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INTRODUCTION...................................................................................................................... 1 MODELS OF DECISION MAKING PROCESS ...................................................................... 3 1) 2) Econologic Model or Economic Man Model ............................................................... 3 Bounded Rationality Model or Administrative Man Model ........................................ 6 Causes of Bounded Rationality .......................................................................................... 8 3) Implicit Favourite Model or Gamesman Model ......................................................... 10
INTRODUCTION
The word 'decision' is derived from the Latin words de ciso which means 'a cutting away or a cutting off or in a practical sense' to come to a conclusion. Decisions are made to achieve goals through suitable follow-up actions. Decision-making is a process by which a decision (course of action) is taken. Decision-making lies embedded in the process of management. Decision-making is an essential aspect of modern management. It is a primary function of management. A manager's major job is sound/rational decision-making. He takes hundreds of decisions consciously and subconsciously. Decision-making is the key part of manager's activities. Decisions are important as they determine both managerial and organizational actions. A decision may be defined as "a course of action which is consciously chosen from among a set of alternatives to achieve a desired result." It represents a well-balanced judgment and a commitment to action. It is rightly said that the first important function of management is to take decisions on problems and situations. Decision-making pervades all managerial actions. It is a continuous process. Decision-making is an indispensable component of the management process itself. According to Peter Drucker, "Whatever a manager does, he does through decision-making". A manager has to take a decision before acting or before preparing a plan for execution. Moreover, his ability is very often judged by the quality of decisions he takes. Thus, management is always a decision-making process. It is a part of every managerial function. This is because action is not possible unless a firm decision is taken about a business problem or situation. According to Trewatha & Newport, "Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem". The effectiveness of management depends on the quality of decision-making. In this sense, management is rightly described as decision-making process.
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According to R. C. Davis, "management is a decision-making process." Decision-making is an intellectual process which involves selection of one course of action out of many alternatives. Decision-making will be followed by second function of management called planning. The other elements which follow planning are many such as organising, directing, coordinating, controlling and motivating. Decision-making has priority over planning function. According to Peter Drucker, it is the top management which is responsible for all strategic decisions such as the objectives of the business, capital expenditure decisions as well as such operating decisions as training of manpower and so on. Without such decisions, no action can take place and naturally the resources would remain idle and unproductive. The managerial decisions should be correct to the maximum extent possible. For this, scientific decision-making is essential.
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I. II. III.
Econologic Model or Economic Man Model. Bounded Rationality or Administrative Man Model. Implicit Favourite or Gamesman Model.
This is the earliest model of man developed by classical economists. They believed that man is completely rational in his decisions. He always selects the alternative which gives him the greatest advantage. He makes his search foe the best alternative in a planned, orderly and logical manner. This model rests on two assumptions: It assumes people are economically rational; and That people attempt to maximise outcomes in an orderly and sequential process. Economic rationality, a basic concept in many models of decision making, exists when people attempt to maximise objectively measured advantage, such as money or units of goods produced. That is, it is assumed that people will select the decision or course of action that has the greatest advantage or payoff from among the many alternatives. There are seven-decision making steps under this model. They do not accurately portray that how decisions are actually made. Therefore many writers criticise this model and say that it lacks realism.
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Seven- Steps are :1. Discover the symptoms of the problem or difficulty, 2. Determine the goal to be achieved or define the problem to be solved, 3. Develop a criterion, against which alternative solutions can be evaluated, 4. Identify all alternative courses of action, 5. Consider the consequences of each alternatives as well as the likelihood of occurrence of each, 6. Choose the best alternative by comparing the consequences of each alternative (step5) with the decision criterion (step3), and 7. Act or implement the decision.
This prescriptive model makes some assumptions about the capabilities of human beings:
First, people have the capability to gather all necessary information for a decision, i.e., people can have complete information. Second, people can mentally store this information in some stable form, i.e., they can accurately recall any information any time they like, Third, people can manipulate all this information in a series of complex calculations design to provide expected values, and Fourth, people can rank the consequences in a consistent fashion for the purposes of identifying the preferred alternative.
