8 December 2009
“Why is making rational decision difficult for higher executives? How do information systems assist decision makers of unstructured problems?
Decision making occurs as a reaction to a problem or an opportunity, requiring consideration of alternative courses of action. Rational decision making describes choices that are consistent and value-maximizing within specific constraints. It assumes the problem is clear and unambiguous, there is a single and well-defined goal is to be achieved, all alternatives and consequences are known, preferences are clear, constant and stable, the final choice will maximize economic payoff and no time or cost constraints exist.
Decisions can be classified into 3 categories, namely structured, semi-structured and unstructured. Structured decisions are repetitive and routine, having short term impact, low risk and usually involve clear standard operating procedures or SOPs (PK/SK: problems and solutions are known). These type of problems occurs more regularly at the operational level. Some examples are the decision made by a production floor supervisor on the amount of labour needed to achieve a particular production volume, or when a purchasing staff has to decide which vendor to choose from to order office furniture. Information required to make such decisions is readily available and thus easily automated or programmed, thus have a higher chance of deriving rational decisions.
Semi-structured decisions involve tactical issues that have medium term impact such as when middle managers determine production schedules, select new employees, and decide how pay raises are to be allocated.
At the other end of the spectrum are unstructured decisions, which involve judgement, evaluation, intuition and urgency (PU/SU): problems unknown, solutions unknown). A study of experienced professionals holding high-level positions found more than 90 percent of managers said they were likely to use a mix of intuition and data analysis when making decisions. The higher one goes in the managerial hierarchy, the more unstructured decisions seem to shape organizational destinies (long term impact). Such decisions are usually unprecedented and complex that guidelines and procedures are deemed useless. Thus, years of accumulated experience combined with resourcefulness are crucial qualities of higher executives. This is because they have to rely on methods of sense-making based on acculturated knowledge in reacting to emerging and uncertain conditions. They based on the experience to recognize patterns and clusters of the problem to make a decision.
At the strategic level, making sense of fragmentary signals or conflicting information becomes a challenge about human cognition and organizational culture rather than about business technologies or automation. Due to the non-programmable nature of such decisions, to use rational decision making for unstructured problems is a great challenge for higher executives. Examples are when top managers such as those at Dell determine their organization’s goals, what products or services to offer, how best to finance operations, or where to locate a new high-tech research and development facility. Another example is when Singapore Airlines decided keep a young fleet of airplanes (average just over 6 years). Despite of the high costs of such a policy, it was one of the strategic decisions that have made it one of the most profitable airlines in the world.
Because the capacity of the human mind for solving complex problems is far too small to meet the requirements for full rationality, individuals operate within the confines of bounded rationality. By extracting the essential features from problems, individuals can then behave rationally, albeit within the limits. The decision maker partakes in satisficing by reviewing alternatives until the first alternative that is “good enough” is met, such that the final solution...