MODELS OF DECISION MAKING

The Rational-Economic (or Classical) Model

Is prescriptive in that it focuses on how decisions ought to be made.

Assumes the decision maker is completely rational (i.e., seeks to maximize the payoff and utilizes a search
process that proceeds in a planned, orderly and consistent fashion) and unbiased.

Assumes that the decision maker has made available all the information needed to make a decision and that
all possible alternatives are considered.

The decision maker selects the optimum or best choice.

Decision making proceeds through the following sequence of steps: problem identification, development of
criteria against which alternative solutions can be evaluated, identification of alternative courses of action,
evaluation of alternatives, selection of the best alternative, and implementation.

The Administrative (or Behavioral) Model

Is descriptive in that it describes how decisions are actually made.

Decision makers seek to simplify problems and make them less complex because they are constrained by their
individual capabilities (e.g., limited information processing ability) and by organizational conditions (e.g.,
availability of resources).

Assumes that decision makers operate with limited (or "bounded") rationality; this means that decision
makers are rational within a simplified model which contains fewer components (e.g., fewer decision making
criteria, fewer options, etc.).

Assumes that decision makers identify a limited number of decision making criteria, that they examine a
limited range of alternatives (only those which are easy to find, highly visible, have been tried before or are only
slightly different from the status quo) and that they do not possess all the information needed to make a
decision.

The decision maker selects a satisfying alternative. This is an alternative that is "good enough" or satisfactory
in that it meets the minimum criteria established for a desired solution.

Decision making proceeds sequentially: alternatives are examined one at a time and the first satisfactory
alternative that is found is selected.

The Political Model

Is descriptive in that it describes how decisions are actually made.

The decision maker is neither rational nor objective and unbiased.

Since the group members have different agendas, they need to negotiate with each other.

The process involves a cycle of bargaining among the decision makers in order for each one to try to get his or
her perspective to be the one of choice more specifically, to sway powerful people within the situation to
adopt his or her viewpoint and influence the remaining decision makers.

This model does not involve making full information available, since it is based upon negotiation that is often
influenced by power and favors. In fact, information is often withheld in order to better maneuver a given
perspective.

In this model, potential problems and conflict often can be foreseen and minimized. Once powerful people
have been swayed to support a particular viewpoint, other group members usually fall in line behind them.

The nature of bargaining and maneuvering (e.g., withholding information and social pressure) can produce
effects that are long-lasting and detrimental. Once they discover it, the individuals involved in the decision may
not appreciate the duplicity inherent in the process.


DECISION MAKING STYLES
1. The Directive Style: Action-Oriented Decision Makers Who Focus on Facts
People with a directive style have a low tolerance for ambiguity and are oriented toward task and technical
concerns in making decisions. They are efficient, logical, practical, and systematic in their approach to solving
problems.
People with this style are action oriented and decisive and like to focus on facts. In their pursuit of speed and
results, however, these individuals tend to be autocratic, to exercise power and control, and to focus on the
short run.
The group leader solves the problem, using the information he possesses. He/she does not consult with anyone
else nor seek information in any form. This style assumes that the leader has sufficient information to examine
all the relevant options and make an effective decision, but that is rarely the case.

2. The Analytical Style: Careful Decision Makers Who Like Lots of Information & Alternative Choices
Managers with an analytical style have a much higher tolerance for ambiguity and are characterized by the
tendency to overanalyze a situation. People with this style like to consider more information and alternatives
than those following the directive style.
Analytic individuals are careful decision makers who take longer to make decisions but who also respond well to
new or uncertain situations.
When the leader does not possess sufficient information to make an effective decision, they will need to obtain
information or skill from others. They may not tell them what the problem is; normally, they simply asks for
information. The leader then evaluates the information and makes the decision

3. The Conceptual Style: Decision Makers Who Rely on Intuition & Have a Long-Term Perspective
People with a conceptual style have a high tolerance for ambiguity and tend to focus on the people or social
aspects of a work situation. They take a broad perspective to problem solving and like to consider many options
and future possibilities.
Conceptual types adopt a long-term perspective and rely on intuition and discussions with others to acquire
information. They also are willing to take risks and are good at finding creative solutions to problems. However,
a conceptual style can foster an indecisive approach to decision making.
The leader explains the situation to the group or individuals whom he provides with relevant information, and
together they generate and evaluate many possible solutions. This style tends to be have a long-term
perspective and, as a result, will be more creative and expansive in their approach entailing a higher level of risk
for the long-term benefit of the organization.

4. The Behavioral Style: The Most People-Oriented Decision Makers
The behavioral style is the most people-oriented of the four styles. People with this style work well with others
and enjoy social interactions in which opinions are openly exchanged. Behavioral types are supportive, receptive
to suggestions, show warmth, and prefer verbal to written information.
Although they like to hold meetings, people with this style have a tendency to avoid conflict and to be
concerned about others. This can lead behavioral types to adopt a wishy-washy approach to decision making
and to have a hard time saying no.
The leader explains the situation to the group or individuals and provides the relevant information. Together
they attempt to reconcile differences and negotiate a solution that is acceptable to all parties. The leader may
consult with others before the meeting in order to prepare his case and generate alternative decisions that are
acceptable to them.

