Since, individual decision making is a crucial part of organization behavior. For instance, top managers determine their organization's goals and about the launching of product or services, the middle level managers on the other hand determine production schedules, select new employees and decide how pay raises are to be allocated and so on. Similarly, even non-managerial employees have to make a lot of decisions which decide the future of the organization. It affects the organization's long-term plans, its quality performance and day-to-day operation. These all show that perception plays a vital role in individual's decision process.
Alternative Decision Making Models
The main approaches to decision making may be studies in the following three dimensions:
1. Classical approach: This is also known as prescriptive, rational or normative model. It specifies how decision should be made to achieve the desired outcome. Under this approach, decisions are made rationally and are directed toward a single and stable goal. It is applied in certainty condition in which the decision maker has full information relating to the problem and also knows all the alternative solutions. It is an ideal way in making a decision. It is rational in the sense that it is scientific, systematic and a step-by-step process. This model assumes the manager as a rational economic man who makes decisions to meet the economic interest of the organization. This model is based on the following assumptions:
- The decision maker has a clear, well-defined goal to be achieved.
- All the problems are precisely defined.
- All alternative courses of action and their potential consequences are known.
- The decision maker can rank the entire alternatives on the basis of their preferred consequences.
- The decision maker can select the alternative that maximizes outcome.
2. Behavioral approach: This approach is also known as descriptive approach and administrative model. The theory is proposed by Herbert A. Simon, a well-known economist, in which he attempts to explain how decisions are made in real life situations. Managers have limited and simplified view of problems because they do not have full information about the problems, do not possess knowledge of all possible alternative solutions, do not have the ability to process environmental and technological information and do not have sufficient time and resources to conduct an exhaustive search for alternative solutions to the problems. Therefore, this model is based on two concepts:
- Bounded Rationality: Simon believed that managers are bound by limited mental capacity and emotion as well as by environmental factors over which they have no control. Real life challenges, time and resource limitations, political pressure and other internal and external factors force the manager to work under the condition of bounded rationality. Therefore, the manager cannot take a perfectly rational decision.
- Satisfying: It is the selection of a course of action whose consequences are good enough. Bounded rationality forces managers to accept decisions that are only 'good enough', rather than ideal. Such managerial decisions become rational but within the limits of managers' ability and availability of information. Managers make decisions based on alternatives that are satisfactory. The examples of satisfying decisions are fair price, reasonable profit, adequate market share, proper quality products etc.