MODELS OF ORGANIZATIONAL DECISION MAKING

When we speak of rational behavior, we should remember that our focus in this discussion is not on making decisions, but rather on how to support the process of making decisions. Managers are change agents, not just decision makers, so the steps before and after a decision are as important as the actual choice of action. Preparatory steps include creating tension for change, understanding the positions of the various constituencies, and developing political support for a chosen action. Steps after the decision include naming the change monitor and identifying the monitoring methods. Therefore, the mission of good information system is broader than just collecting data to make a choice. Designers of information systems must understand not only how managers think but also how the decision process will be implemented in the managers』 environment. An information system that is well design is an information system that is used. Thus, an information system, in order to be useful, must be implemented. To understand the implementation process better, we review three models of organizational decision making-rational, administrative, and political.

 

The Rational Model.     The rational model of decision making was introduced earlier in this chapter. It is based on the logic of optimal choice: the choice that would maximize value for the organization. The manager is assumed to be an objective, totally informed person who would select the most efficient alternative, maximizing whatever amount and type of output s/he values. We can summarize the rational choice process as follows:

  1. An individual is confronted with a number of known alternative courses of action.
  2. Each alternative bears a set of possible consequences. These consequences are known and are quantifiable.
  3. The individual has a system of preferences or utilities that permits him or her to rank the consequences and choose an alternative.

There is no empirical support for the contention that these three phases are actually used. In reality, managers seldom have the time or money to analyze all alternatives or envision all consequences. If rationality were ever-present among members of an organization, the organization would appear as a coherent and rational policy-making entity that maximizes the attainment of a unique set of goals and has no internal conflicts. In other words, a rational decision process implies a rational organization. A rational organization is an organization that has (1) centralized power, (2) harmony and consistency of goals across boundaries, and (3) members who are objective, fully informed, and inclined to choose alternatives that maximize the common good of the organization.

The rational model represents a sanitized vision of how organizations make decisions. In reality, organizations often seem more like complex groups of coalitions fighting for shares of limited resources, and using multiple sources of information with varying reliability to achieve a set of fluid goals. Individuals within organizations typically have widely divergent perceptions and goals and act to maximize their own gains, not necessarily those of the organization. Because of this disparity between the rational model and reality, we prefer to accept the rational model primarily as a benchmark for comparing the remaining two organization decision-making processes. In searching for a more realistic description of how organizations make decisions, we turn to the satisficing, or administrative, model.

 

The Administrative Model.    The quest for a more realistic description of organization decision making produced a variation called the administrative model. This model sees decision makers as people with varying degrees of motivation who are besieged by demands but have little time to make decisions and thus seek shortcuts to find acceptable solutions. Under the administrative model, a decision maker does not try to optimize but instead 「satisfices」-treats objectives as loose constraints that can tighten if there are many acceptable alternatives that fulfill those constraints. While optimization would require choosing the alternative with the highest value, satisficing requires finding the first alternative with an acceptable value, that is, an alternative with a value above a minimally acceptable level on a given constraint.

Assume you had a car you wanted to sell. If you listed your car for $2,500 and had 10 offers, you could choose with either method. With the rational method, you would determine which offer had the highest value in terms of conditions and price. With the satisficing model, you would accept the first offer that met your lowest acceptable price. Satisficing may lead to a reduced decision quality, but it saves time and effort. Satisficing is a dynamic construct: the aspiration levels of the manager and the number of alternatives determine what is a 「feasible, good enough solution.」

It has been pointed out that satisficing is an appropriate (i.e., rational) strategy when the cost of delaying a decision or searching for further alternatives is high in relation to the expected payoff of the supposedly superior alternative. When you take into consideration the costs related to extended search, it is questionable whether the optimum procedure is to search for the optimum value.

