Summary
Effective decision: a timely decision that meets a desired objective and is acceptable to those individuals affected by it models of decision making.models:
- rational model: Describes how individuals should behave in order to optimize some outcome
- bounded rationality model: a theory that suggests that there are limits upon how rational a decision maker can actually be
- garbage can model: a theory that contends that decisions in organizations are random and unsystematic
escalation of commitment: The tendency to continue to commit resources to a
failing course of action
participative decision making: Decision making in which individuals who are affected by decisions influence the making of those decisions.
Group-think:A deterioration of mental efficiency, reality testing, and moral judgment resulting from pressures within the group.Consequences:
- Incomplete survey of alternatives
- Failure to evaluate the risks of the preferred course of action
- Biased information processing
Cultural differences in decision making
- Time orientation
- Importance of logic and rationality
- Belief in the ability of people to solve problems
- Preference for collecting decision making
Ethics:
Morals: the values and principles that distinguish right from wrong
Ethics: behavioral norms and rules. Do the right thing.
Social responsibility: obligation of an organization to behave in ethical way in the social environment in which it operates
Ethical Behavior: Acting in ways consistent with one’s personal values and the commonly held values of the organization and society.
Question
How can organizations effectively manage both risk taking and escalation of commitment in the decision-making behavior of employees?
With the escalation of commitment and risk people ignore the course of action based on future benefits minus any costs. Their whole decision is based on the sunk costs in the project. Managerial decision making needs to take into account of the going concern and when to terminate a failed project.
the organization should recognizing when a decision is working, when it isn’t and how much time should be given to a decision that hasn´t. also is better when the company recognizes past present and future with emotional detachment. They must recognize this in relation to costs that have been spent, are being spent and will be spent. With this a proper understanding of sunk costs is possible. If it is a cost that has already been incurred or there is an obligation to incur it than it is a sunk cost. Like a sunken ship the money is spent, it is sunk. In other words going forward recognizing escalation of commitment and risk means recognizing the cost is sunk and won’t be coming back.
References:
- http:// hubpages.com/hub/Escalation-of-Commitment
- http://www.businessdictionary.com/definition/escalation-of-commitment.html
- Mintzberg, H. & Westley, F. (2001, Spring). Decision making: It’s not what you think. MIT Sloan Management Review, 42(3), 89 –93.
- http://www.jstor.org/pss/257636
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