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Chapter 2

> Decision Making


> Decision making theory
> Decision making models
> Managerial decision making process
> Participation styles (Vroom-Jago
model)
> Reality
> Common biases and errors
> Frequently used shortcuts in judging
others

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Management for Engineers Barhan Özce
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Decision making
Theory
> According to decision making theories,
people calculate the costs and benefits
of various actions and pick the best
alternatives in a fairly logical, reasoned
way.

> Expectancy theory proposes that we ask ourselves


three kind of questions before any action:
> If I attempt this action how likely am I to succeed? (Expectancy)
> Would successful action lead to desired outcome? (Instrumentality)
> How much do I value these outcomes? (Valence)
> As above factors (VIE) are multiplicative in their effect,
negative Instrumentality, or zero Valence or Expectancy
means that behavioral choice will not be pursued.

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Management for Engineers Social Psychology, Sears, Peplau and Taylor Barhan Özce
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Decision making
Definitions about decision-making models
> Certainty: The situation in which all the information the
decision makers need is available.
> Risk: A situation in which a decision has clear-cut goals
and good information is available, but the future
outcomes associated with each alternative are subject
to chance.
> Uncertainty: The situation that occurs when managers
know which goals they wish to achieve, but information
about alternatives and future events are incomplete.
> Ambiguity: A condition in which the goals to be
achieved or the problem to be solved is unclear,
alternatives are difficult to define, and information about
the outcomes is unavailable.
> Satisficing means that decision makers choose the first
solution alternative that satisfies minimal decision
* criteria.
Management for Engineers The New Era of Management, Richard L. Daft Barhan Özce
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Decision making
Characteristics of classical, administrative
and political decision-making models
Classical Model Administrative Model Political Model
Clear-cut problem and goals Vague problem and goals Pluralistic; conflicting goals
Condition of certainty Condition of uncertainty Condition of uncertainty/ ambiguity
Full information about Limited information about Inconsistent viewpoints; ambiguous
alternatives and their alternatives and their information
outcomes outcomes
Rational choice by individual Satisficing choice for resolving Bargaining and discussion among
for maximizing outcomes. problem using intuition coalition members

> Classical model: a decision-making model based on the assumptions that


managers should make logical decisions that will be in the organization’s best
economic interests.
> Administrative model: a decision-making model that describes how managers
actually make decisions in situations characterized by nonprogrammed
decisions, uncertainty and ambiguity.
> Political model: a decision-making model useful for making nonprogrammed
decisions when conditions are uncertain, information is limited and there is
disagreement among managers about what goals to pursue or what course of
actions to take.
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Management for Engineers The New Era of Management, Richard L. Daft Barhan Özce
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Six steps in managerial decision-making
process

6 1
Evaluation Recognition of
And Decision
Feedback Requirement

Implementation Diagnosis and


Decision-Making
Of Chosen Process Analysis 2
Alternative Of Causes
5

Selection of
Desired Development of
Alternative Alternatives
4 3

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Management for Engineers The New Era of Management, Richard L. Daft Barhan Özce
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Five leader participation styles
Area of Freedom for Group
Area of Influence by Leader

Decide Consult Consult Group Facilitate Delegate


Individually
You make the You present You present the You present the You permit the group to
decision alone the problem to problem to the problem to the group make the decision within
and either the group group members in a meeting. You act prescribed limits. The
announce or members in a meeting, get as facilitator, defining group undertakes the
sell it to the individually, their suggestions, the problem to be identification and
group. You may get their and then make solved and the diagnosis of the problem,
use your suggestions, the decision. boundaries within developing alternative
expertise in and make the which the decision procedures for solving it
collecting decision. must be made. Your and deciding on one or
information that objective is to get more alternative solutions.
you deem concurrence on a While you play no direct
relevant to the decision. Above all, role in the group’s
problem from you take care to show deliberations unless
the group or that your ideas are not explicitly asked, your role
others. given any greater is an important one behind
weight than those of the scenes, providing
others simply because needed resources and
of your position. encouragement.

