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4.4.

Administrative model:
this model of decision making describe how managers actually make decision in difficult situations, such as those characterized by none programmed decisions, uncertainty and ambiguity. Many management decisions are not sufficiently programmable to lend themselves to any degree of quantification. Managers are unable to make economically rational decision even if they want to. None programmed decisions: are used for unstructured, novel, and ill-defined situations of a nonrecurring nature. Example is the developing of the four-wheel-drive passenger car by Audi. In fact strategic decisions, in general, are none programmed decisions. Most decisions are neither completely programmed nor completely none programmed: they are a combination of both. [Heinz Weihrich et al 2005]. The administrative model of decision making is based on the work of Herbert Simon. Simon proposed two concepts that were instrumental in shaping the administrative model: bounded rationality and satisfying. According to the administrative model: Decision goals often are vague conflicting and lack consensus among managers. Managers often are unaware of problems or opportunities that exist in the organization. Rational procedures are not always used, and, when they are, they are confined to a simplistic view of the problem that does not capture the complexity of real organization view. Managers searches for alternatives are limited, because of human, information andect. Most managers settle for a satisfying rather than a maximizing solution. The administrative model is considered to be descriptive, meaning that it describes how managers actually make decision in complex situations rather than dictating how they should make decisions according to a theoretical ideal. This model recognizes the human and environmental limitations that affect the degree to which managers can pursue a

rational decision-making process. 4.4.1. Intuition: another aspect of administrative decision making is intuition. Intuition represents a quick apprehension of a decision situation based on past experience but without conscious thought. [Weston. H, Agor 1986]. Intuitive decision making is not arbitrary or irrational, because it is based on years of practice and hand-on experience that enable managers to quickly identify solutions without going through painstaking computations. . Principles of Good Administrative Decision Making The principles of good administrative decision making include: Understand the Act Relevant/irrelevant considerations A decision maker is obliged to consider all matters relevant to the decision to be made. Relevant matters are the factors which the decision maker should rely on. A decision maker is obliged to consider those matters expressly referred to in the Act, or those factors which may arise by implication from its subject matter, scope and purpose. If the Act does not specify any relevant considerations and leaves the discretionary power largely unconfined, then it is for the decision maker to determine which matters are relevant and the level of importance to be attached to them. This determination of what is relevant must be consistent with the goals of the Act. However, a decision maker is not obliged to make an exhaustive list of all matters that might conceivably be relevant to a decision and then consider them all. Relevant matters are those which must be considered, or relied on, for the exercise of the power. Agents should make sure they consider all matters relevant to the decision to be made. Taking into account an irrelevant consideration can be just as fatal to a decision as failing to take into account a relevant consideration. Whether a matter is irrelevant (like whether a matter is relevant) is a matter of understanding the Act conferring the power. Reliance on an incorrect or unsubstantiated fact may be treated as an irrelevant consideration. Agents should take care to avoid relying on an 'insupportable finding' or

'mere conjecture'. Agents must ignore irrelevant matters and consider only relevant matters. The role of policy and discretion Discretion is a term often used when discussing statutory decision making. It refers to the element of choice a decision maker has in forming their view or making their decision. Discretion may be obvious where the Act uses the term 'may' instead of the term 'must'. However, this is not a definitive test of the existence of discretion. Discretions are vested in the decision maker. A decision maker may act improperly if they act at the command of another person. Limits to the exercise of discretion may be found in the Act or in the nature of the decision making function itself. For example: Agents should always consider the limits of their discretion and ensure they act reasonably and in accordance with the legislative framework. In addition to statutory limits and in order to ensure administrative consistency, discretion should be exercised in accordance with the VWA's policies and procedures. Agent staff exercising statutory powers should comply with all relevant and applicable VWA policies and procedures, including the Claims Manual. However, care needs to be taken to ensure that VWA policies and procedures do not inappropriately interfere with a decision makers discretion. That is, policies and procedures can help agents exercise their discretion by, for example, identifying relevant criteria or setting out a consultation process. However, policies and procedures should not be followed blindly - agents still need to use their discretion to make a decision considering all of the circumstances of the particular matter. Best available information Decisions should be based on and supported by the best available evidence. Courts may imply into statutes an obligation to consider the most recent and accurate information available to the decision maker. In some situations, there is an obligation to seek out relevant information. For example, the Act may make clear there is an obligation

