Decision Making Model

Decision-Making Model Steps

The decision-making model or the rational decision-model guides managers and other decision-makers in their decision-making process. A decision-making model generally refers to the rational decision-making process. It is based on available data and the assumption that the decision-maker will make an unbiased decision.

Such data-driven decisions help managers reduce risks and form an analytical process. The rational decision-making model mainly has six steps:

1. Problem Identification

The first step of the decision-making process is to identify the problem. It is crucial to analyze the situation and find the core issue. Failing to do so can derail the entire process and waste the company's time and other resources.

2. Identification of Decision Criteria

Every organization has a set of values and principles they adhere to. While making a decision, upholding the organization's values and stakeholder interests is vital.

3. Weigh the Decision Criteria

Once all the decision criteria are identified, prioritize them. This will help make the right decision quicker.

4. Develop Alternatives

Gather all the necessary information regarding the problem, keeping the decision criteria in mind. There may be more than one possible solution that you can implement. List all the alternative solutions based on the data.

5. Evaluate the Alternatives

Although you may have found different alternatives, you will not be able to implement all of them. Moreover, not all solutions can be optimal. Therefore, you should evaluate the listed alternatives to filter out the best ones.

6. Select the Best Alternative

The most suitable alternative from the filtered choices is selected. This will be the option that best resonates with the company's values and stakeholders' interests. It will fit the allocated budget and generate the desired outcome. It is also possible to develop an entirely new solution during the evaluation stage that proves to be the most beneficial.

Intuitive Decision-Making Model

When you are put in a situation you have already faced, your mind subconsciously recalls the patterns or learnings from the previous experience, which form the basis of your decision. It is the least rational form of decision-making. Intuitive decision-making is making decisions based on your "gut feeling." It is not a decision-making process that solely relies on emotions or feelings. It is based on logic from previously acquired information.

This decision-making model helps make fast decisions, as it is based on previous experiences and learned lessons. Intuition plays an essential role in a rapidly changing environment. It helps understand patterns and approach situations with a practical frame of reference. With the acquired experience, we can compare past situations with the current ones to make a better-informed decision. The experience strengthens intuitive skills, helping us make more confident decisions.

It provides a fast response based on previous failures and learned lessons. Intuition is the processed information that has been stored in the subconscious mind and helps us form decisions when needed in the future. It helps us understand patterns and approach situations with a practical frame of reference. With the acquired knowledge from the past, we can compare the current situation with past ones to make a final decision. Intuition helps make better and more confident decisions.

The intuitive decision-making model's steps can be explained using the Recognition Primed Decision (RPD) model. The RPD model describes how people make quick, effective decisions when they face a complex situation based on intuition. Figure 2 shows the steps of how experience and recognition of the situation can set the further course of action.

Bounded Rational Decision-Making Model

Bounded rationality helps reduce the problems' complexity and find satisfactory solutions. Based on the bounded rationality theory of economic behavior, people's limited knowledge and cognitive capacity affect their judgment.

This method chooses a solution that will generate a satisfactory result rather than finding an optimized solution. Most problems do not have the most optimal solution. This is because the optimal solutions can be very complicated for an individual's limited knowledge. Therefore, a simpler model is created to make rational decisions within this model. The decisions in an organization must ideally reflect its value and policies. Realistically, the decisions made have economic and time constraints. This will result in decision-makers making a satisfactory decision rather than the most rational decision.

Decision-Making Model Examples

Now that we have seen how the different decision-making models work, let's look at a few instances where they would be implemented in the workplace.

Rational decision-making is most useful while making complex decisions. It requires the collection of data and all the available information. For instance, if the company is trying to implement new communication tools but cannot decide which one. All the available data about the considered tools will be sourced. After deciding on the decision criteria and prioritizing them, the best communication tool is selected.

Intuitive decision-making is used when the decision-maker has gained considerable field experience and made similar decisions in the past. Those who have faced a similar situation can recall their experience to make quick decisions. We can apply this to many challenging day-to-day decisions managers have to make.

Bounded rational decision-making can be used when selecting a new supplier. While selecting a supplier, the organization will have to consider the costs and the reputation of the supplier. Reputable suppliers cost the company significantly more. As reputation and reliability are more important for the company, they compromise on costs and select a reliable and reputable supplier.

Biases and Errors in Decision-Making

As humans, we tend to have biased opinions and favor some decisions more than others. It affects the decision-making processes. Let's take a look at the common biases that affect decision-making.

Anchoring bias - our mind tends to absorb the initial information given to us quickly. We tend to give all our attention to this information and ignore the information provided to us later. The first piece of information acts as an anchor, and we judge the later information with respect to the anchor. This affects our decision-making process, as this hinders us from looking at the subsequent pieces of information.

Availability bias - our tendency to focus on readily available information and make decisions on this basis. We tend to combine this information with our existing knowledge and information. This will cause oversight of unfavorable and rare events.

Confirmation bias - this is based on the perception that we tend to seek information that supports our views and beliefs and neglect the ones that do not. This practice hinders us from collecting all the necessary information and objectively evaluating them.

Escalation of commitment - not willing to withdraw from a previously taken decision is known as escalation of commitment. The person refuses to find another solution, even if it is obvious that the solution they are trying to implement now will be unsuccessful. The commitment escalation tends to be higher when the decisions are evaluated by others.

Overconfidence bias occurs when people are overconfident about their abilities and knowledge. They tend to overestimate themselves, making them overly optimistic. Being overly optimistic more often leads to failure than not.

Randomness error - when people believe they can predict a random situation's outcome. This can majorly affect the decision-making process.

We can avoid such biases and errors by being more flexible while seeking out information and understanding it, focusing on the goal, avoiding finding reasons to make sense of random events, and opening up to more options.