A good place to start is with some standard definitions of decision making.

1. Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that best fits with our goals, desires, lifestyle, values, and so on.

2. Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them. This definition stresses the information gathering function of decision making. It should be noted here that uncertainty is reduced rather than eliminated. Very few decisions are made with absolute certainty because complete knowledge about all the alternatives is seldom possible. Thus, every decision involves a certain amount of risk.

II. THE DECISION MAKING PROCESS

Good decision-making is important at all levels in the organization. It begins with a recognition or awareness of problems and opportunities and concludes with an assessment of the results of actions taken to solve those problems

1. Identifying and Diagnosing Problems

Decision makers must know where action is required. Consequently, the first step in the decision-making process is the clear identification of opportunities or the diagnosis of problems that require a decision. Managers regularly review data related to their area or responsibility, including both outside information and reports and information from within the organization. Discrepancies between actual and desired conditions alert a manager to a potential opportunity or problem. Identifying opportunities and problems is not easy considering human behavior in organization, or some combination of individual and organizational factors. Therefore, a manager must pay particular attention to ensure that problems and opportunities are assessed as accurately as possible.

The assessment of opportunities and problems will be only as accurate as the information on which it is based. Therefore, managers put a premium on obtaining accurate, reliable information. Poor quality or inaccurate information can waste time and lead a manager to miss the underlying causes of a situation.

Even when quality information is collected, it may be misinterpreted. Sometimes, misinterpretations accumulate over time as information is consistently misunderstood or problematic events are unrecognized.

2. Identifying Objectives

Objectives reflect the results the organization wants to attain. Both the quantity and quality of the desired results should be specified or these aspects of the objectives will ultimately guide the decision maker in selecting the appropriate course of action.Objectives are often referred to as targets, standards, and ends. They may be measured along a variety of dimensions. Objectives can be expressed for long spans of time (years or decades) or for short spans of time (hours, days or months). Long-range objectives usually direct much of the strategic decision making of the organization, while short-range objectives usually guide operational decision-making. Regardless of the time frame, the objectives will guide the ensuing decision-making process.

3. Generating Alternatives

Once an opportunity has been identified or a problem diagnosed correctly, a manager develops various ways to achieve objectives and solve the problem. This step requires creativity and imagination. In generating alternatives, the manager must keep in mind the goals and objectives that he or she is trying to achieve. Ideally several different alternatives will emerge. In this way, the manager increases the likelihood that many good alternative courses of action will be considered and evaluated.

Managers may rely on their training, personal experience, education and knowledge of the situation to generate alternatives. Viewing the problem from varying perspectives often requires input from other people such as peers, employees, supervisors, and groups within the organization.

The alternatives can be standard and obvious as well as innovative and unique. Standard solutions often include options that the organization has used in the past. Innovative approaches may be developed through such strategies as brainstorming, nominal group technique, and the Delphi technique.

4. Evaluating Alternatives

The fourth step in the process involves determining the value or adequacy of the alternatives generated. Which solution is the best? Fundamental to this step is the ability to assess the value or relative advantages and disadvantages of each alternative under consideration. Predetermined decision criteria such as the quality desired, anticipated costs, benefits, uncertainties, and risks of the alternative may be used in the evaluation process. The result should be a ranking of the alternatives.

5. The Act of Choice

Decision making is commonly associated with making the final choice. Reaching the decision is really only one step in the process, however. Although choosing an alternative would seem to be a straightforward proposition simply consider all the alternatives and select the one that best solves the problem in reality, the choice is rarely clear-cut. Because the best decisions are often based on careful judgments, making a good decision involves carefully examining all the facts, determining whether sufficient information is available, and finally selecting the best alternative.

6. Implementing

The bridge between reaching a decision and evaluating the results is the implementation phase of the decision-making process. When decisions involve taking action or making changes, choosing ways to put these actions or changes into effect becomes an essential managerial task. The keys to effective implementation are (1) sensitivity to those who will be affected by the decision and (2) proper planning consideration of the resources necessary to carry out the decision. Those who will be affected by the decision must understand the choice and why it was made, that is, the decision must be accepted and supported by the people who are responsible for its implementation. These needs can be met by involving employees in the early stages of the decision process so that they will be motivated and committed to its successful implementation.

7. Monitoring and Evaluating

No decision-making process is complete until the impact of the decision has been evaluated. Managers must observe the impact of the decision as objectively as possible and take further corrective action if it becomes necessary. Quantifiable objectives can be established even before the solution to the problem is put into effect.

