Methods of decision-making

RATIONALITY

  • fully objective and logical
  • carefully define a problem and would then have a clear and specific goal
  • using rationality would consistently lead to selecting the alternative that maximises the likelihood of achieving that goal
  • assumes that decisions are made in the best economic interests of the organisation
  • decision assumed to be maximising the organisations interests, not their own interests

Managerial decision making can follow rationality is the following conditions are met

  • manager is faced with a simple problem in which goals are clear and the alternatives limited
  • time pressures are minimal
  • cost of seeking out and evaluating the alternatives are low
  • the organisational culture supports innovation and risk taking
  • outcomes are relatively concrete and measurable

BOUNDED RATIONALITY

  • despite the perfect rationality, managers are expected to follow a rational process
  • make decisions rationally, but are limited (bounded) by their ability to process information
  • because they cannot possibly analyse all the information on all alternatives, managers sastisfice rather than maximise.
  • satisfice - acceptance of solutions that are 'good enough'
    -> they are being rational within the limits (bound) if their ability to process information
  • most decisions that managers do not fit the assumptions of the perfect rationality, instead they must satisfice
  • decision making also may be strongly influenced by the organisation's culture, internal politics and power considerations and by escalation of commitment
  • escalation of commitment -is an increased commitment to a previous decision despite evidence that it may have been wrong

INTUITION

  • a subconscious process of making decisions on the basis of experience, feelings and accumulated judgement
  • managers regularly use their intition
  • making a decision on intuition or 'gut feeling' does not necessarily happen independently of rational analysis; rather the two compliment each other.
  • a manager who has had experience with a particular, or even similar, type of problem or situation often can act quickly with what appears to be limited information
  • does not rely on a systematic and thorough analysis of the problem or identification and evaluation of alternatives but instead uses experience and judgement to make a decision