Decision-making is an essential and complex function of management. As such, decision-making can be approached from a variety of orientations. The classical or rational decision-making model is a step-by-step, systematic process designed to lead managers to the best possible decision among alternatives. It is often considered to result in “high quality, accepted and ethical decisions” (Gordon, 2002, p. 143). This approach to decision-making involves the following steps:
(1) Analyze the situation and recognize the need for a decision
(2) Research the alternatives
(3) Evaluate the alternatives by analyzing them to their logical conclusions
(4) Apply a utility function based on the result of step 3
(5) Choose the most effective alternative based on the previous analysis
(6) Follow through and evaluate the decision based on desired outcomes
(Gordon, 2002; Marshall,1920).
Because of its logical and stepwise approach, it was often assumed that managers, and people in general, utilized this method for virtually all decisions. However, due to the complexity of decisions that managers face, and the time constraints imposed, compounded by the lack of comprehensive information available in some situations, the level of analysis this method requires is not always feasible or practical in real-world situations.
Economist Simon Herbert observed that in business environments, managers do not usually have the resources or even the inclination to engage in the full process of rational decision-making. Instead, he posited that managers make satisficing decisions, which are “good enough considering the time available, the research resources available, the importance of the decision and the inclination of the decision maker” (Simon, 1959, p. 266). Furthermore, Gordon (2002) distinguishes between the levels of quality of decisions, stating that “good-quality decisions result in desired outcomes while meeting a series of specified criteria or constraints . . but are not necessarily the same as optimal decisions” and “selecting a satisfactory or acceptable decision, may be adequate, given time, financial and staffing constraints” (p. 134).
In reality, in the complex, fast-paced and ever-changing business environment of today, relatively few situations requiring management decisions have the circumstances that easily lend themselves to the thorough rational decision-making process. Additionally, it is often difficult to practically implement the rational method and determine the point at which all possible alternatives have been evaluated to all possible ends.
The business environment is continually full of surprises and alternatives can easily be overlooked or inadequately analyzed. Organizations would lose money and fail to keep pace with the competition if they engaged the resources necessary for rational decision making for all or even most of their decisions. And, in the end, most of us agree that a “good enough” decision is generally good enough.
References
Gordon, J. (2002) Organizational behavior: A diagnostics approach, 7e, Hoboken, NJ: Prentice Hall.
Marshall, A., 1920, Principles of Economics, 8e, London: Macmillan and Co.
Simon, H., June 1959, Theories of Decision making in Economics and Behavioral Science. American Economic Review, Vol. 49, pp. 253-283