Monitoring the decision is useful whether the feedback is positive or negative. Positive feedback indicates that the decision is working and that it should be continued and perhaps applied elsewhere in the organization. Negative feedback indicates either that the implementation requires more time, resources, effort, or planning than originally thought or that the decision was a poor one and needs to be reexamined.

The importance of assessing the success or failure of a decision cannot be overstated. Evaluation of past decisions as well as other information should drive future decision making as part of an ongoing decision-making feedback loop.

III. TYPES OF PROBLEMS AND DECISIONS

Managers will be faced with different types of problems and decisions as they do their jobs: that is, as they integrate and coordinate the work of others. Depending on the nature of the problem, the manager can use different types of decisions.

1. Well-Structured Problems and Programmed Decisions

Some problems are straightforward. The goal of the decision maker is clear, the problem is familiar, and information about the problem is easily defined and complete. Examples of these types of problems might include a customer’s wanting to return a purchase to a retail store, a supplier’s being late with an important delivery, a news team’s responding to an unexpected and fast-breaking event, or a college.s handling of a student’s wanting to drop a class. Such situations are called well-structured problems. For instance, a server in a restaurant spills a drink on a customer’s coat. The restaurant manager has an upset customer. What does the manager do? Because drinks are frequently spilled, there’s probably some standardized routine for handling the problem. For example, if the server was at fault, if the damage was significant, and if the customer asks for a remedy, the manager will offer to have the coat cleaned at the restaurant,s expense. In handling this problem situation, the manager uses a programmed decision.

Decisions are programmed to the extent that they are repetitive and routine and to the extent that a definite approach has been worked out for handling them. Because the problem is well structured, the manager does not have to go to the trouble and expense of working up an involved decision process. Programmed decision making is relatively simple and tends to rely heavily on previous solutions. The develop-the-alternatives stage in the decision-making process either doesn’t exist or is given little attention. Why? Because once the structured problem is defined, its solution is usually self-evident or at least reduced to very few alternatives that are familiar and that have proved successful in the past. In many cases, programmed decision making becomes decision making by precedent. Managers simply do what they and others previously have done in the same situation. The spilled drink on the customer’s coat does not require the restaurant manager to identify and weight the decision criteria or to develop a long list of possible solutions. Rather, the manager falls back on a systematic procedure, rule or policy.

A procedure is a series of interrelated sequential steps that a manager can use for responding to a structured problem. The only real difficulty is in identifying the problem. Once the problem is clear, so is the procedure. For instance, a purchasing manager receives a request from the sales department for 15 cellular phones for use by the company’s sales representatives. The purchasing manager knows that there is a definite procedure for handling the decision. The decision-making process in this case is merely executing a simple series of sequential steps.

Information technology is being used to further simplify the development of organizational procedures. Some powerful new software programs are being designed that automate routine and complex procedures. For example, at Hewlett-Packard, a comprehensive software program had automated a quarterly wage-review process of more than 13,000 salespeople.

A rule is an explicit statement that tells a manager what he or she ought or ought not to do. Rules are frequently used by managers when they confront a well-structured problem because they are simple to follow and ensure consistency. For example, rules about lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and with a relatively high degree of fairness.

A third guide for making programmed decisions is policy. It provides guidelines to channel a manager’s thinking in a specific direction. In contrast to a rule, a policy establishes parameters for the decision maker rather than specifically stating what should or should not be done. Policies typically contain an ambiguous term that leaves interpretation up to the decision maker. For instance, each of the following is a policy statement:

* The customer always comes first and should always be satisfied.

* We promote from within, whenever possible.

* Employee wages shall be competitive for the

community in which our plants are located.

Notice that satisfied, whenever possible, and competitive are terms that require interpretation. The policy to pay competitive wages does not tell a given plant’s human resources manager the exact amount he or she should pay, but it does give direction to the decision he or she makes.

2. Structured problems and Nonprogrammed Decisions

As you can well imagine, not all problems managers face are well-structured and solvable by a programmed decision. Many organizational situations involve ill-structured problems, which are problems that are new or unusual. Information about such problems is ambiguous or incomplete. For example, the selection of an architect to design a new corporate headquarters building is one example of an ill-structured problem. So too is the problem of whether to invest in a new unproven technology or whether to shut down a money-losing division. When problems are ill-structured, managers must rely on nonprogrammed decision making in order to develop unique solutions. Nonprogrammed decisions are unique and nonrecurring. When a manager confronts an ill-structured problem, or one that is unique, there is no cut-and-dried solution. It requires a custom-made response through nonprogrammed decision making.

