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Decision-Making Theory

Decision making concerns choosing between alternative courses of action. It is viewed as being a central activity in organizations and a key managerial skill. The activities of deciding include defining objectives, collecting and analyzing data, establishing criteria by which to assess potential choices, and selecting the one that best meets requirements. However, the process of making decisions in organizations is often characterized by uncertainty, ambiguity, and political behavior. Decision-making theory attempts to explain how decisions are made (or not made) in organizational settings.

Conceptual Overview

The topic of decision making has a long history within organization studies and is informed by a variety of disciplines such as economics, psychology, and political science. It is also controversial. There has been much debate about to what extent decision making in organizations can (or should) be rational, whether organizational or sectional interests are generally pursued, and if the concept of decision itself is actually useful.

Formulating Issues for Decision

How decisions come to be recognized as such is an important question. Whether they are perceived as positive or negative, an opportunity or a threat, or how far they are deemed to be controllable, all have implications for how they are defined and how an organization might respond to them.

The formulation of decisions has been shown to occur in four ways. “Issue processes” start with a problem or difficulty, which is then analyzed to produce options for decision. Decisions can also be created through “idea processes” where decision makers begin with a solution already in mind and the process is then less about finding an answer to a problem and more about refining a preexisting solution. “Objective-directed processes” focus on aims and objectives such as those set out in the company's mission statement, and this is used to guide decision makers. Finally, “reframing processes” concentrate on showing why new practices are needed and hence why a decision is required.

The degree to which decisions are perceived to be urgent is crucial for securing their position on the strategic agenda. Decisions made in crisis situations have been shown to follow different processes from routine ones in that there is likely to be greater centralization of authority in times of crisis and the resulting decisions are more likely to be pushed through, ahead of competing demands for attention.

Processes of Deciding

Historically, classical management theory, building on Western economic traditions, views the decision maker as a rational, maximizing entrepreneur. This “rational economic” model assumes the issue for decision is readily and uncontroversially identifiable and that decision making proceeds in a logical sequence, by collecting information, analyzing and organizing it, and evaluating all possible alternatives to identify an optimal outcome. It has long been recognized that in practice, time and costs, and the limited informationprocessing capabilities of individuals, mean that this is infeasible. Instead, Herbert Simon has suggested that decision makers operate within a “bounded rationality” and hence decisions satisfice (that is, they satisfy and suffice) rather than optimize.

Simon's “administrative model” may apply particularly to strategic decisions taken in organizations. These are the larger and more significant choices; they are often unfamiliar, and usually consequential, and so require top-management authorization. Simon has termed these “nonprogrammed,” since there is usually no tried-and-tested routine for making them. However, operational or “programmed” decisions are generally more straightforward and it might be supposed that they can be made in ways that more closely approximate the rational economic model.

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