This essay will describe the concept of managerial decision-making. It will look specifically at the ‘Rational Decision-Making Model’, exploring the shortcomings of this approach, and will suggest possible ways a manager could overcome these issues when striving to make a rational decision that will bring benefit to an organisation. Throughout this essay, empirical research and examples from academic literature will be presented to illustrate the discussion.
Decision-making is arguably the single most important process in an organisation, being a basic task at all managerial levels. (Heraclious 1994) Rational Decision Making can be defined as choices that are consistent and value maximising within specified constraints. (Bergman, Coulter, Robbins & Stagg 2008) The ‘Rational Decision-Making Model’ is a structured process for essentially making a logically sound decision. The model is made up of a series of steps, with the details often varying, but generally including; recognition of the decision requirement, diagnosis and analysis of causes, development of alternatives, selection of alternative, implementation, evaluation and feedback. (Heraclious 1994) A person making a rational decision would be logical, fully objective, and would strive to select an alternative that maximises the likelihood of achieving their goal. (Bergman, Coulter, Robbins & Stagg 2008)
There are a number of issues surrounding the effectiveness of the model for rational decision-making, and there has been a considerable amount of research into what these issues are. It is argued that the model is very limited in terms of how it can be applied in real life situations, only being applicable to relatively simple problems. (Heraclious 1994) Three issues that this essay will look at are; the unrealistic assumptions that the model makes, decision-makers bounded rationality, and the fact that the model ignores a number of important factors when making decisions such as the political, social, and cognitive influences.
The rational model of decision-making makes a number of assumptions. These are; the decision-maker is rational, logical, and objective, that the problem is clear and unambiguous, a well-defined goal is to be achieved, all alternatives and consequences are known, preferences are clear and stable, time or cost constraints are low or don’t exist, and finally, the final choice will maximise likelihood of achieving that goal. (Bergman, Coulter, Robbins & Stagg 2008) However, these assumptions can be considered unrealistic, undermining the effectiveness of the ‘Rational Decision-Making Model’. For example, Morrell (2004) stated that “the environment we each have to negotiate is rich and complex. Faced with an overwhelming number of potential choices, no-one has time to weigh up the pros and cons of each and every one.” This means that is is simply unrealistic to imply that when making a decision, the decision-maker knows and analyses every possible solution to the problem. The environment and the markets an organisation works within is constantly changing. It is also unrealistic to assume that no cost or time constraints exist for the organisation. (Morrell 2004) Managers are often faced with a vast number of complexities which contribute to which decision they will make, including their budget, and time restrictions. (Morrell 2004) A manager must consider expenses and time allocation in order to bring maximum value and life to their organisation.
Another issue which undermines the effectiveness of the ‘Rational Decision-Making Model’ is bounded rationality. Manager’s rationality in decision-making is bounded due to the limitations they face in their ability to gather information relevant to making a decision, such as; making predictions, and dealing with other changing environments causing their uncertainty. (Carter, Kaufmann & Michel 2009) As a result of these limitations, managers often “satisfice”, by making a decision and pursuing...
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