DECISION MAKING

Models of Decision Making: Rational, Administrative and Retrospective Decision Making

Models
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The decision-making process though a logical one is a difficult task. All decisions can be
categorized into the following three basic models.

(1) The Rational/Classical Model.

(2) The Administrative or Bounded Rationality Model.

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(3) The Retrospective Decision-Making Model.

All models are beneficial for understanding the nature of decision-making processes in
enterprises or organisations. All models are based on certain assumptions on which the
decisions are taken.

1. The Rational/Classical Model:

The rational model is the first attempt to know the decision-making-process. It is considered by
some as the classical approach to understand the decision-making process. The classical model
gave various steps in decision-making process which have been discussed earlier.

Features of Classical Model:

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1. Problems are clear.

2. Objectives are clear.

3. People agree on criteria and weights.

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4. All alternatives are known.

5. All consequences can be anticipated.

6. Decision makes are rational.

i. They are not biased in recognizing problems.

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ii. They are capable of processing ail relevant information

iii. They anticipate present and future consequences of decisions.

iv. They search for all alternatives that maximizes the desired results.

2. Bounded Rationality Model or Administrative Man Model:

Decision-making involve the achievement of a goal. Rationality demands that the decision-
maker should properly understand the alternative courses of action for reaching the goals.

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He should also have full information and the ability to analyse properly various alternative
courses of action in the light of goals sought. There should also be a desire to select the best
solutions by selecting the alternative which will satisfy the goal achievement.

Herbert A. Simon defines rationality in terms of objective and intelligent action. It is

characterised by behavioural nexus between ends and means. If appropriate means are chosen
to reach desired ends the decision is rational.

Bounded Rationality model is based on the concept developed by Herbert Simon. This model
does not assume individual rationality in the decision process.
Instead, it assumes that people, while they may seek the best solution, normally settle for much
less, because the decisions they confront typically demand greater information, time,
processing capabilities than they possess. They settle for “bounded rationality or limited
rationality in decisions. This model is based on certain basic concepts.

a. Sequential Attention to alternative solution:

Normally it is the tendency for people to examine possible solution one at a time instead of
identifying all possible solutions and stop searching once an acceptable (though not necessarily
the best) solution is found.

b. Heuristic:
These are the assumptions that guide the search for alternatives into areas that have a high
probability for yielding success.

c. Satisficing:
Herbert Simon called this “satisficing” that is picking a course of action that is satisfactory or
“good enough” under the circumstances. It is the tendency for decision makers to accept the
first alternative that meets their minimally acceptable requirements rather than pushing them
further for an alternative that produces the best results.

Satisficing is preferred for decisions of small significance when time is the major constraint or
where most of the alternatives are essentially similar.

Thus, while the rational or classic model indicates how decisions should be made (i.e. it works
as a prescriptive model), it falls somewhat short concerning how decisions are actually made
(i.e. as a descriptive model).

3. Retrospective decision model (implicit favourite model):

This decision--making model focuses on how decision-makers attempt to rationalise their
choices after they have been made and try to justify their decisions. This model has been
developed by Per Soelberg. He made an observation regarding the job choice processes of
graduating business students and noted that, in many cases, the students identified implicit
favorites (i.e. the alternative they wanted) very early in the recruiting and choice process.
However, students continued their search for additional alternatives and quickly selected the
best alternative.

The total process is designed to justify, through the guise of scientific rigor, a decision that has
already been made intuitively. By this means, the individual becomes convinced that he or she
is acting rationally and taking a logical, reasoned decision on an important topic.

Some Common Errors in Decision-Making:

Since the importance of the right decision cannot be overestimated enough for the quality of
the decisions can make the difference between success and failure. Therefore, it is imperative
that all factors affecting the decision be properly looked into and fully investigated.

In addition to technical and operational factors which can be quantified and analyzed, other
factors such as personal values, personality traits, psychological assessment, perception of the
environment, intuitional and judgemental capabilities and emotional interference must also be
understood and credited.

