The Six-Step Rational Decision-Making Model

1. Define the problem.

2. Identify decision criteria

3. Weight the criteria

4. Generate alternatives

5. Rate each alternative on each criterion

6. Compute the optimal decision

Part 1 - Introduction

Identify decision criteria

Once a decision maker has defined the problem, he or she needs to

identify the decision criteria that will be important in solving the

problem. In this step, the decision maker is determining what’s

relevant in making the decision.

This step brings the decision maker’s interests, values, and personal

preferences into the process.

Identifying criteria is important because what one person thinks is

relevant, another may not.

Also keep in mind that any factors not identified in this step are

considered as irrelevant to the decision maker.

Weight the criteria

The decision-maker weights the previously identified criteria in order

to give them correct priority in the decision.

Generate alternatives

The decision maker generates possible alternatives that could

succeed in resolving the problem. No attempt is made in this step to

appraise these alternatives, only to list them.

Rate each alternative on each criterion

The decision maker must critically analyze and evaluate each one.

The strengths and weakness of each alternative become evident as

they compared with the criteria and weights established in second

and third steps.

Compute the optimal decision

Evaluating each alternative against the weighted criteria and

selecting the alternative with the highest total score.

Assumptions of Model

1. Problem clarity. (The decision maker is assumed to have

complete information regarding the decision situation.)

2. Known options (Identify all the relevant criteria and can list all

the viable alternatives. The decision maker is aware of all the

possible consequences of each alternative.)

3. Clear preference (The criteria and alternatives can be ranked

and weight to reflect their importance)

4. Constant preferences (The specific decision criteria are constant

and that weights assigned to them are stable over time)

5. No time or cost constraints

6. Maximum payoff

Part 2 - Improving Creativity in Decision Making

Creative Potential – Get out of the psychological ruts most us get

into and learn how to think about a problem in divergent ways.

Three-Component Model of Creativity

Expertise (The foundation of all creative work)

knowledge of a subject were necessary conditions for us to

be able to make creative contributions to the fields. The

potential for creativity is enhanced when individuals have

abilities, knowledge, proficiencies, and similar expertise in

their fields of endeavor.

Creativity Skills (The ability to use analogies to see the

familiar in a different light. Apply an idea from one context to

another)

Intelligence, independence, self-confidence, risk taking, and

internal locus of control, tolerance for ambiguity and

perseverance in the face of frustration.

Intrinsic task motivation (The desire to work on a task)

interesting, involving, exciting, satisfying, or personally

challenging these factor would be affect the task motivation.

This would turns creativity potential into actual creative

ideas.

Five organizational factors can impede staff creativity:

1. Expected Evaluation [Focusing on how staff’s work is going

to be evaluated]

2. Surveillance [Being watched while staff are working]

3. External motivators [Emphasizing external, tangible

rewards]

4. Competition [Facing win-lose situations with peers]

5. Constrained choice [Being given limits on how staff can do

their work.]

Part 3 - How Decisions Are Actually Made in Organization

People are usually content to find an acceptable or reasonable

solution to their problem rather than optimal one. Consequently,

decision makers generally make limited use of their creativity.

Choices tend to be confined to the neighborhood of the problem

symptom and to the neighborhood of the current alternative.

“Most significant decisions are made by judgment, rather than by a

defined prescriptive model.”

Bounded Rationality

when a staff considered which college to attend, they will not look

every viable alternative nor identify all the criteria that were

important in decision.

Instead of optimizing, staff probably “satisfied”.

When faced with a complex problem, most people respond by

reducing the problem to a level at which it can readily understand.

The limited information-processing capability of human beings

makes it impossible to assimilate and understand all the information

necessary to optimize. So people satisfied; that is, they seek

solutions that are satisfactory and sufficient.

Because the capacity of the human mind for formulating and solving

complex problems is far too small to meet the requirements for full

rationality, individuals operate within the confines of bounded

rationality. They construct simplified models that extract the

essential features from problems without capturing all of their

complexity. Individuals can then behave rationally within the limits

of the simple model.

Once a problem is identified, the search for criteria and alternatives

begins. But the list of criteria is likely to be far from exhaustive. The

decision maker will identify a limited list made up of the more

conspicuous choices.

These are the choices that are easy to find and that tend to be

highly visible. In most cases, they will represent familiar criteria and

previously tried-and-true solutions.

Once this limited set of alternatives is identified, the decision maker

will begin reviewing them. But the review will not be comprehensive

– not all of the alternatives will be carefully evaluated. Instead, the

decision maker will begin with alternatives that differ only in a

relatively small degree from the choice currently in effect.

Following along familiar and will-worn paths, the decision maker

proceeds to review alternatives only until he or she identifies an

alternative that is “good enough” – one that meets an acceptable

level of performance.

The first alternative that meets the “good enough” criterion ends

the search. So the final solution represents a satisfying choice rather

than an optimal one.

