Management Approaches to Decision Making

Cite this article as:"Management Approaches to Decision Making," in The Business Professor, updated April 6, 2020, last accessed October 29, 2020, https://thebusinessprofessor.com/lesson/management-approaches-to-decision-making/.

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What are Approaches to Decision Making?

We will cover four decision-making approaches starting with the rational decision-making model, moving to the bounded rationality decision-making model, the intuitive decision-making model, and ending with the creative decision-making model.

What is Rational Decision-Making Process?

Rational decision making is considered logical and consistent with the intent to maximize the value, quality, or likelihood of achieving the intended outcome.

Rational decision-making can be explained as several procedural steps:

  • Identify Problem – Problems or potential problems may present themselves or become evident through appropriate monitoring. In carrying out this process, managers should identify goals at the outset of the decision-making process.
  • Decision Criteria – Managers should identify criteria for potential solutions – as this will help you avoid bias in choosing an alternative.
  • Allocate Weights – Some criteria will be more important to some stakeholders than others. The decision-making process necessary includes considering the interest of stakeholders. In some instances, it involves seeking stakeholder input.
  • Develop Alternatives – It’s important to develop as wide an array of potential solutions as possible.
  • Analyze Alternatives – You will need to determine which criteria are most important and to what extent it is necessary to sacrifice one for another.
  • Select an Alternative – After diligent evaluation of the alternatives, the manager must select an option to deal with the problem or situation.
  • Implement the Decision – Selecting an approach is only part of the manager’s responsibility. Then comes the process of overseeing the implantation of the solution.
  • Evaluate the Effect – Finally, the manager must evaluate the progress and effectiveness of the approach.

Some scholars and practitioners critique the decision-making process. It makes numerous assumptions about the situation and the individuals. It assumes that the decision-maker is able to fully underhand the situation and the implications of a decision. It assumes that managers are able to identify the available choices. It does little to account for the effect of biases on the decision-making process. Finally, it assumes that managers are in search of an optimal decision, rather than satisfying.

Others argue that following such a detailed process is overly onerous. It requires o much time gathering information and evaluating the situation. It can lead to a failure to reach a timely decision.

What is Bounded Rationality?

The crux of the bounded rationality approach to decision making focuses on decisions that are “good enough” to address the situation. That is, the decision is adequate to address the situation, but it does not maximize the potential value in the situation. This is known as “satisfying”.

Bounded rationally occurs when managers fail to search for potential options or knowingly limit the number of available options. The decision-maker focuses on options that meet a minimum number of decision criteria. Bounded rationality is often the result of a decision maker’s limited by the ability to process information.

Individuals are heavily influenced by culture, internal politics, power considerations, and the tendency toward the irrational escalation of commitment. As a product of your environment and individual experiences, individuals are naturally affected in their ability to analyze potential solutions.

What is Intuitive Decision Making?

Intuitive decision making, as the name implies, relies on intuition in making a decision. That is, decisions often arrive at a decision to address a problem or situation without conscious reasoning. Instead, decisions are based on experience, feeling, and accumulated judgment.

Managers routinely face decisions in challenging contexts, such as environmental uncertainty, stakeholder interests, time pressures, and the fallout from the decision. This reality can limit the ability to follow the rational decision-making process.

Intuitive decision-makers will use environmental scanning to identify patterns based upon prior experience or knowledge. This allows the decision-maker to develop a course of action. The decision-making process is replaced by the individual’s understanding of the situation.

Importantly, the decision-maker evaluates one choice at a time. Generally, a decision-maker who lacks sufficient experience or acquired knowledge is unable to make such intuitive decisions.

What is Creative Decision Making?

Creativity concerns the ability to come up with something new. This includes the generation of new ideas or alternatives to address a problem.

The five steps to creative decision making are as follows:

  • Problem Identification – The decision-maker becomes aware of a situation or problem that needs to be addressed.
  • Immersion – During this phase, the decision-maker gathers information and seeks to fully understand the situation. The phase often relies heavily upon the experience and knowledge of the decision-maker.
  • Incubation – This phase requires concerted evaluation and thinking about the situation.
  • Illumination – This is the stage in which the decision-maker identifies the most appropriate solution to the problem or situation.
  • Verification Stage – This is when the decision-maker verifies the feasibility and implements the decision.

Three factors generally contribute to the level of creativity in decision-making.

  • Fluency – How many ideas generated?
  • Flexibility – How diverse are the ideas generated?
  • Originality – How unique are the ideas generated? refers to an idea’s uniqueness.

Creativity is thought to occur as an interaction among three dimensions:

  • Personality traits – One’s openness to experience and risk-taking. Openness to experience, conscientiousness, self-acceptance, and impulsivity are indicators of creativity.
  • Decision Maker Attributes – One’s expertise, imagination, and motivation.
  • Context – To what extent is the support and buy-in from others, time pressure, and physical structures.

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