As the human mind is simply incapable of executing such transactions at the level and magnitude required for complex decisions. To that extent, this model is unrealistic. However, due to the advent of sophisticated data storage, retrieval and processing machines, it is now possible to achieve economic rationality to some extent.
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Herbert A. Simon a famous management expert, has made an important contribution in the field of decision making. As the name implies, this model does not assume individual rationality in the decisions process. Instead, it assumes that people, while they may seek the best solution, usually settle for much less because the decisions they confront typically demand greater information processing capabilities than they possess. They seek a kind of bounded (or limited) rationality in decisions. The concept of bounded rationality attempts to describe decision processes in terms of three mechanisms:
Sequential search for alternative solutions: People examine possible solutions to a problem sequentially. Instead of identifying all possible solutions and selecting the best (as suggested in the econologic man model), the various alternatives are identified and evaluated one at a time. If the first solution fails to work it is discarded and the next solution is considered. When an acceptable (that is, Good enough and not necessarily the best) solution is found, the search is discontinued. Use of heuristics: A heuristic is a rule which guides the search for alternatives into areas that have a high probability for yielding satisfactory solutions. For instance, some companies continually select Tourism Management graduates from certain institutions because in the past such graduates have performed well for the company. According to the bounded rationality model, decisions makers use heuristics to reduce large problems to manageable proportions so that decisions can be made rapidly. They look for obvious solutions or previous solutions that worked in similar situations. Reasonable Satisfaction: This model does not take such decisions which provide the maximum satisfaction. He takes only such decisions which offers reasonable satisfaction. Simon had addressed it by using the word SATISFYING, which means
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taking a decision that is appropriate enough in the given situation. Whereas the econologic man model focuses on the decision maker as an optimizer, this model sees him or her as a satisfier.
An alternative is optimal if: 1) There exists a set of criteria that permits all alternatives to be compared, and 2) The alternative in question is preferred, by these criteria, to all other alternatives. An alternative is satisfactory if: 1) There exists a set of criteria that describes minimally satisfactory alternatives, and 2) The alternative in question meets or exceeds all these criteria. Based on these three assumptions about decision makers, it is possible to routine the decision process as seen from the standpoint of the bounded rationality model. The model consists of eight steps: 1) Set the goal to be pursed or define the problem to be solved. 2) Establish an appropriate level of aspirations or criterion level (that is, when do you know that a solution is sufficiently positive to be acceptable even if it is not perfect ?) 3) Employ heuristics to narrow problem space to a single promising alternative. 4) If no feasible alternative is identified (a) lower the aspiration level, and (b) begin the search for a new alternative solution (repeat steps 2 and 3). 5) After identifying a feasible alternative (a), evaluate it to determine its acceptability (b). 6) If the identified alternative is unacceptable, initiate search for a new alternative solution (repeat steps 3-5) . 7) If the identified alternative is acceptable (a) implement the solution (b). 8) Following implementation, evaluate the ease with which goal was (or was not) attained (a), and raise or lower level of aspiration accordingly on future decisions of this type.
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In this model we do not seek the best solution; instead, we look for a solution that is acceptable. The search behaviour is sequential in nature (evaluating one or two solutions at a time. The bounded rationality model is descriptive; that is it describes how decision makers actually arrive at the identification of solutions to organisational problems. It can be said that the decisions cannot be taken with absolute rationality. The element of irrationality is always present in all big and small decisions. Therefore, the decisions taken by the manager can be very good, but they cannot be absolute rational.
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(1)
Set goal or Define prob.