Some researchers have pinpointed certain areas where managerial thinking needs to be re-
assessed and where some common mistakes are made. These affect the decision-making
process as well as the efficiency of the decision, and must be avoided.

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Some of the errors re:

a. Indecisiveness:
Decision-making is full of responsibility. The fear of its outcome can make some people timid
about taking a decision. This timidity may result in taking a long time for making a decision and
the opportunity may be lost. This trait is a personality trait and must be looked into seriously.
The managers must be very quick in deciding.

b. Postponing the decision until the last moment:

This is a common feature which results in decision-making under pressure of time which
generally eliminates the possibility of thorough analysis of the problem which is time
consuming as well as the establishment and comparison of all alternatives. Many students, who
postpone studying until near their final exams, usually do not do well in the exams.

Even though some managers work better under pressures, most often an adequate time period
is required to look objectively at the problem and make an intelligent decision. Accordingly, a
decision plan must be formulated; time limits must be set for information gathering, analysis
and selection of a course of action.

c. A failure to isolate the root cause of the problem:

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It is a common practice to cure the symptoms rather than the causes. For example, a headache
may be on account of some deep-rooted emotional problem. A medicine for the headache
would not cure the problem. It is necessary to separate the symptoms and their causes.

d. A failure to assess the reliability of informational sources:

Very often, we take it for granted that the other person’s opinion is very reliable and
trustworthy and we do not check for the accuracy of the information ourselves.

Many a time, the opinion of the other person is taken, so that if the decision fails to bring the
desired results, the blame for the failure can be shifted to the person who had provided the
information. However, this is a poor reflection on the manager’s ability and integrity and the
manager must be held responsible for the outcome of the decision.
e. The method for analysing the information may not be the sound one:
Since most decisions and especially the non-programmed ones have to be based upon a lot of
information and factors, the procedure to identify, isolate and select the useful information
must be sound and dependable. Usually, it is not operationally feasible to objectively analyse
more than five or six pieces of information at a time.

Hence, a model must be built which incorporates and handles many variables in order to aid
the decision makers. Also, it will be desirable to define the objectives, criteria and constraints as
early in the decision-making process as possible.

This would assist in making the process more formal so that no conditions or alternatives would
be overlooked. Following established procedures would eliminate the efforts of emotions which
may cloud the process and rationality.

f. Do implement the decision and follow through:

Making a decision is not the end of the process, rather it is a beginning. Implementation of the
decision and the results obtained are the true barometer of the quality of the decision. Duties
must be assigned, deadlines must be set, evaluation process must be established and
contingency plans must be prepared in advance. The decisions must be implemented whole
heartedly to get the best results.

Approaches To Decision Making

The main approaches to decision making are as follows:

1. Classical Approach To Decision Making

Classical approach is also known as prescriptive, rational or normative model. It specifies how
decision should be made to achieve the desired outcome. Under classical approach, decisions
are made rationally and directed toward a single and stable goal. It is applied in certainty
condition which the decision maker has full information relating to the problem and also knows
all the alternative solutions. It is an ideal way in making decision. It is rational in the sense that
it is scientific, systematic and step-by-step process. This model assumes the manager as a
rational economic man who makes decisions to meet the economic interest of the organization.
Classical approach is based on the following assumptions:

- The decision maker has clear and well-defined goal to be achieved.

- All the problems are precisely defined.
- All alternative courses of action and their potential consequences are known.
- The decision maker can rank the entire alternatives on the basis of their preferred
consequences.
- The decision maker can select the alternative that maximizes outcome.

The classical model is supposed to be idealistic and rational but it is rarely found in practice.
Therefore, this approach has many criticisms. It is known by normative theory rather than
descriptive theory. Generally, managers operate under the condition of risk and uncertainty
rather than the certainty condition. in many situations, complete goal stability can never be
realized due to continuous environmental changes. It is applied only in the close system and not
practicable in real life situations where environment is changing rapidly.