SOURCE : Victor H. Vroom, “Leadership and the Decision Making Process,” Organizational Dynamics 28 no. 4 (Spring 2000),
82-94. This is Vroom’s adaptation of Tannenbaum and Schmidt’s Taxonomy.
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Management for Engineers The New Era of Management, Richard L. Daft Barhan Özce
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Five leader participation styles
Selection of the style to utilize from Vroom - Jago
model depends on:
> Your individual expertise about the problem or the
situation requiring a decision
> Group expertise
> Involvement and commitment you want from group
members
> Time pressure
> Likelihood of team members’ commitment on your
individual decision

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Management for Engineers The New Era of Management, Richard L. Daft Barhan Özce
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LESSON 15

Part I: "Use the formula P=40 to 70, in which P stands


for the probability of success and the numbers indicate
the percentage of information acquired.”
Part II: "Once the information is in the 40 to 70 range,
go with your gut."
Don't take action if you have only enough information to give you less
than a 40 percent chance of being right, but don't wait until you have
enough facts to be 100 percent sure, because by then it is almost
always too late. Today, excessive delays in the name of information-
gathering breeds "analysis paralysis." Procrastination in the name of
reducing risk actually increases risk.
A Leadership Primer, General Colin Powell
Chairman (Ret), Joint Chiefs of Staff

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Management for Engineers Barhan Özce
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Decision making
Reality
> People often uses shortcuts that enable
them to make decisions from judgments,
or solve problems quickly and efficiently,
but not always thoroughly according to
strictly rational standards.
> Biased thinking
> Heuristics – time saving mental shortcuts that
reduce complex judgments to simple rule of thumb
> Nonverbal behavior – facial expressions, body
movements
> Motivational factors such as emotional reactions or
personal goals
> Strategic self-presentations

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Management for Engineers Social Psychology, Sears, Peplau and Taylor Barhan Özce
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Decision making
Reality
> Common biases and errors in decision making
> Overconfidence bias – Tendency to overestimate own performance and
ability
> Anchoring bias – Tendency to fixate on initial info and fail to adequately
adjust for subsequent information
> Confirmation bias – Tendency to seek out information that reaffirms past
choices and to discount info that contradicts past judgments
> Availability bias – Tendency for people to base their judgments on info
that is readily available to them
> Escalation of commitment – An increased commitment to a previous
decision in spite of negative information
> Randomness error – Tendency of individuals to believe that they can
predict the outcome of random events
> Winner’s curse – A decision-making dictum which argues that the winning
participants in an auction typically pay too much for the winning item
> Hindsight bias – Tendency to believe falsely, after an outcome of an event
is actually known, that one would have accurately predicted that outcome

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Management for Engineers Organizational Behavior, Robbins/Judge Barhan Özce
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Decision making
Reality
> Frequently used shortcuts in judging others
> Selective perception – Tendency to selectively interpret what one
sees on the basis of one’s interests, background, experience and
attitude.
> Halo effect – Tendency to draw a general impression about an
individual on the basis of a single characteristic.
> Contrast effects – Evaluation of a person’s characteristics that is
affected by comparisons with other people recently encountered who
rank higher or lower on the same characteristics.
> Stereotyping – Judging someone on the basis of one’s perception of
the group to which that person belongs
> Profiling – A form of stereotyping in which a group of individuals is
singled out (typically on the basis of race or ethnicity) for intensive
investigation.

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Management for Engineers Organizational Behavior, Robbins/Judge Barhan Özce
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Decision making
Mistake
> Risk is always in every
decision

> Company / organization


“without mistake” either
avoids risks at all cost or is
dead

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Management for Engineers Barhan Özce
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Decision making
Mistake
> Consider each mistake as an
opportunity to learn
> Ask yourself/your team
members:
When did you make your last
“good mistake”?

Errare humanum est,


sed perseverare diabolicum.

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Management for Engineers Barhan Özce
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