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This model deals primarily with non-programmed decisions. The non-programmed decisions are decisions that are novel or unstructured, like seeking ones first job. Programmed decisions, in contrast, are more routine or repetitious in nature, like the procedures for admitting students to a secondary school. The implicit favourite model developed by Soelberg (1967) emerged when he observed the job choice process of graduating business students and noted that, in many cases, the students identified implicit favourites very early in the recruiting and choice process. However, they continued their search for additional alternatives and quickly selected the best alternative candidate, known as the confirmation candidate. Next, the students attempted to develop decision rules which demonstrated unequivocally that the implicit favourite was superior to the alternative confirmation candidate. This was done through weighing systems designed to highlight the positive features of the implicit favourite. Finally, after a decision rule was derived that clearly favoured the implicit favourite, the decision was announced. Ironically, Soelberg noted that the implicit favourite was typically superior to the confirmation candidate on only one or to dimensions. Even so, the decision makers
generally characterised their decision rules as being multi-dimensional in nature. The entire process is designed to justify to the individual, through the guise of scientific rigour, a non-programmed decision that has already been made in intuitive fashion. By doing so, the individual becomes convinced that he or she is acting in a rational fashion and making a logical, reasoned decision on an important topic.
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Nike organisation grew out of an idea Philip Knight expressed, in graduate school paper. In 1964, he and Bill Bowerman started an athletic shoe company call Blue Ribbon sports to evoke the image of the winner. In 1972, Blue Ribbon sports become Nike, named after mythological goddess of victory. Nike previously used rationality model of decision-making model. One new venture was Nike Town concept. It was a sports museum, part store and part amusement park and was intended as a celebration of Nikes energy and youth vitality. According to David Monfred this is an opportunity to have direct control over how your company is presented to the world. The idea here was not discounted. When the Chicago Nike town opened, it attracted 5000 customers a week who spent about $50 each. To keep up with the changing market place, Nike managers have already started diversifying. In 1992, Nike opened retailed outlets in which apparel shoes and Nike paraphernalia are sold. Nike managers attribute a $100 million increase in gross profits in 1992, to it retail division, which operates 30 Nike owned outlets for factory seconds and the two Nike town stores. The stores promote the growth of the Nike Apparel business, which is experiencing must faster growth than the athletic shoe business. Thereafter Nike adopted the Gamesman Model of decision making rather than using old and traditional rational model. Gamesman model is the study of people making interdependent choices. A game is a situation involving at least two people in which each person makes choices based, in part, on what he or she expects the others to do. This model highlights the explicit role of human relationships and interactions in decisions. Then in 1993, Nike managers focussed on range of womens product. The decision to focus on women was not a quick decision. Many seemed to feat that growing the womens business would undermine the companys image and decrease it appeal to men. Though long hours of brainstorming, the team arrived at series of ads featuring women a powerful, capable person. The womens marketing and advertising team, their supervisors and their competitors within Nikes organisation ate all decision-making in the context of
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each others making decision. By using the Gamesman Model, the decision to proceed with dialogue is the joint result of their individual decisions. At the same time, this resulting decision is being played out in a world where forces of turbulence are at work.
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BIBLIOGRAPHY
Books referred : 1. Oraganisation and Management, seventeenth reprint, 2001, by R.D. Agarwal. 2. Principles and Practice of Management, reprint 2008, by L.M. Prasad. 3. Study Material provided by Prof. Keshav Sharma.
Websites visited :1. http://ms-01-ignou.blogspot.in/2010/09/describe-different-types-and-models-of.html. 2. http://books.google.co.in/books?id=DbC0_McBPgIC&pg=PA273&lpg=PA273&dq= gamesman+model+decision+making&source=bl&ots=y7qxaJwmr2&sig=ME3yCWVptqEcjLPdOl7PghiiK4&hl=en#v=onepage&q=gamesman%20model%20decisio n%20making&f=false 3. http://books.google.co.in/books?id=10s0vYQp9UgC&pg=PA145&lpg=PA145&dq=a dministrative+man+model+corporate+example&source=bl&ots=uHlQP7oXfM&sig= kZf07ETZ8w5EGlccV3coKGQvjc&hl=en#v=onepage&q=administrative%20man%2 0model%20corporate%20example&f=false 4. http://kalyan-city.blogspot.in/2010/06/decision-making-process-in-management.html 5. http://en.wikipedia.org/wiki/Decision_making
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