Understanding Organizational decision making

Contents
Decision Making Approaches ........................................................................................................................ 2
Normative ................................................................................................................................................. 2
Descriptive approach ................................................................................................................................ 2
Economic or rational choice mode ........................................................................................................... 2
Simons bounded rationality model.......................................................................................................... 3
Well managed model ................................................................................................................................ 3
Qualitative approaches ............................................................................................................................. 3
Risk and Uncertainty ..................................................................................................................................... 3
Role of stakeholders ................................................................................................................................. 4
Attitude to risk .......................................................................................................................................... 4
Risk management planning ....................................................................................................................... 4
Enterprise risk management ..................................................................................................................... 4
Conclusion ..................................................................................................................................................... 4

Activity 4

Decision Making Approaches

Decision making is an integral part of every successful business. The query then is regarding the
measures to be adopted to ensure good decision making. To start off it is important to highlight that
good information is necessary along with the right mix of experience needed to interpret data.

Normative
The framework concerning normative model was developed by Victor Vroon. His framework shed
importance on the situation and the importance of decision making. Normative decision making has to
do with norms prevailing in the local environment (Baron, 2012). The term prescriptive is used
interchangeably with normative, which shows the best decision, where best doesnt always indicate the
most optimal.

Descriptive approach
Descriptive or positive model emerged because individuals dont really have a consistent way of
behaving and often comply with self created rules which eventually led to breach of attaining the best
possible.

Economic or rational choice mode

The Rational choice theory is a research that is used to analyze and amend behavior which can be
economic as well as social. This type of decision making is primarily used in the context of
microeconomic models and incorporates the concept of instrumental rationality, where cost
minimization is an objective along with achieving certain aims.

Simons bounded rationality model

Herbert A. Simon was the theorist who established the model titled bounded rationality. He emphasized
that the rationality of a person has certain constraints including those of cognitive nature. He also has a
limited prescribed time in which decision is to be undertaken. Thereby he created a framework while
using mathematical modeling to help attain the optimal choice to a prescribed problem given the finite
time (Fiori, n.d.).

Well managed model

The model devised by (Peters and Waterman, 1984) was called the well managed model. It has
objectives of creating a model which was descriptive and focused on the expressive qualities of
implementing decision in a firm. The model excludes elements of rationality .This framework has its
basis on the empirical insight into the running of successful firms.

Qualitative approaches
Qualitative approaches include the broad methods of analyzing how qualitative research can be
undertaken. It explains whether an explicit or implicit method is more appropriate. It requires data
which is experiential and contains certain elements which are needed in the process of decision making
(Sabbadin, Fargier and Lang, 1998). An example to illustrate this notion could be to use this approach to
address an issue over finance availability between two departments in a firm, thereby the senior
management must devote the resource to its most efficient used which is based on quality.

Risk and Uncertainty

Risk can be best described as the chances of a certain event incurring and the associated benefits or loss
the project brings. Whereas uncertainty can be defined as the gap prevailing between the information
necessary to implement a task and the information that firms already have (Galbraith, 1977).

Role of stakeholders
When the projects being pursued have greater interaction with the community, it is essential to realize
that the management of stakeholders will be a necessary task. Thereby the stakeholders will be
attributed a status to risk and uncertainty which is equal to those who are undertaking the project.
Thereby in order to manage and address the problem of risk stakeholder management is an essential
part.

Attitude to risk
The term attitude when discussing risk is used to identify his feelings when confronted with a risky
situation. There are broadly three types of people. First are the risk averse people who want to avoid
risk and will only invest more if compensation is substantial. Second is the risk neutral who are
indifferent. And lastly is the risk seeking who prefer riskier project to lower ones.

Risk management planning

This planning pertaining to risk management is the documentation that is prepared by the project
supervisor, it contains important concerns relating to risk, its effects and describes the reaction to
various situation (Dionne, 2013). An important element of the risk management plan is its matrix.

Enterprise risk management

This framework includes the techniques and procedures used by a firm in order to mange risk and take
hold of opportunities which help a firm achieve its goals. Thereby this framework identifies various
circumstances which are in line with the objectives or a company.

Conclusion
Thereby it can be emphasized that in order to cater risk and uncertainty it is essential that every firm
adopts the management technique that best suites its environment.

References
Baron, J. (2012). The point of normative models in judgment and decision making. Front. Psychology, 3.
Dionne, G. (2013). Risk Management: History, Definition, and Critique. Risk Management and Insurance
Review, 16(2), pp.147-166.
Fiori, S. (n.d.). Herbert A. Simon and Contemporary Theories of Bounded Rationality. SSRN Journal.
Galbraith, J. (1977). Organization design. Reading, Mass.: Addison-Wesley Pub. Co.
Peters, T. and Waterman, R. (1984). In Search of Excellence.Nursing Administration Quarterly, 8(3),
pp.85-86.
Sabbadin, R., Fargier, H. and Lang, J. (1998). Towards qualitative approaches to multi-stage decision
making. International Journal of Approximate Reasoning, 19(3-4), pp.441-471.