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 whats relevant in making the decision.

This step brings the decision makers 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 staffs 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 isnt 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 its 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 youre 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 makers 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. Its usually in a decision makers 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 products 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 wasnt 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 persons 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.
 Analytical Conceptual

Directive Behavioral
Tolerance for Ambiguity

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. Theyre
concerned with the achievements of peers and subordinates. Theyre
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/ Description

Pre-conventional 1 Sticking to rules to avoid physical punishment
2 Following rules only when its in your immediate interest
Conventional 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 majoritys 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 organizations 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
shouldnt be surprised to find that his plant managers spend a good part of
their time ensuring that negative information doesnt 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 instructors 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 isnt they way
it I in the real world! Decisions arent 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.

Its common knowledge that the largest determining factor of the size of
any given years budget is last years 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.
]