Approaches to Decision Making

 The following are the four types of Approaches to

Decision Making:
• Rational - This approach is appealing as it is
logical and economical.
• Behavioural - This approach attempts to account
for the limits on rationality in decision-making.
• Practical - This approach combines features of the
rational and behavioural approaches.
• Personal – This approach focuses on decision-
making processes individuals use in difficult
situations.
Rational Decision Making 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.
 Steps in Rational Decision
Making Approach
 The following are the steps in rational decision-making:
• (1) State the Situational Goal,
• (2) Identify the Problem,
• (3) Determine Decision Type,
• (4) Generate Alternatives,
• (5) Evaluate Alternatives,
• (6) Choose an Alternative,
• (7) Implement the Plan and
• (8) Control.
 Steps in Rational Decision Making
Approach (Contd.)
 (1) State the Situational Goal
• A goal is stated for a particular situation.
• It can be used as a standard in determining the decision to
be made later on.
 (2) Identify the Problem:
• 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.
• The constraints within which the problem must be solved
are also defined.
 Steps in Rational Decision
Making Approach (Contd.)
 (3) Determining Decision Type:
• 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 is invoked and a choice is made from the
available alternatives.
 (4) Generate Alternatives:
 Alternatives are generated by decision maker on the basis
of the academic & professional education, experience and
knowledge about the situation.
 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.
 Steps in Rational Decision
Making Approach (Contd.)
 (5) Evaluate Alternatives:
• Each alternative is assessed based on its Strengths &
weaknesses, costs & 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 is whether a particular
decision will bring the decision maker nearer to goal.
• 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.
 Steps in Rational Decision Making
Approach (Contd.)
 (6) Choose an Alternative:
• It involves selecting the best alternative with maximum
positive consequences, least or no negative outcomes, less
risks and minimum costs.
• The expected value of each alternative is determined and
the alternative with the largest expected values is selected.
• 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.
 Steps in Rational Decision Making
Approach (Contd.)
 (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
characteristics, reward structure & knowledge and
application of group dynamics.
 Steps in Rational Decision Making
Approach (Contd.)
 (8) Control:
• This is the final stage of rational decision-making
process, wherein, the outcomes of the decision are
measured and 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.
 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.
 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.
 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,
process these in great detail and base their decisions on
judgement and personal biases as well as logic.
Features in Behavioural Approach
 This approach possesses the following features:
• (i) Use of procedures and rules of thumb which reduce
uncertainty in decision-making initially.
• (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.
 Practical Approach
 This approach combines the steps of the rational
approach with the features and conditions of the
behavioural approach to create a more realistic process
for making decisions.
 The decision-maker try to go beyond rules of thumb
satisfying limitations, generate as many alternatives as
possible within the given time, money and other
practicalities of the situation.
 Managers who have tendency to jump from one
decision to another, making decisions hastily and
impulsively usually do not use much information.
 Personal Approach
 Personal Approach helps in decision making when
decision makers are nervous, anxious, worried or
agitated.
 Personal approach deals with the personal conflicts
that people experience in particularly difficult decision
situations.
Basic Characteristics of Personal Approach
 The Personal Approach has five basic characteristics:
 (a) It deals with important life decisions, such as, choosing
the nature and type of education & institution, career,
marriage and major organizational decisions.
 (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.
 (e) It recognizes that at times the decision-maker is
uncertain about alternative courses of action.
 This kind of situation makes it difficult for him to give a
whole-hearted commitment to one single decision.