contributed, becomes the property of the
group, so individuals can build on the ideas of
others. Finally, the purpose of brainstorming is
not to evaluate ideas but, rather, to come up
with ideas, so no criticism is allowed.

Decision support systems: Many
organizations use information technology to
improve the effectiveness of their decision-
making. Known as decision support systems
(DSSs), these software products transform data

into useful information such as statistical tables and comparative results reports (e.g., year-over-year
performance). They allow for more objective decision-making, improved managerial control, a decreased
need for training through automation, and facilitated communication.

A DSS is comprised of a database, a model, and a user interface that provides analysis and answers that
help managers make choices. The database consists of structured records such as sales and cost figures.
The model links variables that represent an understanding of cause-and-effect relationships; for example, if
wages are increased, the labor cost per unit rises. The user interface is how decision makers interact with the
system (e.g., the fields where users enter queries or the series of steps they take to produce graphs, charts,
and reports).

DSSs are used in a wide variety of business functions and industries. For example, to make marketing and
pricing decisions at the local level, the rental car company Hertz uses a DSS to bring together data about
cities, holidays, business cycles, tourist activities, competitors’ actions, and customer behavior (Turban,
McLean, & Wetherbe, 2004). Medical personnel use a DSS for diagnosis and treatment. For example, a
doctor might input test results and symptoms to identify the alternative diagnoses and recommended
treatment. Farmers use such systems to determine crop rotation and other ways of optimizing their use of
land. Loan officers and credit card companies use them to determine applicant risk and the appropriate
interest rate to charge.

An enterprise-level DSS is used for certain types of decisions. For example, executive information support
systems serve the decision-making needs of top executives by providing access to information about critical
success factors and key performance indicators. Executives can manipulate and refine data to be more
meaningful and strategically significant to them. One use is for forecasting project trends; another use is
getting real-time data on factors relevant to a decision (Turban et al., 2004).

Brainstorming is a great decision-making technique.
(Ammentorp, 2017)

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Analytics: Over the past decade, an increasing number of organizations have started to use DSSs to predict
behavior and results. Predictive analytics enable managers to make decisions about how to allocate
resources and take other steps that are most likely to lead to positive results. This approach uses historical
data to identify predictive variables. For example, predictive analytics is used in higher education to flag
students who are at risk of flunking based on the pattern of courses and grades that match those of students

who have previously had trouble. Those students can
then be targeted for support from advisors or tutors.
Another example comes from Netflix, the movie rental
company. One way Netflix uses analytics is to make
recommendations to customers based on their
viewing history. This provides additional value to
customers and helps with customer retention. Another
way the company uses analytics is to predict the
number of customers who will want to view each film
so it can determine what to pay movie studios for the
distribution rights to DVDs (Davenport & Harris,
2007).

Being good at analytics has become a sought-after
competitive advantage; the better an organization
becomes at making sense of enormous amounts of
data, the better decisions it can make. Many
companies have made investments in their analytics
capability as a competency that can reduce costs,
enhance operations, and increase revenue. Chain
restaurants use it to determine the best places to
locate new stores. Frequent shopper cards offered by
many retailers help those companies identify and
track the purchases of their most loyal and profitable
customers and to target promotions to them.

Analytics have even become common in professional sports. For example, baseball teams use a large set of
metrics to determine the value of each player on their roster and, therefore, what they should pay him and use
past performance data to determine how to pitch to a batter and how to position players in the field to best
anticipate where he will hit the ball. One consequence of the widespread use of decision analytics has been
the creation of well-paying jobs for those with specialized skills in statistics and mathematical modeling.

Click here to test your knowledge about creative strategies that improve decision-making. Be sure you have
reviewed Chapter 12 before taking this quiz.

Other Strategies for Improving Decision-Making

To fine-tune our managerial decision-making skills, we will look at seven more strategies to complement what
we have learned about decision-making. The seven strategies are listed below.

1. “Use decision-analysis tools
2. Acquire expertise
3. Debias your judgment
4. Reason analogically
5. Take an outsider’s view
6. Understand biases in others
7. Nudge people toward wiser and more ethical decisions” (Bazerman & Moore, 2013, p. 208).

All of these strategies should be used together to make sure you are making the best decision possible.
Some decisions may not require all the tools we have outlined, but your job is to make sure you apply as
many of them as necessary to make good decisions.

Use decision-analysis tools: Decision analysis is the field of study that focuses on prescriptive decision
advice (Bazerman & Moore, 2013). These tools can only function if someone puts in the required data, which

Many stores use analytics for making various decisions
about sales and promotions.
(Rawpixelimages, 2015)

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is the preferences or options and the value of each of these preferences or options. These tools also require a
person to be specific about the probabilities of future outcomes. A linear model can be used to guide complex
decisions. These models use formulas with data input by people to make quantitative predictions. In almost all
complex situations, linear models produce much better predictions than do experts in the field. A simple linear
framework model produces almost as good of results as a more complex model so it is not necessary to have
too many variables when developing the model. Humans are better at developing and inputting the data, and
the models are better at integrating the data to produce predictions. Models are not affected by subjective
interpretations, mood, environment, randomness, deadlines, or other human characteristics. They always
have the same predictions from the same data, unlike people (Bazerman & Moore, 2013).

Acquire expertise: We know from our studies in this course that we are influenced by biases. A useful tool
for improving decisions and reducing bias is to look for experience and expertise in the area or field related to
the upcoming decision. We hope we learn from past mistakes and improve our decision-making skills.
However, we sometimes do not remember our own predictions or fail to remember our previous forecasts.
This may cause us to underestimate the accuracy of our past predictions. When we do this, we have not
really learned from our past experiences. We have anchored to the current state and failed to accurately
recall our past judgments (Bazerman & Moore, 2013). By developing experience and/or acquiring expertise,
we could eliminate or at least reduce biased decision-making outcomes. Experience comes from repeated
feedback. Expertise comes from learning and applying rational decision-making processes including
recognizing and limiting biases.