Ten Strategies To Effective Decision Making
1) Know what the real problem is.
Every solution starts with knowing the problem.
Every decision making starts with identifying a problem. Common sense tells that. Some people make decisions
without knowing what the real problem is. Probably, they are too lazy to even think about it. Lets say, you are
troubled about your finances. What is the specific problem? Is it a general lack of money or is it about not having
enough money to pay certain bills at home? Is it your incapacity to save the amount you want? The real problem
is always specific and specific problems are easier to solve and decided upon.

2) Be goal-oriented.
Once you have identified the problem, you need to determine what is it that you need to achieve or obtain. If
your problem is about your not being able to save enough and want to increase your current savings, then stay
on that goal.

3) Understand your time constraints.
Time is crucial in decision making.
Most decision making situations have time constraints unless you have forever to spend. Do you need to make a
decision tomorrow, next week or anytime next year? Set your time limits and be firm. Remember, you have
other things to attend to and problems will continue to arise and demand your attention.

4) Get all possible information you can have within your time frame.
We must choose based on carefully-researched data.
Getting all the information that you can within your time limit is one of the most important requisites for making
sound decisions. Gather data relevant to your possible choices.

5) Seek others help but avoid being prematurely convinced by what they say.
Other perspectives, especially from those with relevant experience on the matter you need to decide on, will
prove extremely helpful. However, you do not need to follow what they did as situations always vary from one
person to the next. What you can do with others experiences is learn from them and make their mistakes your
caution. Treat other peoples ideas as your data; you make your conclusions after analyzing them. You do not
decide according to what they say.

6) Prioritize and focus on the task at hand.
If you have things to decide on, prioritize and stick to the task at hand until such time that you are ready to go to
the next. The thought of you having to deal with make many decisions may block your senses and hinder you
from making sound decisions. The brain, though it is very powerful, may be overloaded and that will make you
less efficient and perform poorly in your activities.

7) Be scientific.
To be scientific is to think rationally or logically. This simply means being objective, asking questions, making
observations, testing (if possible with the given resources), and making conclusions void of biases. To hear from
one group of people that something has not worked for them does not mean it will not work for you. To stick to
an older idea because you have developed a commitment to it is also not helpful. To immediately believe that a
specific person or product from a certain class will be the same as those in that same class is less than scientific.

8) Listen to your intuition.
According to wikipedia.org, intuition is used to describe "thoughts and preferences that come to mind quickly
and without much reflection. Studies show that intuition has a role in decision making and many managers
from top corporations use their intuition to guide them when making decisions. Although this may sound like a
contradiction to being scientific, it is not. Intuition is not to be used solely when one decides. It is only a tool that
can enhance the effectiveness of a decision. If you listen to your inner self, you would know if it is telling you to
go ahead or wait.

9) Understand that there are no perfect decisions and outcomes.
Decisions are always risky. You are never 100 percent sure that outcomes will be as you have expected. There is
a limit to human rationality that no matter how much you have studied something, you will never know what
will exactly happen. Just do your best, sit back and relax. As long as youve studied your problem adequately and
have done your research, you will not lose.

10) Be creative.
Thinking out of the box can make things happen.
Creativity means thinking out of the box and generating fresh and practicable ideas. Humans have natural
creativity in them though some people are more creative than others. Creativity makes one go beyond just
being scientific and being able to use mathematical and statistical tools. It generates modern and more efficient
approaches to anything. Creativity can be enhanced by exercises such as practicing concentration, meditation,
listening to classical music, listening to ideas different from yours, etc.

Tools in Decision-Making
Pareto Analysis
Using the 80:20 Rule to Prioritize

Imagine that you've just stepped into a new role as head of department. Unsurprisingly, you've inherited a
whole host of problems that need your attention.
Ideally, you want to focus your attention on fixing the most important problems. But how do you decide which
problems you need to deal with first? And are some problems caused by the same underlying issue?
Pareto Analysis is a simple technique for prioritizing possible changes by identifying the problems that will be
resolved by making these changes. By using this approach, you can prioritize the individual changes that will
most improve the situation.
Pareto Analysis uses the Pareto Principle also known as the "80/20 Rule" which was developed by Joseph M.
Juran in 1937. It is the idea that 20 percent of causes generate 80 percent of results. With this tool, we're trying
to find the 20 percent of work that will generate 80 percent of the results that doing all of the work would
deliver.