to conduct an inquiry to discover relevant information. However, even without such an express obligation, the courts may hold the obligation exists where: - it is obvious that information is readily available that is centrally relevant to the decision to be made - the decision maker is on notice the information existed but chooses not to seek it out (known as 'constructive knowledge' or 'willful blindness') - the information available to make a decision is clearly inadequate Proper, genuine, realistic consideration A decision maker must act reasonably and give proper, genuine and realistic consideration to the merits of a decision. File notes and evidence used to reach the decision (decision record) should reflect this, in case there is a challenge to a decision. While the failure to mention a matter expressly will not necessarily give rise to an inference that it was not considered, it is nevertheless good practice to list all matters considered.

The theory of administrative behaviour is a generic term used to describe the process by which people within organizations work. The theory is credited to Herbert Simon, and in particular to Simons findings about how organizations function that run counter to other, classical approached. For example, Simon (1976) clarified the processes by which goal specificity and formalization contribute to rational behavior in organizations. He criticizes Fayol's platitudes and Taylor's "economic man" assumptions, proposing the "administrative man" who pursues his self-interests but often doesn't know what they are, is aware of only some of the possible decision alternatives, and is willing to settle for an adequate solution than continue looking for an optimal one (p. 45). Participants in high positions make decisions with a higher value component, people in lower positions make decisions with a higher factual component. The top makes "what" decisions, the bottom "how" decisions.

Choice of ends can only be validated by fiat or consensus, choice of means empirically. Each goal in the means-end hierarchy is an end to things below it and a mean to those above it. Activities can only be evaluated against the goals above it. Goals can be delegated to different units which simplifies the decision making process for participants. Scott notes that "from this perspective, an organization's hierarchy can be viewed as a congealed set of means-ends chains promoting consistency of decisions and activities throughout the organization". p. 46 Two key concepts, both attributed to Simon, are related to the theory of administrative behavior. The first is the concept of bounded rationality. Bounded rationality notes the cognitive limitations of decision makers. Simon points out in his book, Models of My Life, that most people are only partly rational, and are in fact emotional/irrational in the remaining part of their actions. In other work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information" (Williamson, p. 553, quoting Simon). Simon describes a number of dimensions along which "classical" models of rationality can be made somewhat more realistic, while sticking within the vein of fairly rigorous formalization. These include: - limiting what sorts of utility functions there might be. - recognizing the costs of gathering and processing information. - the possibility of having a "vector" or "multi-valued" utility function. The second concept related to the theory of administrative behaviour is satisficing. Satisficing is a behaviour which attempts to achieve at least some minimum level of a particular variable, but which does not strive to achieve its maximum possible value. The most common application of the concept is in administrative behavior, which, unlike classical economic accounts, postulates that producers treat profit not as a goal to be maximized, but as a constraint. Under these theories, although at least a critical level of profit must be achieved by firms; thereafter, priority is attached to the attainment of other goals.

The bureaucratic or administrative model of decision making


In reaction to the unrealistic assumptions of the rational model, Herbert Simon (1960) sought to develop a model of decision making based on the actual behaviour of decision makers. This approach has come to be known as the bureaucratic or administrative model . Simon recognized that the human animal has a limited capacity for processing information, and thus that there are cognitive or mental