When a decision has been reached and the solution to the problem implemented and found to be acceptable, then the organization institutionalizes the procedure used to solve the problem into a standard operating procedure (SOP). SOPs are rules, programs, and routines that are invoked by managers to gain time and to avoid the task of solving a problem from scratch each times it appears. Sometimes managers invoke those SOPs when the organization is facing a similar but not identical problem to the one that the SOP originally solved. Since SOPs are often processes that worked once but nobody is quite sure why or whether it was the best way to solve the original problem in the first place. SOPs are not always the time-savers they are supposed to be.

Once implication of having rationally bounded decision makers in organizations is that organizations cannot be seen as single entities. Rather, problems are broken down and assigned to specialized units within the organization that develop their own priorities and goals. These goals, sometimes termed subgoals, may not agree with the organization』s overall goals. This phenomenon has been called local rationality.3

Using the perspective, organizations could be viewed as constellations of loosely allied units, each having a set of SOPs and programs to deal with its piece of the problem. As time passes, these units become more distinct and their subgoals more entrenched. These divergences are enhanced by increasingly distinct perceptions of priorities, information, and uncertainty; they are further reinforced by recruitment, rewards, and tenure. When these tendencies are very strong, the loose alliance of organization units breaks down into 「organized anarchies.」 In the extreme case, coalitions are created with conflicting interests.

This leads us to the political model of rationality. You should note that the term political does not imply that this model is only relevant in the public (government) sector; rather the term applies to a type of organization that may exist in any industry or industry sector.

 

The Political Model. In contrast to the rational model, players in the political model (often referred to as incrementalists) do not focus on a single issue but on many intraorganizational problems that reflect their personal goals. In contrast to the administrative model, the political model does not assume that decisions result from applying existing standard operating procedures, programs, and routines. Decisions result from bargaining among coalitions. Unlike in the previous models, power is decentralized. This concept of decision making as a political process emphasizes the natural multiplicity of goals, values, and interests in a complex environment. The political model views decision making as a process of conflict resolution and consensus building and decisions as products of compromise. The old adage, 「Scratch my back and I』ll scratch yours,」 is the dominant decision-making strategy.

When a problem requires a change n policy, the political model predicts that a manager will consider a few alternatives, all of them similar to existing policy. This perspective points out that decisions tend to be incremental— that managers make small changes in response to immediate pressures instead of working out a clear set of plans and a comprehensive program. This incrementalist approach can be seen as the simplest or most extreme form of satisficing.

The incremental approach of the political model allows managers to reduce the time spent on the information search and problem definition stages. Incremental decision making is geared to address shortcomings in present policy rather than consider a superior, but novel, course of action. In the political model, the stakeholders have different perception, priorities, and solutions. Because stakeholders have the power to veto some proposals, no policy that harms a powerful stakeholder is likely to triumph even if it is objectively 「optimal.」

Our purpose in reviewing these models of organizational decision making is to highlight the realities of decision making that must be recognized when developing or acquiring information systems. If the designer of an I/S assumes that the rational model is a valid representation of the way a given organization is being managed when in fact the political model is a more valid description, s/he may encounter serious implementation problems. For example, access to information can be very sensitive issue, since in politics, 「information is power.」 If managers discover that once a new information system is implemented they will no longer have access to certain data, it is quite possible they will resist the implementation effort.

When we consider the issue of organizational decision making, it is important to recognize that the structure of the organization has a strong influence on how and when information is communicated and who gets involved in what decisions. We now turn our attention to the issue of organizational structure.

Decisions! Decisions!

The many decision making models that exist nowadays means that you even have to make a decision as to which one to use! There are rational models, intuitive models, rational-iterative models as well as 5, 6, 7 and even 9 step decision models.

Most, however, move through each of the basic stages in decision making.

On this page we will quickly scan over the main points of some of these decision models so that you have a sense of what’s available.

Some of these decision making models presuppose that decision making is the same as problem solving. Frequently, the first step in the decision making process is to identify the problem. I don’t believe that every decision is solving a problem. For example, deciding whether you want dark chocolate or milk chocolate is not, in and of itself, a problem frame.

I also understand that for some people decision making can be a problem! But that does not mean that they are the same thing. So my descriptions and ideas below keep these things separate.