Debias your judgment: A known strategy used to eliminate or reduce bias is referred to as a debiasing
strategy. This strategy outlines a four-step process for making wiser decisions (Bazerman & Moore, 2013).
The four steps are listed below.

(Bazerman & Moore, 2013)

Debiasing is not an easy task. It is a difficult process that takes time and should be monitored for progress in
cognitive changes. Good strategies need to be context-specific and bias-specific to be effective. There should
be training linked to testing over a short time period. Unfreezing your cognition for improved decision-making
has to occur, but many times, it does not happen because of risk aversion, status quo, or preferences
(Bazerman & Moore, 2013). There is also a mindset that many people have which makes them believe that
their past decisions have been good ones, which then makes them resistant to change a good pattern. Their
intuition and judgment have gotten them this far, so why change? Focused debias training can help overcome
this mindset and help to unfreeze the biases to allow new thinking to occur. Change is not easy and gets
harder as we age. We have to realize we all have judgmental deficiencies; these deficiencies have roots from
our past, and it is OK to change them to be a better decision maker. By frequently applying what you have

Warn about
possibe bias. Describe the bias. Give feedback.

Provide a training
program with the
aim of improving

judgment.

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learned and reviewing your training, you can refreeze your newly acquired cognitive decision-making
strategies.

Reason analogically: The process of taking common lessons from two or more situations is referred to as
analogical reasoning. This process is another way of debiasing decisions. When individuals are comparing
multiple examples, they tend to focus on similarities of the examples rather than differences in the examples.
However, understanding the differences across the examples can be useful in reasoning analogically and
then in discussions as participants begin transferring knowledge among the decision makers. By examining
both the similarities as well as the differences of the examples, it creates opportunities to create more
alternatives, which could lead to an improved decision-making process (Bazerman & Moore, 2018). As we
learn this principle of reasoning analogically, we need to share it by teaching people these decision-making
strategies in general, broader terms. These general concepts will improve the ability to transfer learned
principles from generation to generation and teach one to discriminate the appropriateness of when to apply
these principles.

Take an outsider’s view: When you are making a decision, there are two viewpoints that should be
considered. The first view is the insider’s view and is predicated on each situation being unique and a
decision maker who is unbiased. The second view is the outsider’s view, and the decision maker looks for
and identifies similarities by generalizing the situation. The outsider can make better estimates, predictions,
and decisions than the insider can because they incorporate relevant data from previous decisions. When we
do not seek the outsider’s view in our decisions, it is generally because of our optimism or overconfidence.
The point in this discussion is that we need to invite an outsider to provide thoughts and insight when we are
making important decisions.

Understand biases in others: We need to understand that there is a wide range of biases, and we, as
individuals, need to make appropriate adjustments to those biases including knowing how others may be
affected by biases. There is a simple phase judgment-improvement technique to help us debias decisions
when working with others (Bazerman & Moore, 2013). The first phase is to understand and analyze the
context around the decision. The second phase is to determine any potential biases that may exist within the
group as well as how the potential biases relate to the decision. The third phase is to make any adjustments
needed for the decision. This technique can be used in a variety of situations. If you are assigned a role in a
group decision and are able to communicate this process and apply it, you will help the group make a better,
less-biased decision.

Nudge people toward wiser and more ethical decisions: There is a detailed description in the textbook of
organ donor philosophy worldwide that outlines the idea of nudging people to make wiser and more ethical
decisions. There is also another example that details concepts about savings plans. Both of these examples
stress changing the current philosophy of opting in to a program versus opting out of a program. For the
organ donor example, what if we were automatically organ donors when we died unless we had opted out of
the program (on our driver’s license, as an example). Think of how many more lives could be saved. Would
that be wiser and more ethical? What about the savings plan example where we had to opt out of the savings
plan or we were automatically in the savings plan. When we received raises, we would automatically get
increases in our savings percentage pursuant to the size of the raise percentage. Our disposable income
would not decrease, so we could maintain our standard of living but have a substantially better percentage of
savings over time. Would that not be wiser? This suggests that you can move people to make wiser and more
ethical decisions by using little nudges rather than big shoves.

Click here to test your knowledge of the decision-making strategies covered in this section. Be sure you have
reviewed Chapter 12 before taking this quiz.

Conclusion

In this unit, we covered improving decision-making skills by using our creativity and applying various
techniques and strategies like brainstorming, decision support systems, and analytics. We introduced other
strategies for decision-making such as using decision-analysis tools, acquiring expertise, debiasing our
judgment, reasoning analogically, taking an outsider’s view, and nudging people toward wiser and more
ethical decisions. Hopefully, you have enjoyed learning about managerial decision-making and will take what
you have learned and apply to your life decisions, both at home and work. Remember, we all have biases,

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and we can learn to overcome those biases in our decision-making if we apply what we learned and practice
it every day.

References

Ammentorp. (2017). Creative people doing a brainstorming meeting in office [Photograph]. Dreamstime.

Bazerman, M. H., & Moore, D. A. (2013). Judgment in managerial decision making (8th ed.). Wiley.

Davenport, T. H., & Harris, J. G. (2007). Competing on analytics: The new science of winning. Harvard

Business School Press.

Rawpixelimages. (2015). Sales promotion discount shopaholics shopping concept [Photograph]. Dreamstime.

Turban, E., McLean, E., & Wetherbe, J. (2004). Information technology for management (4th ed.). Wiley.