limits to human rationality. These limits or constraints on individuals mean that decision making is governed, according to Simon, by bounded rationality. Seemingly sub-optimal efforts to reach decisions (Minkes 1987: 703; Mouzelis 1967: 124) in everyday life also result from the influence of non-rational, emotional and unconscious elements in human thinking and behaviour, for example poor work habits, limited skills and pressure of time. Group pressures are also likely to limit the optimizing behaviour so central to the rational model of decision making. Furthermore, perfect information (on which to make decisions) is not always available, and there are time and cost considerations attached to information gathering and evaluation (Williamson, 1975). The sheer amount of information to be processed and the necessity to meet deadlines frequently rules out optimal decisions. Whilst ideally organizational arrangements should be set up to enhance decision making, which Simon sees as a primary management function, in practice the conditions for perfectly rational decisions will seldom, if ever, be attained. Thus, in lieu of the optimizing economic man of the rational model, Simon proposes an administrative man who satisfices. Satisficing is a term he coined to describe a best in the circumstances decision. The metaphor suggested is that of looking for a needle in a haystack. If one discovers a blunt or rusty needle that will more or less do the job required, it is unlikely one will keep searching until the perfect needle is discovered there may not even be one! Thus a satisficing decision is one which broadly satisfies the parameters of a problem. To continue to search for an ideal or optimal solution may not only exceed the information processing capcity of the decision maker, it may also involve a cost which must be offset against the advantage of a quicker, near-enough or satisficing decision: hence the bounded rationality of decisions (Perrow 1972: 1546; March and Simon 1958; Minkes 1987: 715). In addressing the question of what needs to be done to enhance organizational decision making, Simon distinguishes between two types of decisions: programmed and non-programmed. Programmed decisions are not novel in nature and evolve from policies, precedents and guidelines. These decisions deal with repetitive and procedural events and could include such things as decisions about salary payments, customer orders, inventory restocking, etc. (i.e. they appear as clear choice criteria). In larger organizations, procedure manuals and precedents often set the direction for a programmed decision. This type of decision making is very amenable to bureaucratization (red tape and rules) and computerization (Weeks 1980). By contrast, a nonprogrammed decision involves finding solutions to problems which are novel or unstructured. Examples would be a decision to diversify, relocate, acquire a new business or initiate a range of staff redundancies for the first time. Usually there is little in the way of precedent or procedure to guide such decisions. This distinction can be related back to the typology of Hickson et al. (1986) that we considered earlier. Sporadic decisions are similar to what Simon terms non-programmed decisions, whilst fluid and constricted decisions may be seen as examples of programmed decisions, although fluid decisions tend to have a greater element of uncertainty than a limited reading of programmed would imply. The distinction between programmed and non-programmed decision making is important because they not only require different methods of problem solving but also involve different modes of managing and organizing. The implications and characteristics of the two decision-making modes are set out in the table below (14.2 in the text). Programmable decisions lend themselves readily to operations research techniques and are compatible with mechanistic organizational structures. In a modernist view non-programmable decisions are best approached heuristically (i.e. using predictive models, including informal ones, to answer what if? questions) and are compatible wi th more organic (i.e. non-bureaucratic or flexible) organizations. Simon believed that the decision-making activities of the middle and lower-level groups within an organization were more amenable to programmable decisions, while the upper levels were to deal more regularly with non-programmable decisions. Indeed, the bounded rationality of human beings is frequently used to account for, and thus also to naturalise, the existence of the hierarchical structures we see in organizations. The argument runs something like this: if each of us can only process a limited amount of information, then to deal with complex matters that involve processing amounts of information that exceed these limits we must organize ourselves in ways that enhance our collective information processing powers.

Hierarchy provides just such a form of organization. It ensures that the information processing powers of senior decision makers are not overloaded by making subordinates both summarise information, passing only its most salient aspects to those above, and apply pre-programmed rules to familiar problems, so that they only need to pass up exceptional cases (Galbraith, 1974; see also Schotter, 1981). Within such moves, the problem of limited human information processing capacity is re-cognized and re-presented in the form of a solution: that of a formally organized hierarchy (Cooper, 1992). But there is no such thing as a free lunch! Rules begin to take precedence over what they are intended to achieve and hierarchical position becomes more important than level of competence, as we saw in the cases above. Furthermore, questions concerning who passes (Munro, 2001) what to whom become ever more pressing, as we shall see in our later consideration of the political model. Nevertheless, Simon hoped that through the application of sophisticated organizational design many decisions would become programmable and subject to more control and predictability. In the postmodern context programmable decisions operate through various forms of selfdiscipline and control. Non-programmable decisions are associated with the so-called virtual organization. Simon did not include postmodern techniques of decision making in his typology, but these have been added to help draw comparisons between techniques of decision making.