A brief explanation of decision making

Rational decision making models

Decision matrix analysis, Pugh matrix, SWOT analysis, Pareto analysis and decision trees are examples of rational models and you can read more about the most popular here.

This type of model is based around a cognitive judgement of the pros and cons of various options. It is organized around selecting the most logical and sensible alternative that will have the desired effect. Detailed analysis of alternatives and a comparative assessment of the advantages of each is the order of the day.

Rational decision models can be quite time consuming and often require a lot of preparation in terms of information gathering. The six step decision making process is a classic example in this category and you can read about the 9 step model here.

The Vroom-Jago decision model helps leaders decide how much involvement their teams and subordinates should have in the decision making process.

Try an online rational decision model for yourself.

Seven step decision making model

The seven step model was designed for choosing careers and may be classed as a rational decision making model. The seven steps are designed to firstly identify the frame of the decision. Based on the information available, alternatives are generated. Further information is then gathered about these alternatives in order to choose the best one.

Have a favorite Model?

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But what happens when there’s too much information? How do you separate the useful from the worthless? And then, of course, the world is changing so rapidly that the information is also changing rapidly. But waiting for things to stabilize may cause a delay in decision making which may, in turn, lead to missed opportunities.

Many think the way forward involves reharnessing the power of our intuition.

 

Intuitive decision making models

Some people consider these decisions to be unlikely coincidences, lucky guesses, or some kind of new-age hocus-pocus. Many universities are still only teaching rational decision models and suggest that if these are not used, failure results. Some researchers are even studying the logic behind the intuitive decision making models!

The groups who study intuitive decision models are realizing that it’s not simply the opposite of rational decision making.

In military schools the rational, analytical models have historically been utilized. It is also long been recognized, however, that once the enemy is engaged the analytical model may do more harm than good. History is full of examples where battles have more often been lost by a leader’s failure to make a decision than by his making a poor one.

“A good plan, executed now, is better than a perfect plan next week.”

– General George S. Patton, Jr.

The military are educating the soldiers of every rank in how to make intuitive decisions. Information overload, lack of time and chaotic conditions are poor conditions for rational models. Instead of improving their rational decision making, the army has turned to intuitive decision models. Why? Because they work!

 

Recognition primed decision making model

Psychologist Dr. Gary Klein has been studying decision making for many years and he suggests that people actually use an intuitive approach 90% of the time. His recognition primed decision making model describes that in any situation there are cues or hints that allow people to recognise patterns. Obviously the more experience somebody has, the more patterns they will be able to recognise. Based on the pattern, the person chooses a particular course of action. They mentally rehearse it and if they think it will work, they do it.

If they don’t think it will work, they choose another, and mentally rehearse that. As soon as they find one that they think will work, they do it. Again past experience and learning plays a big part here.

There is no actual comparison of choices, but rather a cycling through choices until an appropriate one is found.

Obviously people become better with this over time as they have more experiences and learn more patterns.

 

What Are The Most Popular
Decision Making Models?

The most popular

Decision making models can be divided into

  • Rational
  • Intuitive
  • Others

Of these groups, by far and away the most popular decision making models are those of the rational category.

Rational models have a series of sequential steps that involve a thinking process where various options are rated according to potential advantages and disadvantages. The highest scoring option is considered to be the optimum one.

There are many adaptations of this idea and the following are a few of the most popular decision making models of this category. 5, 6, 7 etc. step decision making processes, decision matrix analysis and SWOT analysis. Some of the most popular decision making models used in business are those already listed as well as Pareto Analysis, Critical Path Analysis and Decision Trees.

 

Multiple step decision making processes

These are covered in detail on the pages on six step and seven step models.

 

Decision Matrix analysis

This has a variety of names including decision grid, problem selection grid, Pugh matrix and solution matrix. It is used to evaluate and prioritize a list of options against a list of criteria. The highest ranking option is the ‘best’ solution.

SWOT Analysis

Strengths, Weaknesses, Opportunities and Threats are examined. They are often drawn in a 2×2 matrix, so that it reads like a list of advantages and disadvantages. While individuals can use it, it is more commonly used by organizations, and often alongside other models.