Integration

Whereas well-structured problems are resolved with programmed decision making, ill-structured problems require nonprogrammed decision making. Because the lower-level managers confront familiar and repetitive problems, they most typically rely on programmed decisions such as standard operating procedures, rules, and organizational policies. The problems confronting managers are likely to become more ill-structured as they move up to the organizational hierarchy. Why? Because lower-level managers handle the routine decisions themselves and send upon the chain of command only decisions that they find unusual or difficult. Similarly, higher-level managers pass along routine decisions to their subordinates so that they can deal with more difficult issues.

Keep in mind, however, that few managerial decisions in the real world are either fully programmed or nonprogrammed. These are extremes, and most decisions fall somewhere in between. Few programmed decisions are designed to eliminate individual judgment completely. At the other extreme, even a unique situation requiring a nonprogrammed decision can be helped by programmed routines. It’s best to think of these decisions as mainly programmed or mainly nonprogrammed, rather as completely one or the other.

A final point on this topic is that organizational efficiency is facilitated by the use of programmed decision making, which may explain its wide popularity. Whenever possible, management decisions are likely to be programmed. Obviously, using programmed decisions is not too realistic at the top level of the organization because most of the problems that top managers confront are of a nonrecurring nature. But there are strong economic incentives for top managers to create a standard operating procedures (SOPs), rules, and policies to guide other managers.

Programmed decisions minimize the need for managers to exercise discretion. This fact is relevant because discretion can cost money. The more nonprogrammed decision making a manager is required to do, the greater the judgment needed. Because sound judgment is an uncommon quality, it costs more to acquire the services of managers who possess it.

Some organizations try to economize by hiring less-skilled managers but do not develop programmed decision guides them to follow. Take, for example, a small women’s clothing store chain whose owner, because he chooses to pay low salaries, hire store managers with little experience and limited ability to make good judgments. This practice, by itself, might not be a problem. The trouble is that the owner provides neither training nor explicit rules and procedures to guide his store manager’s decisions. The result is continuous complaints by customers about things such as promotional discounts, processing credit sales, and the handling of returns.

One of the more challenging tasks facing managers as they make decisions programmed or nonprogrammed is analyzing decision alternatives.

IV. MODELS OF DECISION MAKING

There are several models of decision making. Each is based on different set of assumptions and offers unique insight into the decision-making process. This module reviews key historical models of decision making. The first three are the rational model, Simon’s normative model, and the garbage can model. Each successive model assumes that the decision-making process is less and less rational. Let us begin with the most orderly and rational explanation of managerial decision making.

1. Rational Model

The rational model proposes that managers use a rational sequence when making decisions: identifying the problem, identifying the objective, generating alternative, evaluating the alternatives, making a choice, and implementing and evaluating the solutions. According to this model, managers are completely objective and possess complete information to make a decision. Despite criticism for being unrealistic, the rational model is instructive because it analytically breaks down the decision-making process and serves as a conceptual anchor for newer models.

Summarizing the Rational Model

The rational model is based on the premise that managers optimize when they make decisions. Optimizing involves solving problems by producing the best possible solution. This assumes that managers:

* Have knowledge of all possible alternatives

* Have complete knowledge about the consequences that follow each alternative.

* Have a well-organized and stable set of preferences for these consequences.

* Have the computational ability to compare consequences and to determine which one is preferred.

As noted by Herbert Simon, a decision theorist who in 1978 earned the Nobel Prize for his work on decision making.The assumptions of perfect rationality are contrary to fact. It is not a question of approximation; they do not even remotely describe the process that human beings use for making decisions in complex situations.Thus, the rational model is at best an instructional tool. Since decision makers do not follow these rational procedures, Simon proposed the normative model of decision making.

2. Simon’s Normative Model

This model attempts to identify the process that managers actually use when making decisions. The process is guided by a decision maker bounded rationality. Bounded rationality represents the notion that decision makers are bounded or restricted by a variety of constraints when making decisions. These constraints include any personal or environmental characteristics that reduce rational decision making. Examples are the limited capacity of the human mind, problem complexity and uncertainty, amount and timeliness of information at hand, criticality of the decision, and time demands. Consider how these constraints affected ethical decision making at Syntex Corporation.

Back in 1985, Syntex Corp. figured it was onto something big: a new ulcer drug that promised to relieve the misery of millions and earn the company big profits. In its annual report Syntex showed capsules of the drug spilling forth as shining examples of research. It pictured the drug’s inventor, Gabriel Garay, at work in his lab.

