Issues in Decision Making

Making decisions is one of the most challenging tasks in any organization. But, with sufficient knowledge of biases and traps, better decisions can be made (Betsch, et al., 2014). There have been countless instances where incorrect decisions have resulted from various prejudices on the part of management or supervisors. These are some examples of such cases.

According to the supervisor’s recommendation, an organization spent some resources in a business line. Yet, changes in market conditions and the advent of rival items resulted in a consistent drop in product demand. The business line started making losses, and the supervisor had to come up with a solution before the condition escalated. According to him, the business line would still generate revenue for the organization with more investment of resources and time. The group, following this advice injected the said resources. The sector did not recover, and the company made losses.

Apparently, the decision made in the above scenario was unfortunate because the market demand for the product was over. The supervisor should have invested the additional resources in a more promising line of business. The sunk costs bias led to this decision as the supervisor was too invested in his idea and was not ready ton give up on it (Hammond, et al., 1998). It was also hard for him to admit that he had made a mistake.

According to Bolland and Fletcher (2012), the more we invest in something, the more difficult it is to give up on it which leads to poor decision making (Pg. 36).

At a particular time in our organization, the supervisor had to make a projection of sales in the next financial period for production purposes. He considered the volume of sales realized in the last quarter of the ending fiscal year with more sales than in the rest of the year. The actual sales made in the next period declined compared to the estimate made by the supervisor. It was an overestimate which resulted to overproduction leading to losses.

The poor decision made was as a consequence of the recency effect bias, where estimates made were influenced by the performance of the recent quarter of the financial period without much consideration of the outcome of the rest of the time. A better decision was possible if the supervisor considered the sales performance in the whole time, this would give the real picture of the trend in sales. The recency effect occurs when decisions made are a result of the most recent information in the memory of decision makers (Bolland & Fletcher, 2012, Pg. 36).

In another case, the management had a problem of whether to merge with a factory that was a major supplier to the organization. The supervisor was an admirer of the plant, and he cited all the possible benefits of the merger. However, further scrutiny revealed that if the merger took place, there was a risk of incurring more overhead costs and formation of a new management structure. The supervisor disregarded these claims without much deliberation and made the merger. Consequently, the organization was incapable of sustaining the factory and issues in management arose which led to the facility’s closure.

Confirmation bias led to the merger as the supervisor had pre-existing views and sought for ways of supporting his decision (Bolland & Fletcher, 2012, Pg. 36). People tend to find information that supports their existing views and support the decisions they are about to make (Kourdi, 2011).

Of the three background readings, I would recommend Bolland, E., & Fletcher, F. (2012). Solutions: Business problem-solving. This text contains a deeper research into the biases and ways to overcome such biases in decision making. The other sources are not much detailed and contain an only a description of traps and biases.

References

Betsch, T., & Haberstroh, S. (Eds.). (2014). The routines of decision making. Psychology Press.

Bolland, E., & Fletcher, F. (2012). Solutions: Business problem solving. (Available from Trident Online Library. Read only the relevant chapters.)

Hammond, J. S., Keeney, R. L., & Raiffa, H. (1998). The hidden traps in decision-making. Harvard Business Review, 76(5), 47-58. [Business Source Complete).

Kourdi, J. (2011). Chapter 10: Avoiding the pitfalls and developing an action plan. Effective Decision Making: 10 Steps to Better Decision Making and Problem Solving. London: Marshall Cavendish International [Asia] Pte Ltd. [eBook Business Collection.