2. Behavioral Approach To Decision Making

Behavioral approach is also known as descriptive approach and administrative model. This
theory is proposed by Herbert A Simon, a well known economist, in which he attempts to
explain how decisions are made in real life situations. Managers have limited and simplified
view of problems because they do not have full information about the problems, do not
possess knowledge of all possible alternative solutions, do not have the ability to process
environmental and technological information and do not have sufficient time and resources to
conduct an exhaustive search for alternative solutions to the problems. Therefore, this model is
based on two concepts: bounded rationality and satisfying.
Bounded Rationality: Simon believed that managers are bound by limited mental capacity and
emotion as well as by environmental factors over which they have no control. Real life
challenges, time and resource limitations, political pressure and other internal and external
factors force the manager to work under the condition of bounded rationality. Therefore, the
manager cannot take perfectly rational decision.
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Satisfying: It is the selection of a course of action whose consequences are good enough.
Bounded rationality forces managers to accept decisions that are only good enough, rather
than ideal. Such managerial decisions become rational but within the limits of managers' ability
and availability of information. Managers make decisions based on alternatives that are
satisfactory. The examples of satisfying decisions are fair price, reasonable profit, adequate
market share, proper quality products etc.

3. Implicit Favorite Model/Retrospective Approach To Decision Making

This approach is applicable in non-programmed decisions. In this approach, the manager first
choose an alternative solution to the problem and highlights its strength, and compare with
other alternatives and then identifies its drawbacks. This is done with a view to proving that the
alternative selected by him is the best solution to the given problem. However, another
alternative which seems to be similar to the implicit favorite is short listed and is taken as
second confirmation candidate. This approach can be observed in the purchase of various
favorite items in which a customer gives arguments in favor of his choice on the basis of norms
such as price, quality, appearance, easily availability, after-sales service etc. to reject other
items of same utility.
4 Types of Approach to Decision-making within an Organisational Setting
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Information on the different approaches to decision-making are given below:

There are several approaches to decision-making which offer insight into the process by which
managers arrive at their decisions. Rational approach is appealing as it is logical and
economical.

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The other approach is the behavioural approach which attempts to account for the limits on
rationality in decision-making.

The third approach, namely, the practical approach combines features of the rational and
behavioural approaches.

Finally, the personal approach focuses on decision-making processes individuals use in difficult
situations.

A. The Rational Approach:

Rational decision-making approach is a systematic, step-by-step process for making decisions. It
assumes that the organization is economically based and managed by decision-makers who are
absolutely objective and have complete information.

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The steps of rational decision-making approach are as follows:

(1) State the Situational Goal:

At the outset, a goal for a particular situation is stated. Some decision-models do not begin with
a goal. However, it is advisable because it can be used as a standard in determining whether
there is a decision to be made later on.

(2) Identify the Problem:

In this phase, the problem requiring decision is recognized and diagnosed. It involves
understanding the nature, magnitude and causes of the problem. The purpose of problem
identification is to collect information that has a bearing on the goal.

If there is a .discrepancy between the actual situation and the goal, action may be required.
Reliable information is an absolute necessity here. Inaccurate information can lead to wrong
decisions. At this stage, the constraints within which the problem must be solved are also
defined.

(3) Determining Decision Type:

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Now decision- makers must determine if the problem requires a programmed or a non-
programmed decision. If a programmed decision is required, an appropriate decision rule 0s
invoked and a choice is made from the available alternatives.

(4) Generate Alternatives:

The next step in making a non-programmed decision is to generate alternatives. Here, decision-
makers generate alternatives on the basis of their education-academic as well as professional,
experience and knowledge about the situation.

In addition, information may be sought from colleagues, subordinates, experts and superiors.
Decision-makers may analyze the symptoms of the problems for clues or rely on their own
intuition or judgement to generate alternative solutions.