Critics are charging that the company, after investing millions in the drug’s development, played down and even suppressed potentially serious safety problems that could hinder its approval.

Mr. Garay says it was he who sounded alarms internally over enprostil, warning it could cause dangerous blood clots and actually prompt new ulcers. Even when an outside researcher agreed there were potential dangers, Syntex executives dismissed the findings as preliminary. Mr. Garay says Syntex then forced him out.

Although decision makers at Syntex may have desired the best solution to problems identified by Mr. Garay, bounded rationality precluded its identification. How then do managers make decisions?

As opposed to the rational model, Simon’s normative model suggests that decision making is characterized by (1) limited information processing, (2) the use of rules of thumb or shortcuts, and (3) satisficing. Each of these characteristics is now explored.

Limited Information Processing

Managers are limited by how much information they process because of bounded rationality. This results in the tendency to acquire manageable rather than optimal amounts of information. In turn, this practice makes it difficult for managers to identify all possible alternative solutions. In the long run, the constraints of bounded rationality cause decision makers to fail to evaluate all potential alternatives.

Use of Rules of Thumb or Shortcut

Decision makers use rules of thumb or shortcuts to reduce information-processing demands. Since these shortcuts represent knowledge gained from past experience, they help decision makers evaluate current problems. For example, recruiters may tend to hire applicants receiving degrees from the same university attended by other successful employees. In this case, the school attended criterion is used to facilitate complex information processing associated with employment interviews. Unfortunately, these shortcuts can result in biased decisions.

Satisficing

People satisfice because they do not have the time, information, or ability to handle the complexity associated with following a rational process. This is not necessarily undesirable. Satisficing consists of choosing a solution that meets some minimum qualifications, one that is goodenough. Satisficing resolves problems by producing solutions that are satisfactory, as opposed to optimal.

3. The Garbage Can Model

As true of Simon’s normative model, this approach grew from the rational model’s inability to explain how decisions are actually made. It assumes that decision making does not follow an orderly series of steps. In fact, organizational decision making is said to be such a sloppy and haphazard process that the garbage can label is appropriate. This contrasts sharply with the rational model, which proposed that decision makers follow a sequential series of steps beginning with a problem end ending with a solution. According to the garbage can model, decisions result from a complex interaction between four independent streams of events: problems, solutions, participants, and choice looking for problems, issues, and feelings looking for decision situations in which they might be aired, solutions looking for issues to which they might be the answer, and decision makers looking for work. The garbage can model attempts to explain how they interact, this section highlights managerial implications of the garbage can model.

Streams of Events

The four streams of events;problems, solutions, participants and choice of opportunities;represent independent entities that flow into and out of organizational decision situations. Because decisions are a function of the interaction among these independent events, the stages of problem identification and problem solution may be unrelated. For instance, a solution may be proposed for a problem that does not exist. This can be observed when students recommend that a test be curved, even though the average test score is a comparatively high 85 percent. On the other hand, some problems are never solved. Each of the four events in the garbage can model deserves a closer look.

Problems

As defined earlier, problems represent a gap between an actual situation and a desired condition. But problems are independent from alternatives and solutions. The problem may or may not lead to a solution.

Solutions

Solutions are answers to looking for questions. They represent ideas constantly flowing through an organization. This is predicted to occur because managers often do not know what they want until they have some idea of what they can get.

Participants

These are the organizational members who come and go throughout the organization. They bring different values, attitudes and experiences to a decision-making situation. Time pressures limit the extent to which participants are involved in decision making.

Choice opportunities

Choice opportunities are occasions in which an organization is expected to make a decision. While some opportunities, such as hiring and promoting employees, occur regularly, others do not because they result from some type of crisis or unique situation.

Interactions Among the Streams of Events

Because of the independent nature of the stream events, they interact in a random fashion. This implies decision making is more a function of chance encounters rather than a rational process. Thus, the organization is characterized as a ;garbage can; in which problems, solutions, participants and choice opportunities are all mixed together. Only when the four streams of events happen to connect is a decision made. Since these connections randomly occur among countless combinations of streams of events, decision quality generally depends on timing (some might use the term luck). In other words, good decisions are made when these streams of events interact at the proper time. This explains why problems do not necessarily relate to solutions and why solutions do not always solve problems. In support of the garbage can model, one study indicated that decision making in the textbook publishing industry followed a garbage can process. Moreover, knowledge of this process helped the researchers to identify a variety of best selling textbooks.