Pareto Analysis

Working on the 80:20 principle, when there are many changes to be made in an organization, this analysis suggests where the initial changes should be made in order to get the maximum benefit as early as possible.

 

Critical Path Analysis

This is used where a project has many steps that are interdependent. It identifies tasks which have to be completed on time. This is useful where some tasks cannot be started until the initial ones have completed and also gives an understanding of how soon each task needs to be completed so that the whole project will complete on time.

 

Decision Trees

These diagrams are used to represent a decision, it’s choice points, and other decisions resulting from it as well as the risks and rewards of the various options. The aim is to establish all possible events and their potential effects in order to come up with the optimum solution.

 

Why so popular?

These are some of the most popular decision making models for several reasons. In our culture we give great importance to thinking and less to the wisdom of our physical systems.

The rational models are all about cognition and understanding and we like understanding. We like to believe we can get a handle on life, the universe and everything. We want to know the future, so we can settle back and relax. The most popular decision making models give us the illusion that we are doing just that!

They are also the most popular decision making models because they are easiest to teach and to learn. They are the commonest models in our teaching establishments and up until recently were the model of choice in the armed forces, although they have realized their limitations and are now introducing intuitive models.

And have you ever asked yourself why there might be so many of the rational models? Because no one of them works with any consistency!

 

Other Models

Edward de Bono’s Six Thinking Hats attempts to combine rational and intuitive aspects of decision making. The idea is to consider a decision from multiple perspectives by wearing different hats to give a wiser, more rounded decision.

  • White hat: Consider data available and plug any gaps
  • Red hat: Use intuition and consider emotional aspects
  • Black hat: Critically consider weaknesses and produce work arounds
  • Yellow hat: Optimistic view, useful when all seems lost
  • Green hat: Creativity and how to apply it
  • Blue hat: Controller, organizes the thinking

A variant is to consider the situation from 6 people’s perspectives, e.g., client, supplier, worker, sales person etc.

Although not one of the most popular decision making models known, Gary Klein’s recognition primed decision making model is important to include here. He suggests that his model describes how people make up to 90% of their decisions!

 

Six Step Decision
Making Process

What is it?

The six step decision making process is a rational decision making process. This means that it is based upon thinking about, comparing and evaluating various alternatives. Rational decision making models are typically described as linear, sequential processes.

In other words, there are steps laid out for you to follow. Each step must be completed before you go to the next step. And occasionally it may be necessary to go back several steps to more fully complete them before you go forward again.

There are various 6 step decision making processes described and usually the steps are very similar, only the wording is different.

 

The steps

  • define the situation and the desired outcome
  • research and identify options
  • compare and contrast each alternative and its consequences
  • make a decision / choose an alternative
  • design and implement an action plan
  • evaluate results

 

The uses

Six step decision making processes have been utilized extensively in organizations. Traditional ethical decision making models can be incredibly complex. They have been simplified to a six step decision making process so that employees can be empowered to make decisions appropriate to their rank and responsibility.

It is also commonly used in schools to teach children how to make decisions.

 

The pros

Occasionally, clearly defining a situation and stating the required outcome can go a long way towards improving a situation. It is important regardless of the type of decision making process.

Researching all your options increases the amount of information in the system. This often gives rise to options previously not considered or may even generate options in regard to other unrelated decisions.

It is often considered that complex situations often require complex decision making processes. But is it not often the case that in a complex, chaotic situation, it’s the simple solution that works?

 

The cons

A six step decision making process can become a waste of time and energy and effort if there is too much attention to detail in researching options. If it leads to a delay in decision making, there may be wasted opportunities and missed chances.

Sometimes beliefs and assumptions are mistaken for facts with unwanted consequences.

The search for the best option instead of an effective one may mean even more time wasted, decisions not being made, and lost opportunities.

The emphasis is on cognition, or thinking, and there is little consideration of the individual, or their internal body signals.