The order in which alternatives are considered is critical in

determining which alternative is selected. Remember, in the fully

rational optimizing model, all alternatives are eventually listed in a

hierarchy of preferred order. Because all alternatives are considered,

the initial order in which they are evaluated is irrelevant. Every

potential solution gets a full and complete evaluation. But this isn’t

the case with bounded rationality. If we assume that a problem has

more than one potential solution, the satisfying choice will be the

first acceptable one the decision maker encounters. Decision

makers use simple and limited models, so they typically begin by

identifying alternatives that are obvious, ones with which they are

familiar, and hose not too far from the status quo.

Solutions that depart least from the status quo and meet the

decision criteria are most likely to be selected. A unique and

creative alternative may present an optimizing solution to the

problem, but it’s unlikely to be chosen because an acceptable

solution will be identified well before the decision maker is required

to search very far beyond the status quo.

Intuition

”Sometimes you’re just got to go with your gut feeling,”

Intuitive decision making is an unconscious process created out

of distilled experience. They based on the experience to recognize

patterns and clusters of the problem to make a decision. Experience

allows the expert to recognize a situation and draw on previously

learned information associated with that situation to arrive quickly

at a decision. The result is that the intuitive decision maker can

decide rapidly with what appears to be very limited information.

Identifying Problems

Problems that are visible tend to have a higher probability of being

selected than ones that are important.

1. Easily to catch a decision maker’s attention.

2. Decision maker want to appear competent and “on top of

problems”. This desire motivates DM to focus on problems that

are visible to others

If a decision maker faces a conflict between selecting a problem that

is important to the organization and one that is important to the

decision maker, self-interest tends to win out. This tendency also is

related to the issue of visibility. It’s usually in a decision maker’s

best interest to attack high-profiles problems. It conveys to

performance is later reviewed, the evaluator is more likely to give a

high rating to someone who has been aggressively attacking visible

problems than to someone whose actions have been less obvious.

Developing Alternatives

since decision makers rarely seek an optimal solution, but rather a

satisfying one, we should expect to find a minimal use of creativity

in the search for alternatives. And that expectation is generally on

target.

Efforts will be made to try to keep the search process simple. It will

tend to be confined to the neighborhood of the current alternative.

More complex search behavior, which includes the development of

creative alternatives, will be resorted to only when a simple search

fails to uncover a satisfactory alternative.

Decision maker avoid the difficult task of considering all the

important factors, weighing their relative merits and drawbacks, and

calculating the value for each alternative.

Instead, they make successive limited (incremental) comparisons.

This branch approach simplifies decision choices by comparing only

alternatives that differ in relatively small degree from the choice

currently in effect. This approach also makes it unnecessary for the

decision maker to thoroughly examine an alternative and its

consequences; one need investigate only hose aspects in which the

proposed alternative and its consequences differ from the status

quo.

It acknowledges the non-comprehensive nature of choice; in other

words, decision makers make successive comparisons because

decisions are never made forever and written in stone, but rather

they are made and remade endlessly in small comparisons between

narrow choices.

Making Choices

In order to avoid information overload, decision makers rely on

heuristics, or judgmental shortcuts, in decision making.

1. Availability Heuristic

The tendency for people to base their judgments on information

that is readily available to them. Events that evoke emotions,

that are particularly vivid, or that have occurred recently tend to

be most available in our memory.

[When doing annual performance appraisals, tend to give more

weight to recent behaviors of an employee than to those of 6

months ago]

2. Representative Heuristic

decision makers tend to assess the likelihood of an occurrence by

trying to match it with a pre-existing category.

[Frequently predict the performance of a new product by relating

it to a previous product’s success]

3. Escalation of Commitment

tendency to escalate commitment when a decision stream

represents a series of decisions. Escalation of commitment is an

increased commitment to a previous decision in spite of negative

information.

They “throw good money after bad” to demonstrate that their

initial decision wasn’t wrong and to avoid having to admit they

made a mistake. People try to appear consistent in what they say

and do. Increasing commitment to previous actions conveys

consistency.

[“I have a lot invested in the relationships.”

“I have to go back and complete some deficiencies if I changed

to work on a degree in other fields.”]

Individual Difference

1. Decision-Making Styles

The foundation of the model is the recognition that people differ

along two dimensions. The first is their way of thinking (intuitive

and creative). The other dimension addresses a person’s tolerance

for ambiguity. Some people have a high need to structure

information in ways that minimize ambiguity; Others are able to

process many thoughts at the same time.

Tole

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y Analytical Conceptual

Directive Behavioral

Way of Thinking (Rational -> Intuitive)

- People using the directive style have low tolerance for

ambiguity and seek rationality. They are efficient and logical.

But their concern for efficiency results in their making

decisions with minimal information and assessing few

alternatives. Directive types make decision fast, and they

focus on the short run.

- The analytical type has a much greater tolerance for

ambiguity than do directive decision makers. They desire

more information and consider more alternatives than do

directives. Analytical managers would be best characterized

as careful decision makers with the ability to adapt or cope

with new situations.

