Decision Making
Decision Making means choosing one alternative
from among various alternatives.
Herbert A. Simon the foremost decision theorist
“the optimum rational choice between alternative
courses of action”.
For example, when a manager plans, organizes or
controls, he or she is making a decision.
Planning
Making
Organizing decision
Controlling
Simon every management activities are equivalent
to decision making.
Classification/Typology of decisions
1. Herbert Simon ---
a) Programmed decision These are routine and
repetitive decisions. Organizations develop
specific procedures for handling them.
b) Non Programmed decision it refers to the
problems of novel and non-repetitive sort. There is no
cut-and-dried method for handling the problems
because they haven’t arisen before.
2. Chester Barnard:
Organizational Decision
Personal Decision
3. Peter Drucker:
Generic Decision
Unique Decision
There are three conditions under which decisions are
made.
(1) Certainty In this case there is complete and
accurate knowledge of the consequences of each
choice.
(2) Risk In this case, decisions are taken under
chance.
(3) Uncertainty It exists when the probability of
occurrence of alternative outcome are unknown.
Decision Making Process/ Steps of Decision Making
Identifying the problem
Analyzing the problem
Developing alternative solutions
Weighing alternative solutions
Choosing the best solution
Implementing and verifying the decision
Simon Four steps of decision-making
Intelligence activity- What is the problem?
Design activity- What are the alternatives?
Choice activity- Which alternative is best?
Review activity- Valuation of the alternative
decisions.
Models of Decision Making
In the literature of administration there are 5 popular
models of Decision Making.
(1) Herbert Simon Rational Decision Making
model/Bounded Rationality model or Satisficing
model
(2) Incremental model Charles Lindbloom
(3) Mixed-Scanning model Amitai Etzioni
(4) Optimal model Y. Dror
(5) Mutual Adjustment model Partisan
Herbert A. Simon
Herbert A. Simon was born in America in 1916 and he
was awarded the Nobel Prize in Economics in 1978.
He was the first person who pointed out that
rationality and economy cannot go together.
Simon dealt with the rationality aspect of decision
making process.
So rational decision making refers a person’s decision
under reasonability and by logic rather than by
emotional thinking.
Means – Ends Model
Simon explains rationality in terms of means-ends
hierarchy.
Means- alternative courses of action.
Ends- consequences of each decision.
If appropriate means are chosen to reach desired
ends the decision are said to be rational.
There are problems of this simple test of rationality.
Because it is difficult to separate means from ends. An
apparent end may only be a means for some future
end.
Means
End
Means A
End
B
Means
C End
Means
D END
Behavior Alternative Model
According to this theory rational decision making
requires 4 steps.
1. To examine all possible courses of action open to
him.
2. Trace the consequences of each alternative course.
3. Separately evaluate the benefits and losses of each
alternative.
4. Chose the course of action, which is expected to
provide the greatest net satisfaction.
At the same time, Simon considered that it is
obviously impossible for an individual to know all the
alternatives or their consequences and therefore one
cannot achieve complete rationality.
For these, rational decision can’t be taken.
Satisficing Model
There are many models of rational decision making
behavior. These models range from complete
rationality to complete non-rationality as in the case
of economic man and social man respectively. Simon
developed the satisficing model or administrative
man model, which stands next to the economic man
model. The following figure summarizes the
administrative man model of Simon.
Economic man Administrative man Social man
model model model
(Adam Smith) (Herbert Simon) (Sigmund Freud)
Economic man model
This model is that of an economic man who is
perfectly and completely rational in every way.
Social man model
Social man model presented human beings as
boundless of feeling, emotions and instincts.
Obviously people would not be capable of making
rational decisions. Emotional and unconscious
elements in men’s thinking and behavior cause
people to make non-rational decisions.
Administrative man model
Simon observed that human behavior is neither
totally rational nor totally non-rational. So he
disputed the concept of total rationality or total non-
rationality. To present a more realistic alternative he
developed the satisficing model or administrative
man model.
Satisficing means a course of action that is good
enough but not the best.
Satisfying decision implies that a decision-maker
chooses an alternative, which is satisfactory or good
enough.
According to Herbert Simon, people tend to
make decisions by satisficing (a combination of
sufficing and satisfying) rather than optimizing
(Simon, 1956).
The following factors are responsible for bounded
rationality leading to satisfying decisions.
1. Inadequate information as well as limited
capacity to analyze the available information.
2. Time and cost constrains.
3. Environmental forces or external factors.
4. Alternatives cannot be always quantified in an
ordered preference.
5. Decision-maker may not be aware of all possible
alternatives available and their consequences.
6. Personal factors of the decision-maker like
preconceived notions, habits and so on.
As the administrative man cannot perceive all
possible alternatives nor can predict all possible
consequences, he instead of attempting to arrive at
“optimal solutions” is satisfied with good enough.
He tries to be rational and maximizing, but as he
does not have the ability to maximize he always
ends up with satisficing.