Despite the fact that these kind or models are taught extensively, recent research shows that people don’t actually make decisions this way. Up to 95% of decisions are done differently!

 

TYPES OF DECISION MAKING

A decision is a choice made between 2 or more available alternatives.

Decision Making is the process of choosing the best alternative for reaching objectives.

Managers make decisions affecting the organization daily and communicate those decisions to other organizational members.

Some decisions affect a large number of organization members, cost a great deal of  money to Carry out, or have a long term effect on the organization. Such significant decisions can have a major impact, not only on the management systems itself, but on the career of the manager who makes them.

Other decisions are fairly insignificant, affecting only a small member of organization members, costing little to carry out, and producing only a short term effect on the organization.

 

Decision Types: 6 Types of Decisions Every Organization Need To Take

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The following are the main types of decisions every organization need to take:

1. Programmed and non-programmed decisions:

Programmed decisions are concerned with the problems of repetitive nature or routine type matters.

A standard procedure is followed for tackling such problems. These decisions are taken generally by lower level managers. Decisions of this type may pertain to e.g. purchase of raw material, granting leave to an employee and supply of goods and implements to the employees, etc. Non-programmed decisions relate to difficult situations for which there is no easy solution.

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These matters are very important for the organisation. For example, opening of a new branch of the organisation or a large number of employees absenting from the organisation or introducing new product in the market, etc., are the decisions which are normally taken at the higher level.

2. Routine and strategic decisions:

Routine decisions are related to the general functioning of the organisation. They do not require much evaluation and analysis and can be taken quickly. Ample powers are delegated to lower ranks to take these decisions within the broad policy structure of the organisation.

Strategic decisions are important which affect objectives, organisational goals and other important policy matters. These decisions usually involve huge investments or funds. These are non-repetitive in nature and are taken after careful analysis and evaluation of many alternatives. These decisions are taken at the higher level of management.

3. Tactical (Policy) and operational decisions:

Decisions pertaining to various policy matters of the organisation are policy decisions. These are taken by the top management and have long term impact on the functioning of the concern. For example, decisions regarding location of plant, volume of production and channels of distribution (Tactical) policies, etc. are policy decisions. Operating decisions relate to day-to-day functioning or operations of business. Middle and lower level managers take these decisions.

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An example may be taken to distinguish these decisions. Decisions concerning payment of bonus to employees are a policy decision. On the other hand if bonus is to be given to the employees, calculation of bonus in respect of each employee is an operating decision.

4. Organisational and personal decisions:

When an individual takes decision as an executive in the official capacity, it is known as organisational decision. If decision is taken by the executive in the personal capacity (thereby affecting his personal life), it is known as personal decision.

Sometimes these decisions may affect functioning of the organisation also. For example, if an executive leaves the organisation, it may affect the organisation. The authority of taking organizational decisions may be delegated, whereas personal decisions cannot be delegated.

5. Major and minor decisions:

Another classification of decisions is major and minor. Decision pertaining to purchase of new factory premises is a major decision. Major decisions are taken by top management. Purchase of office stationery is a minor decision which can be taken by office superintendent.

6. Individual and group decisions:

When the decision is taken by a single individual, it is known as individual decision. Usually routine type decisions are taken by individuals within the broad policy framework of the organisation.

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Group decisions are taken by group of individuals constituted in the form of a standing committee. Generally very important and pertinent matters for the organisation are referred to this committee. The main aim in taking group decisions is the involvement of maximum number of individuals in the process of decision­- making.

  

TYPES OF DECISIONS:

PROGRAMMED DECISIONS:

Programmed decisions are routine and repetitive, and the organization typically develops specific ways to handle them. A programmed decision might involve determining how products will be arranged on the shelves of a supermarket. For this kind of routine, repetitive problem, standard arrangement decisions are typically made according to established management guidelines.

NON PROGRAMMED DECISIONS:

Non programmed decisions are typically one shot decisions that are usually less structured than programmed decision.

