Rational decsion making

1. RATIONAL
Decision Making in organizations

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RATIONAL
Decision Making in organizations
• The evolution of decision making theory , is
characterized by a multiplicity of theories and
models.
• Modern companies need both differentiation
and integration. Decisions ideally need to be
rational (objective, impersonal, unemotional)
in order to facilitate a smooth running and
goal attainment

3. RATIONAL
Decision Making in organizations

4. 4
RATIONAL
Decision Making in organizations
• Decisions are associated with management, and they
are concerned with allocation and exercise of power.
They shape the future & direction of the company as
well as the lives of people within and outside.
• Decisions are to be made at the operational level as
well as at the strategic level.
• The issues of who is involved ,who is left out , who is in
position to exercise influence ,who is able to introduce
items onto the decision making agenda or keep them off
are central to the understanding of the politics of
organizational behavior.
• Studying decision making is important to understand
how & why organizations come to be and what they are
or what they will be.

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Decision
A decision is a choice made between two or
more available alternatives.
All organizational members make
decisions

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Model of the Decision-Making
Process (Basic model)
Identify
Existing
Problem
List
Alternative
Problem
Solutions
Select
Most
Beneficial
Alternative
Implement
Chosen
Alternative
Gather
Problem-
Related
Feedback

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Models of decision making
• The subject of decision making crosses several
academic disciplines ranging from rational
choice models , various modeling techniques ,
mathematics , statistics to the behavioral aspects
which are handled by psychologists and social
psychologists who in their turn concentrate on
individual cognitive behavior.

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I . Managerial Rationality in decision
making
• Neo-classical economic assumptions of the rational choice
model of decision making :-
– At the level of the organization , managers make rational decisions &
without compunction (anxiety)
– Decisions are consistent , value-maximizing choices within specified
constraints ( predetermined criteria , rules , procedures…)
– Decisions made by groups within organizations will be equally rational .
– Decisions are thought to be arrived at by a step-by-step process which
both logical , linear and sequential and is one whole procedure.
– Alternative evaluation is done according to a predetermined criteria.
– Zey (1992) has shown this kind of logic. To him the implicit assumption
is that if individuals behave in accordance with rationality then little or no
interference is required by super-ordinate bodies.

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Assumptions Of Rationality
Rational
Decision
Making
Single, well-
defined goal
is to be achieved
All alternatives
and
consequences
are known
Preferences
are clear
Preferences
are constant
and stable
No time or cost
constraints exist
Final choice
will maximize
payoff
Decision is having
Consistency &
acceptability

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A. Limitation of Rational Economic Man
or “Rational Actor”
• Simon (1945)
– Decision makers are unable to operate under conditions of
perfect rationality, because they are constrained by the (1)
complexity of modern organization and (2) by their own
limited cognitive capacities.
– Problems definition and decisions are unclear / or open to
varying interpretations .
– Information about alternatives may be unavailable ,
incomplete or misrepresented . Also the criteria by which
potential solutions are to be evaluated are often uncertain or
controversial (not agreed upon ) .
– Time & energy available is limited & finite.

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Limitations ( CONT)
• The outcome is “satisfying” rather than
optimizing choice. Due to what said previously:
– The absolutely rational model is beyond reach
– Managers operate within a “bounded rationality” as
result of human & organizational constraints.
– Managers behavior is said to be reasoned (intend to
operate rationally ). Here deviations are unintended ,
accidental and undesired it is not irrational .
• Human weakness and demands that stem from
within and outside organization limits the
degree of rationality.

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Types of Problems and Decisions (Simon
1960)
• The below continuum of dimension represents an early
but significant step in distinguishing the characteristics
of decision and associating them with types of process.
• Even so and despite limitations , Simon said that
different types of decisions can be processed in
different ways. Some decisions may approximate to
rationality others may not.
Programmed
Decisions
Nonprogrammed
Decisions

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Limitation (CONT.)
• Programmed Decisions - used to address well and clear
structured and routine problems , occur more frequently&
are more comprehensible .They are often made lower
down in organization and are operational in nature &
usually are left to subordinates.
– Straightforward, familiar, and easily defined ( ex. routine ,
tested protocols or procedures.) .This would:-
• Minimize the need for managers to use discretion ( i.e. judgment or
individual choice )
• Facilitate organizational efficiency
• Procedure - series of interrelated sequential steps used to respond to a
structured problem
• Rule - explicit statement of what to do or not to do
• Policy - guidelines or parameters for decision making

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Limitation ( CONT.)
• Nonprogrammed Decisions - used to address poorly-
structured problems that have not been encountered in
quite the same way before (mostly strategic decisions)
– New, unusual problems for which information is ambiguous
or incomplete.
– More frequent among higher-level managers since are
oriented towards more significant areas in organizations.
– Present a challenge to them , since they tend to shape
actions for future which is implicitly uncertain & worrying.
– Have consequential repercussions ( Indirectly widespread)
and have worrying implications for managers
– Will set precedents for other decisions which would follow

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III. Factors influencing decision making
process
• Not all decisions are made in the same way, so what
factors influence the process ?
• Bradford studies on 150 decisions in 30 organization
( manufacturing& servicing) in England found :-
• 3 kind of decision making processes :-
i. Sporadic ( occurring in a scattered , single instance
occasional scarce)
– Information used are uneven in quality (bad and good).
– Information come from a range of sources and their scope
is for negotiation
– This kind of process is informally spasmodic and
protracted ( delayed , stretched , elongated)