(5) Evaluate Alternatives:

Each alternative is assessed in terms of its Strengths and weaknesses, costs and benefits as well
as possible negative consequences keeping in mind predetermined decision criteria. The
positive consequences must be weighed against negative consequences.

The ultimate decision criterion here is whether a particular decision will bring us nearer the
goal. According to Zeleny (1976), the evaluation process usually includes: (a) describing the
anticipated outcomes of each alternative, (b) evaluating the anticipated costs of each
alternative, and (c) estimating the uncertainties and risks associated with each alternative.

In most situations, the decision-makers do not have perfect information regarding the
outcomes of all alternatives at their disposal.

(6) Choose an Alternative:

This is the most crucial step in the decision-making process. It involves selecting the best
alternative with maximum positive consequences, least or no negative outcomes, less risks and
minimum costs.

In other words, the expected value of each alternative is determined and the alternative with
the largest expected values is selected. Again, the choice of alternative depends on decision-
makers’ education, judgement, experiences, logical analysis etc.

At this stage, it is important to consider contingency plans. Contingency plans are alternative
actions to take if the primary course of action is unexpectedly disrupted or rendered
inappropriate. Planning for contingencies is part of the transition between choosing the
preferred alternative and implementing it.

(7) Implementing the Plan:

Once a decision is formally accepted, an authorisation is made for its implementation.
Implementation puts the decision into action and involves communicating the decision,
gathering support for and acquiring and assigning resources to ensure that it is carried out.

It builds on the commitment and motivation of those involved in the decision-making process.
Successful implementation requires appropriate use of resources and good management skills,
leadership character sties, reward structure and knowledge and application of group dynamics.
Sometimes the decision-maker begins to doubt a choice already made. This is known as
cognitive dissonance.

Cognitive dissonance is the anxiety a person experiences when two sets of knowledge or
perceptions are incongruent or contradictory. In order to reduce cognitive dissonance, the
decision maker may seek o rationalize the decision further with new information.

(8) Control:
This is the final stage of rational decision-making process, wherein, the outcomes of the
decision are measured a id compared with the predetermined, desired goals. If there is a
discrepancy between the two, the decision-maker may restart the process of decision-making
by revising/modifying/setting new goals.

Strengths and Weaknesses of the Rational Approach

This approach has several strengths. It forces the decision-maker to consider a decision in a
logical, sequential manner and an in-depth analysis of alternatives helps him to choose on the
basis of information rather than personal prejudices, emotions or social pressure.

However, its weaknesses are that the manager does not always have perfect information faces
time and financial constraints, may have limited ability to process information and may not be
able to predict future accurately. Also, all the alternatives cannot be quantified making
comparisons difficult.

The following figure shows the rational decision-making process diagrammatically (Moorhead
and Griffin, 1999).

B. The Behavioural Approach:

This approach assumes that decision-makers operate with bounded rationality rather than with
the perfect rationality assumed by the rational approach. Bounded rationality is the idea that
decision makers cannot deal with information about all the aspects and alternatives pertaining
to a problem and therefore choose to tackle some meaningful subset of it.

Thus, this process is neither exhaustive nor completely rational and therefore, solutions arrived
at are not entirely ideal. Decision-makers operating with bounded rationality limit the inputs to
the decision-making process, focus their attention on two or three most favourable alternatives
(especially if there is a time constraint), process these in great detail and base their decisions on
judgement and personal biases as well as logic.

This approach possesses the following features:

(i) Use of procedures and rules of thumb which reduce uncertainty in decision-making initially.
For example, uses of models of teaching have been found to enhance student performance in
the past. Hence teachers, knowing the linkages between the two decide to use models of
teaching in classrooms.

(ii) Sub optimizing which refers to knowingly accepting less than the best possible outcome to
avoid unintended negative effects on other aspects of the organization.

(iii) “Satisfying refers to examining alternatives only until a solution that meets minimal
requirements is found and then making no further efforts to look for a better one. The search
for alternatives is generally a sequential process based on procedures and rules of thumb
guided by previous experiences with similar problems.
Such a solution may not always be the optimal solution since the search often ends when the
first minimally acceptable alternative is identified.