- Individual with a conceptual style tend to be very broad in

their outlook and consider many alternatives. Their focus is

long range, and they are very good at finding creative

solutions to problems.

- A behavioral style decision maker who work well with

others. They’re concerned with the achievements of peers

and subordinates. They’re receptive to suggestions from

others and rely heavily on meetings for communicating. This

type of manager tried to avoid conflict and seeks acceptance.

Some managers rely almost exclusively on their dominant style;

more flexible managers can make shifts depending on the

situation.

Level of Moral Development

Moral development is relevant in decision making because many

decision have an ethical dimension. An understanding of this

concept can help you see how different people impose different

ethical standards on their decisions.

Level Stage/ DescriptionPre-conventional 1 Sticking to rules to avoid physical punishment

2 Following rules only when it’s in your immediate interestConventional 3 Living up to what is expected by people close to you

4 Maintaining conventional order by fulfilling obligations to which your have agreed

Principled 5 Valuing rights of others; and upholding non-relative values and rights regardless of the majority’s opinion

6 Following self-chosen ethical principle even if they violate the law

Part 4 – Organizational Constraints

The organization itself constrains decision makers. They shape their

decisions to reflect the organization’s performance evaluation and

reward system and organizationally imposed time constraints.

Previous organizational decisions also act as precedents to constrain

current decisions.

Performance Evaluation

Decision maker are strongly influenced in their decision making by

the criteria by which they are evaluated.

[If a division manager believes that the manufacturing plants under

his responsibility are operating best when he hears nothing

negative, we shouldn’t be surprised to find that his plant managers

spend a good part of their time ensuring that negative information

doesn’t reach the division boss.]

[If a college dean believes that an instructor should never fail more

than 10 percent of her students – to fail more reflects on the

instructor’s ability to teach – we should expect that new instructor,

who want to receive favorable evaluations, will decide not to fail too

many students.]

Reward System

What choices are preferable in terms of personal payoff?

If the organization rewards risk aversion, managers are likely to

make conservative decisions.

[General Motors consistently gave out promotions and bonuses to

manager who kept a low profile, avoided controversy, and were

good team players. The result was that GM managers became very

adept at dodging tough issues and passing controversial decisions

on to committees]

System-Imposed Time Constraints

Organizations impose deadlines on decisions.

A host of decisions have to be made quickly in order to stay ahead

of the competition and keep customers be made quickly in orders to

stay ahead of the competition and keep customers satisfied.

And almost all important decisions come with explicit deadlines.

These conditions create time pressures on decision makers and

often make it difficult, if not impossible, to gather all the information

they might like before having to make a final choice. The rational

model ignores the reality that, in organizations decision come with

time constraints

Historical Precedents

Rational decision making takes an unrealistic and insulated

perspective. It views decision as independent and discrete events.

But that isn’t they way it I in the real world! Decisions aren’t made

in a vacuum. They have a context. In fact, individual decisions are

more accurately characterized as points in a stream of decisions.

Decisions made in the past are ghost that continually haunt current

choices.

It’s common knowledge that the largest determining factor of the

size of any given year’s budget is last year’s budget.

Choices made today, therefore, are largely a result of choices made

over the years.

Cultural Differences

The rational model does not acknowledge cultural differences. But,

we need to recognize that the cultural background of the decision

maker can have significant influence on his or her selection of

problems, depth of analysis, the importance placed on logic and

rationality, or whether organizational decisions should be made

autocratically by an individual manger or collectively in groups. (Like

Japan Manager is more group-oriented. Before making an important

decision, they collect a large amount of information, which is then

used in consensus-forming group decisions.)

Some cultures emphasize solving problems; others focus on

accepting situations as they are. Problem-solving decision maker

believe that they can and should change situations to their benefit.

Part 5 – Ethics in Decision Making

Utilitarian criterion

Decisions are made solely on the basis of their outcomes or

consequences.

The goal of it is to provide the greatest good for the greatest

number. This view tends to dominate business decision making.

(Efficiency, productivity, and high profits)

[

+ A focus on utilitarianism promotes efficiency and productivity.

- Ignoring he rights of some individuals particularly those with

minority representation in the organization.

]

Right criterion

This call on individuals to make decisions consistent with

fundamental liberties and privileges as set forth in documents such

as the Bill of Right.

An emphasis on rights in decision making means respecting and

protecting the basic rights of individuals.(The right to privacy, to

free speech, and to due process)

[

+ Protects individuals from injury and is consistent with freedom

and privacy

- Create an overly legalistic workplace that hinders productivity and

efficiency.

]

Justice criterion

This requires individual to impose and enforce rules fairly and

impartially so there is an equitable distribution of benefits and costs.

[

+ The interests of the underrepresented and less powerful

- Encourage a sense of entitlement that reduces risk taking,

innovation, and productivity.

]