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Factors influencing process
ii . Fluid ( Opposite of sporadic )
– Steadily paced ( slow steps)
– Less informally and more formally channeled . Formal
interactions and the process flows more thru formal
meetings with fewer impediments and delays.
– Faster decisions (made in month rather than Years)
iii . Constricted (share some characteristics of the
previous ones but with some distinctive features)
– Less fluid than the fluid
– Less sporadic than the sporadic
– Tend to revolve around central figures such as finance or
production directors who draws on a wide range of expertise
in other departments before arriving at a decision
– In short they are narrowly channeled

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Factors influencing process
• The concept of politically and complexity are the primary
explanation of why strategic decisions follow a certain
process and who will be involved.
A- Politically ( refers to the degree of influence which is
brought to bear on a decision & how this influence is
distributed within and without the organization.)
– All decisions draw in a specific “Decision set" of interest :
those who have stake in the outcome . These are drawn from
inside & outside the organization like:-
• Individuals
• Departments
• Divisions
• Owners
• Suppliers
• Government agencies…

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Factors influencing process
B- Complexity ( refers to problems encompasses
decisions)
– Reasons for complexity are varied . Some decisions are more
unusual than others where by some :-
• May require more information from more diverse sources
• Would have more serious widespread consequences
• Could set more fundamental precedent for the future
– Decisions vary in terms of how comprehensive they are ,
since each decision process is made of various problems in
which their complexity varies. Some are straightforward
others are problematic depending on the nature of issues
involved.

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III. Strategies & Garbage-Cans model
(Cohen 1972)
• There is another body of thought other than the rational models
and politicized views that tries to explain causal relationships
between events and outcomes.
• The Garbage-can models are found predominately:-
- In organized anarchies (a social structure with law and order)
- In Complex organizations whose internal processes are not
really understood , even by people working for them.
• In these situations Means & Ends of decisions become
uncoupled or disconnected.
– Here actions do not lead to expected outcomes .
– Actions are hijacked along the way by other decisions and other actions

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III . Strategies & Garbage-Cans model
(Cohen 1972)
• Here decisions main components (i.e. problems
solutions , participants and choice situation) pour into
the organizational garbage-caning in a seemingly
haphazard way. A stream of demands for the fluid
attention & energy of decision-makers. If problem
solution , participant and choice situation happen to
collide appropriately, then a decision occurs. Here all
participants move in & out of the decision making
process.
• The picture is of seeming Chaos and of disorder
• The process is not truly random & can be predicted to
some extent although it still can feel like chaos to
participants

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Garbage Theory (Summery)
• No agreement on neither goals nor the means of achieving them
• Uncertainty and ambiguity.
• Environment and technology are poorly understood.
• Key actors move in and out the decision making process.
• Complex organizations, internal processes are not understood
even by those who work in them.
• Means and ends of decisions become uncoupled.
• Actions do not lead to the expected outcomes.
• Problems, participants, solutions and choice situations come in a
haphazard way.
• Decisions don’t meet the problems.
• Solutions exist before the problem.
• There are underlying patterns of chaos and complexity theory!

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The Interest Dimension
• The more political interest dimension runs from a purely problem-
solving view to a negotiated order view in which diverse interests
give a political color to decision-making.
• In a pure problem solving: Goals are specified, targets set,
satisfactory solutions are sought.
• In political interest dimension: All activity is politically driven.
• Simon’s description of decision-making is as a “new science”. It is
“new” because Simon rejected the prevailing orthodoxy of his
coeval economists, who believed economic models of individual
choice behaviors could be applied directly to organizational
decision processes. It is “scientific”, however, since Simon still
held centrally the notion of problem-oriented behaviors from those
involved.

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The Action Dimension
• Decision-making may be viewed as running from the
more coherent to the more chaotic. Authors who take a
predominantly coherent view of process subscribe to
the notion that decision process trajectories can be
relatively sequenced and linear, and reflect attempts by
decision-makers to achieve step by step progress
toward stated goals or objectives.
• Coherent view: decision making process relatively
sequenced and linear, intended rationality.
• Chaotic view : Coherence a myth, decision making
random. Processes part of the embedded-ness of the
organization and not always in control.

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The concept of decision
• Let us suppose that the decision itself cannot be taken for
granted? Suppose that the very ideas of ‘a decision’ is
misleading?
• According to writers such as Mintzberg & waters (1990)
– Its gets in the way of understanding organizational process
– There are inherent problems with concepts. One of these being that:-
• While decision implies commitment to action, there are situations where
actions are taken without decision having been made
– The notion of decision is particularly unhelpful when thinking about
strategies which organizations pursue
• According to Silverman , Clegg & Goffman decision making is
best studied by looking at
– Interaction
– Interpretations of meanings
– Significance of symbols

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Overview Of Decision Making in Organization
Decision-Making
In organization
limitations
• Well-structured
- programmed
• Poorly structured
- nonprogrammed
Decision-Making Conditions
Enactment of power
•Power between interest groups
• Differentiation
•Ensemble de jeux
•The second face of power
•Influential power- holders
•Incremental
Factors influencing process
Politics & complexity
3 kind of processes
•Sporadic
•Fluid
•Constricted
Decision-Making Approach
• Rationality
• Bounded Rationality
• Strategies &
Garbage-Cans
model

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Overview Of Decision Making in Organization
• Compare & Contrast – look for similarities & differences
• Conclude – summarise, on balance, side you support and
why?
• Criticise – your judgement (with evidence and reasoning)
on …
• Define – precise meaning & examine range of existing
definitions
• Describe – a detailed account of …
• Discuss – examine rationale & evidence behind the ‘for’
and ‘against’
• Evaluate / (Assess) – make an appraisal of the worth of …
• Explain – give a plain account of …
• Illustrate – use example (s) (verbal or graphic) to explain

27. RATIONAL
Decision Making in organizations