This model by Herbert Simon is also known as Administrative Man Model.’

C. The Practical Approach:

This approach combines the steps of the rational approach with the worthwhile features and
conditions in the behavioural approach to create a more realistic process for making decisions
in institutions.

According to this approach, rather than generating all alternatives, the decision-maker should
try to go beyond rules of thumb and satisfying limitations and generate as many alternatives as
possible within the given time, money and other Practicalities of the situation.

Here, the rational approach provides an analytical framework for making decisions while the
behavioural approach provides a moderating influence.

Those managers who have a tendency of jumping from one decision to another, making
decisions hastily and impulsively and barking out orders to subordinates usually do not use
much information or a rational approach to decision-making.

D. The Personal Approach:

The preceding three approaches explicitly explain the processes involved into decision-making.
However, they do not throw light on how people take decisions when they are nervous,
anxious, worried or agitated-whether in organizations or in personal matters.

Janis and Mann (1977) have provided a more realistic view of individual decision-making in
their ‘Conflict Model’. This model is based on research in social psychology and individual
decision processes. It is a personal approach to decision-making because it deals with the
personal conflicts that people experience in particularly difficult decision situations.
The model has five basic characteristics:

(a) It deals only with important life decisions such as choosing the nature and type of education
and institution, career, marriage, major organizational decisions etc. that commit an individual
or institution to a certain course of action.

(b) It recognizes that procrastination and rationalization are mechanisms by which people avoid
taking difficult decisions and coping with the accompanying stress.

(c) It explicitly acknowledges that some decisions could possibly go wrong.

(d) It provides for self-reactions in terms of comparisons of alternatives with internalized moral
standards. If a particular course of action violates the decision-makers moral convictions, it is
unlikely to be selected even if it is economically and socially beneficial.

(e) It recognizes that at times the decision-maker is ambivalent about alternative courses of
action. This kind of situation makes it difficult for him to give a whole-hearted commitment to
one single decision. However, major decisions concerning one’s life are either-or decisions that
require commitment to one specific alternative without allowing much compromise.

According to Janis-Mann conflict model of decision-making, a person, when faced with a

problem, analyzes the situation by seeking feedback (often negative) and asks himself/herself
whether the risks involved are serious if he or she does not make a change.

If the answer is no, the person will continue his/her present activities. This situation as known
as uncomplicated adherence which entails continuing with current activities if doing so does
not entail serious risks.

On the other hand, if the risks involved are serious, if the person does not make a change, the
person will take necessary action to bring about a desirable change. This situation is known as
uncomplicated change which involves making changes in present activities if doing so presents
no serious risks.

Besides, the model also explains the concept of defensive avoidance which entails making no
changes in present activities and avoiding any further contact with associated issues because
there appears to be no hope of finding a better solution.

If a person has little time to deliberate on whether he needs to make a change perhaps due to
his advancing age he will experience hyper vigilance wherein he may suffer severe
psychological stress and engage in frantic, superficial pursuit of some satisfying strategy.

On the other hand, if a person has two or three yea s to consider different alternatives, he will
undertake vigilant information processing which implies that he will thoroughly investigate all
possible alternatives, weigh their costs and benefits before making a decision and develop
contingency plans.

Factors that Affect Ethical Decision Making

A number of characteristics affect how each individual communicator makes decisions about
what is right and what is wrong:

Maturity. Some people, even as children or teenagers, have more ethical maturity than others.
Maturity is not necessarily related to chronological age.
Professional experience. The less experience a person has with making ethical decisions, the
more difficult those decisions are—and the more likely some of those decisions will be wrong.
The ability to deal with uncertainty. Some people become rattled and cannot think clearly when
the pressure is on; others become very focused, rise to the occasion, and make good decisions
under difficult circumstances.

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