Managerial Implications

The garbage can model of organizational decision making has four practical implications. First, many decisions will be made by oversight or the presence of significant opportunity. Second, political motives frequently guide the process by which participants make decisions. Participants tend to make decisions that promise to increase their status. Third, the process is sensitive to load. That is, as the number of problems increases, relative to the amount of time available to solve them, problems are less likely to be solved. Finally, important problems are more likely to be solved than unimportant ones because they are more salient to organizational participants.

The Satisficing ModeL

The essence of the satisficing model is that, when faced with complex problems, decision makers respond by reducing the problems to a level at which they can be readily understood. This is because the information processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize. Since the capacity of the human mind for formulating and solving complex problems is far too small to meet all the requirements for full rationality, individuals operate within the confines of bounded rationality. They construct simplified models that extract the essential features from problems without capturing all their complexity. Individuals can then behave rationally within the limits of the simple model.

How does bounded rationality work for the typical individual? Once a problem is identified, the search for criteria and alternatives begins. But the list of criteria is likely to be far from exhaustive. The decision maker will identify a limited list made up of the more obvious choices. These are the choices that are easy to find and tend to be highly visible. In most cases, they will represent familiar criteria and the tried-and-true solutions. Once this limited set of alternatives is identified, the decision maker will begin reviewing them. But the review will not be comprehensive. That is, not all the alternatives will be carefully evaluated. Instead, the decision maker will begin with alternatives that differ only in a relatively small degree from the choice currently in effect. Following along familiar and well-worn paths, the decision maker proceeds to review alternatives only until he or she identifies an alternative that suffices one that is satisfactory and sufficient. So the satisficer settles for the first solution that is good enough,; rather than continuing to search for the optimum. The first alternative to meet the good enough criterion ends the search, and the decision maker can then proceed toward implementing this acceptable course of action.

One of the more interesting aspects of the satisficing model is that the order in which alternatives are considered is critical in determining which alternative is selected. If the decision maker were optimizing, all alternatives would eventually be listed in a hierarchy of preferred order. Since all the alternatives would be considered, the initial order in which they were evaluated would be irrelevant. Every potential solution would get a full and complete evaluation. But this is not the case with satisficing. Assuming a problem has more than one potential solution, the satisficing choice will be the first acceptable one the decision maker encounters. Since decision makers use simple and limited models, they typically begin by identifying alternatives that are obvious, ones with which they are familiar, and those not too far from the status quo. Those solutions that depart least from the status quo and meet the decision criteria are most likely to be selected. This may help to explain why many decisions that people make do not result in the selection of solutions radically different from those they have made before. A unique alternative may present an optimizing solution to the problem; however, it will rarely be chosen. An acceptable solution will be identified well before the decision maker is required to search very far beyond the status quo.

The Implicit Favorite Model

Another model designed to deal with complex and non routine decisions is the implicit favorite model. Like the satisficing model, it argues that individuals solve complex problems by simplifying the process. However, simplification in the implicit favorite model means not entering into the difficult evaluation of alternatives stage of decision making until one of the alternatives can be identified as an implicit favorite. In other words, the decision maker is neither rational nor objective. Instead, early in the decision process, he or she implicitly selects a preferred alternative. Then the rest of the decision process is essentially a decision confirmation exercise, where the decision maker makes sure his or her implicit favorite is indeed the right choice.

The Intuitive Model

Intuitive decision making has recently come out of the closet and into some respectability. Experts no longer automatically assume that using intuition to make decisions is irrational or ineffective. There is growing recognition that rational analysis has been overemphasized and that, in certain instances, relying on intuition can improve decision making.

What is meant by intuitive decision making? There are a number of ways to conceptualize intuition. For instance, some consider it a form of extrasensory power or sixth sense, and some believe it is a personality trait that a limited number of people are born with. For our purposes, we define intuitive decision making as an unconscious process created out of distilled experience. It does not necessarily operate independently of rational analysis; rather, the two complement each other.

When are people most likely to use intuitive decision making? Eight conditions have been identified: (1) when a high level of uncertainty exists; (2) when there is little precedent to draw on; (3) when variables are less scientifically predictable; (4) when facts are limited; (5) when facts do not clearly point the way to go; (6) when analytical data are of little use; (7) when there are several plausible alternative solutions to choose from, with good arguments for each; and (8) when time is limited and there is pressure to come up with the right decisions.