 

5 ELEMENTS OF THE DECISION SITUATION:

  1. The Decision Makers
  2. Goals to be served
  3. Relevant Alternatives
  4. Ordering of Alternatives
  5. Choice of Alternatives

DECISION MAKING PROCESS:

Decision making steps this model depicts are as follows:

  1. Identify an existing problem                                                                      
  2. List possible alternatives for solving the problem                       
  3. Select the most beneficial of these alternatives.                           
  4. Implement the selected alternative.                                                        
  5. Gather feedback to find out if the implemented alternative is solving the identified problem.

You know you need great ideas, a critical mass of talent, and a decent amount of luck to build a successful business. But there’s something even more fundamental to putting together a smart organization.

Before everything else, you, the founder, need an honest understanding of your strengths and weaknesses. Without it, you won’t know how to build a great supporting team. One place to start is to look at how you make decisions.

 

A new survey of about 5,000 McKinsey Quarterly and Harvard Business Review readers might offer some insight. After in-depth work on 1,021 of the responses, study authors Dan Lovallo and Olivier Sibony identified five decision-making styles. They are: Visionary, Guardian, Motivator, Flexible, and Catalyst.

Each style is a combination of preferences from a set of six pairs of opposing characteristics:

  • prefers ad hoc or process
  • prefers action or caution
  • gathers information narrowly or widely
  • believes corporate interests or personal interests prevail
  • likes continuity or change
  • prefers storytelling or facts

Although the authors stress that the research is still in an early stage, here is a summary of what they have learned so far.

Decision makers all have particular ways they like to work and there are actions each should take to keep their tendencies from undermining their intent.

Visionary

The visionary decision maker is “a champion of radical change with a natural gift for leading people through turbulent times.” Such people like change, gather information relatively narrowly, and are strongly biased toward action but “may be too quick to rush in the wrong direction.”

If you are a visionary leader, you should seek the opinions and views of a broad group and “encourage dissenters to voice their concerns.” Only that way can you get a wider set of views and information that can be critical to success.

Guardian

A guardian is a “model of fairness who preserves the health, balance, and values of the organization.” Such people have sound decision-making processes, try for fact-based choices, and plan carefully. They like continuity, are moderately cautious, and gather information relatively widely.

Those are fine characteristics for normal times. But the guardian can be too cautious and slow moving during a crisis, when there is “desperate need for change.” That is why a guardian should talk to people outside the organization and have them “challenge deeply held beliefs about the company and its industry.” Task forces are then in order to “explore major changes in the environment.”

 

Motivator

Motivators are good choices for change. They are charismatic, can convince people of the need for action, and build alignment among parts of the company. But like all good storytellers, they risk believing the story in the face of countervailing facts. They gather information relatively narrowly, and strongly believe that self-interest prevails over corporate interest.

Rather than looking simply for outside counsel, motivators need to explore the existing facts and see if there are other ways to interpret them–ways that do not necessarily play into the narrative they have created. Formal processes are a help. Motivators can use surveys to get a realistic sense of the rest of the company.

Flexible

Flexible leaders are, as you might expect from the name, more versatile than other types of leaders: “comfortable with uncertainty, open minded in adapting to circumstances, and willing to involve a variety of people in the decision making.” They mildly lean to ad hoc approaches rather than formal processes and are fairly cautious.

The problem with flexible leaders is that they can become too open-minded. Looking at all the potential issues, solutions, and outcomes can paralyze the decision-making process. They should set deadlines for decisions before the paralytic debate can commence. It can also make sense to create a framework for ordinary repetitive decisions, making them the subject of a set of rules so as not to waste time on reconsidering.

Catalyst

The catalyst is an excellent person to lead the work of groups, whether making decisions or implementing them. They are balanced, being in the middle on four out of the six characteristics, although they slightly prefer action to caution and are slightly biased toward broadly, rather than narrowly, gathering information. The more extreme the necessary decision, the more they can naturally resist inherent biases.

That said, being middle of the road can yield only average results. To avoid that, a catalyst should watch for circumstances that require high-stakes decisions and realize that they may need a different type of decision process, like having a team look at the situation and suggest potential approaches.

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