Understanding decision making

1. Introduction
Decision making is a mental process of making choice among alternative courses of action, which may also include inaction. In organizations, decision making is a very popular activity that can happen at all levels. The purpose of this post is to provide some basic understandings about decision making as as different types of decisions and the four decision-making models. More practical discussion about decision making will be provided in later posts.

Decision making

2. Types of decisions
In general, decisions can be categorized into two types:
  • Programmed decisions: This type of decisions is straightforward and occurs frequently enough that we develop an automated response to them. Example of this type is the decisions of what to wear, what to eat, and which route to take when we travel between our home and the office.
  • Non-programmed decisions: This type of decisions is unique and important that requires  conscious thinking, information gathering, and careful consideration of alternatives. Decision of which job offer to take or which business model to follow is a good example of this type.
In organizations, decisions can be classified into three categories based on the level at which they occur:
  • Strategic decisions: are made by top management team and set the course of an organization.
  • Tactical decisions: are made by managers and are about how things will get done.
  • Operational decisions: are made each day by employees to make the organization run.

More details about the three categories of decisions can be found in the following table:

Three types of decisions in organization

3. Decision-making models
According to Bauer and Erdogan (2009), there are four models of decision-making:

Rational decision-making model:
This model describes a series of steps that decision makers should consider if their goal is to maximize the quality of their outcomes:

8_steps_in_rational_decision_making_model

The disadvantage of this model is that it involves a number of unrealistic assumptions. It assumes that people know all the available choices, that they have no perceptual biases, and that they want to make optimal decisions. Research shows that this model does not represent how decisions are frequently made within organizations.

Bounded rationality model:
According to this model, individuals knowingly limit their options to a manageable set and accept the first alternative that meets their minimum criteria without conducting an exhaustive search for alternatives. This model helps us to make “good enough” decisions.

Intuitive decision-making model:
This model refers to arriving at decisions without conscious reasoning. This model is usually used under challenging circumstances such as time pressures, constraints, a great deal of uncertainty or changing conditions. In this model, only one choice is considered at a time and if it does not meet the criteria then it is discarded and a new choice is tested until a workable one is found.

Creative decision-making model:
This model refers to the generation of new, imaginative ideas and it has five steps:

5_steps_in_creative_decision_making

  • Problem recognition: The need for problem solving becomes apparent.
  • Immersion: Consciously thinks about the problem and gathers information.
  • Incubation: Sets the problem aside and does not think about it for a while. At this time, the brain is actually working on the problem unconsciously.
  • Illumination: The insight moment when the solution to the problem becomes apparent, sometimes when it is least expected.
  • Verification & application: Verifies the feasibility of the solution and implements the decision

The following table suggests which decision-making model to use in a particular situation:

Decision making models

Reference:
Bauer, T. and Erdogan, B., 2009. Organizational Behavior. 1st ed. Flat World Knowledge, Inc.

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