Decision Matrix Analysis
Making a Decision By Weighing Up Different Factors
(Also known as Grid Analysis, Pugh Matrix Analysis, and Multi-Attribute Utility Theory)
Decision Matrix Analysis is a useful technique to use for making a decision. It's particularly powerful where you
have a number of good alternatives to choose from, and many different factors to take into account. This makes
it a great technique to use in almost any important decision where there isn't a clear and obvious preferred
option.
Being able to use Decision Matrix Analysis means that you can take decisions confidently and rationally, at a
time when other people might be struggling to make a decision.

Paired Comparison Analysis
Working Out Relative Importances
Paired Comparison Analysis (also known as Pairwise Comparison) helps you work out the importance of a
number of options relative to one another.
This makes it easy to choose the most important problem to solve, or to pick the solution that will be most
effective. It also helps you set priorities where there are conflicting demands on your resources.
The tool is particularly useful when you don't have objective data to use to make your decision. It's also an ideal
tool to use to compare different, subjective options, for example, where you need to decide the relative
importance of qualifications, skills, experience, and teamworking ability when hiring people for a new role.

The Futures Wheel
Identifying Future Consequences of a Change
The Futures Wheel is a visual tool that will give you a structured way of brainstorming the direct and indirect
consequences of a decision, event, or trend.
The Futures Wheel was created by Jerome Glenn in 1972. Glenn has since become a recognized expert and
speaker on Future Studies.
Glenn originally created the Futures Wheel to identify the potential consequences of trends and events, but you
can also use it in decision making (to choose between options) and in change management (to identify the
consequences of change). The tool is especially useful during the brainstorming stage of Impact Analysis .

Six Thinking Hats
Looking at a Decision From All Points of View

'Six Thinking Hats' is an important and powerful technique. It is used to look at decisions from a number of
important perspectives. This forces you to move outside your habitual thinking style, and helps you to get a
more rounded view of a situation.

This tool was created by Edward de Bono in his book '6 Thinking Hats'.

Decision trees
Choosing by Projecting "Expected Outcomes"

A decision tree shows a complete picture of a potential decision and allows a manager to graph alternative
decision paths. Decision trees are a useful way to analyze hiring, marketing, investments, equipment purchases,
pricing, and similar decisions that involve a progression of smaller decisions. Generally, decision trees are used
to evaluate decisions under conditions of risk.

The term decision tree comes from the graphic appearance of the technique that starts with the initial decision
shown as the base. The various alternatives, based upon possible future environmental conditions, and the
payoffs associated with each of the decisions branch from the trunk.

Decision trees force a manager to be explicit in analyzing conditions associated with future decisions and in
determining the outcome of different alternatives. The decision tree is a flexible method. It can be used for
many situations in which emphasis can be placed on sequential decisions, the probability of various conditions,
or the highlighting of alternatives.

Cost-Benefit Analysis
Deciding, Quantitatively, Whether to go Ahead
(Also known as Benefit-Cost Analysis)

Jules Dupuit, a French engineer, first introduced the concept of Cost-Benefit Analysis in the 1930s. It became
popular in the 1950s as a simple way of weighing up project costs and benefits, to determine whether to go
ahead with a project.
As its name suggests, Cost-Benefit Analysis involves adding up the benefits of a course of action, and then
comparing these with the costs associated with it.
The results of a cost-benefit analysis are often expressed as a payback period this is the time it takes for
benefits to repay costs. Many people who use Cost-Benefit Analysis look for payback in less than a specific
period for example, three years.
You can use Cost-Benefit Analysis in a wide variety of situations. For example, when you are:
Deciding whether to hire new team members.
Evaluating a new project or change initiative.
Determining the feasibility of a capital purchase.
However, bear in mind that Cost-Benefit Analysis is best for making quick and simple financial decisions. More
robust approaches are commonly used for more complex, business-critical or high cost decisions.

Simulations

Simulation is a broad term indicating any type of activity that attempts to imitate an existing system or situation
in a simplified manner. Simulation is basically model building, in which the simulator is trying to gain
understanding by replicating something and then manipulating it by adjusting the variables used to build the
model.

Simulations have great potential in decision making. In the basic decisionmaking steps, one is evaluation of
alternatives. If a manager could simulate alternatives and predict their outcomes at this point in the decision
process, he or she would eliminate much of the guesswork from decision making.

Swot analysis

Strengths: characteristics of the business or project that give it an advantage over others.
Weaknesses: characteristics that place the business or project at a disadvantage relative to others
Opportunities: elements that the project could exploit to its advantage
Threats: elements in the environment that could cause trouble for the business or project

SWOT analysis is powerful tool that can help decision makers achieve their goals and objectives. For businesses,
this tool can be of great importance. SWOT analysis allows decision makers to bring transparency to the various
factors that can affect the achievement of their business goals and objectives. Using the low-level details
provided by SWOT analysis, businesses can clearly see what will or will not work for them towards their goals
and objectives. SWOT stands for Strength, Weakness, Opportunities and Threats. These four factors are the
major players when it comes to business decision making. Each refers to things that may be internal or external
to the business, which might have significant impact on achieving goals and objectives.