Management Decision Making Models | Classical Model |Administrative Model | Political Models
Decision making in an organization is very complex and requires a lot of analysis and judgment. Decision-makers in commercial organizations are confronted by many factors like staff motivation, staff absenteeism, the need for training, the business’s technology, and the competitive situation it finds itself in the cash flow situation.
They must make decisions in the light of those factors, and thus decision making is a too complicated process within the business.
Types of Management Decision Making Models
There are three approaches to decision making and includes the following;
- Classical Decision Model
- Administrative Decision Model
- Political Decision Models
It is selected depending on the management and the situation that they experienced they carried in from different situations.
What approach to decision making is adopted within the business is a function of the management’s own experience, the business’s culture, and what in the past has shown itself to be successful?
Management needs to confront this issue of certainty, risk, and uncertainty.
Classical Model of Decision Making
Classical decision theory views the decision-maker is acting in a world of complete certainty. However, that’s not the world in which business operates, and the business community faces uncertainty.
The business community faces uncertainty about the market, the technology, imports, the state of the economy, conditions in the labor market, availability of skills, and raw materials.
They have to make decisions about many aspects of the business, and each part of the company is uncertain. With the uncertainty about the supply of raw materials and technology changes that make their current processes obsolete, management is confronted by uncertainty.
According to this Huczynski and Buchanan view, the decision-maker makers are objective; they have complete information and consider all possible alternatives on their consequences before selecting the optimal solution.
In their review of the models, the classical model says that the decision-makers should be objective.
However, humans tend to be subjective and tend to make decisions in our minds. They are not driven mechanically, by numbers and by computers, and make decisions based on intuition as well.
Besides, we don’t have complete information, and that’s not the world in which we live.
The world in which we live is uncertain; wars are going on, and political situations and economic circumstances change. There are all sorts of factors in play, which means we don’t have complete information on.
In reality, we’d have to have a lot of information, process the information, and choose a criterion to assess the information.
But this sentence suggests something mathematical in the decision-making process. It’s complete information, so there’s no problem about risk and uncertainty on choosing the alternatives is entirely mechanical, and looking for the best one like that maximizes profits or maximizes sales. Hence, it sounds like a mathematical solution.
Assumptions of Classical Model of Decision Making
The model’s underlying assumption implies that management should make logical decisions based on the organization’s best interest, maximizing value.
This mathematical theory is about maximizing value, maximize profits, maximize sales, maximize growth whatever the objective of the businesses, maximize it on a logical decision, impersonal decisions,
People make the right decisions and bad decisions, and sometimes we have outcomes, and we don’t know if those are the maximum Malcolm’s or the worst possible effects.
The classical model assumes that decision-makers operate with clear goals and objectives and have which have been agreed. The problem is clearly defined, so decision-makers know precisely what they want to do.
Complete information means knowing everything regarding the alternatives on then making the proper decision. But complete information is, generally speaking, not available. If we had a lot of information and think we have all the information we may not have, we may have missed something simply the information we have will be out of date by tomorrow because something new will have happened in the marketplace.
The consequences of all are all known on the decision-maker selects alternatives, which will maximize value to the organization. Again, having even if we know all the information known having made the decision, it doesn’t mean we know what the outcomes will be.
Usefulness of Classical Model
But it is useful in programmed decisions day to day decisions, which are come up all the time where information is being collected. Perhaps figures have been collected and statistical calculations can be done.
But it’s just only important to remember that we should not become arrogant because we’ve got statistics, the world is uncertain, and the future is uncertain.
POGADSCIE Decision Making Process
Identify a problem.
In the classical sense, we identify the problem, presumably having no issues identifying the problem we set up.
Look at the objectives,
We set up various scenarios. We consider the decision’s objectives to fit into the different scenarios and how it will advance the business.
Gather the Information.
The approach would suggest gather information and gather as much information. However, sometimes the outcomes of decisions are in the future.
We analyze it using some technique as opposed to some other methods. So we’ve rejected some, and we’ve done that because we’re very logical people.
Devise Possible Solutions
We devise possible solutions based on the information, so we looked at the information we best.
Select Possible Solutions
We look at the possible solutions within the preferred solution because we will have some information.
Some idea about what the outcome is, according to this model that we communicate what the decision will be with those we’re going to implement.
Plan and implement solution and evaluate
We evaluate the effectiveness of the solution on it all sounds very, very straightforward and very clear and very logical, except in the context of risk, uncertainty, and decision making within that sort of climate; it’s difficult even to identify the problem, identify the objectives for a solution.
Gathering the information may be a problem.
It may be all not available, or it may involve some projections as to what’s likely to happen in the future.
Importance of Classical Model
The classical model has gained its reputation by helping decision-makers be more rational when making decisions. This mathematical view again, the decision-makers are rational, more calculating, more logical.
Sometimes entrepreneurship can be almost irrational because it goes against the thinking of the day, and there are many great inventions, discoveries, and innovations which, would have been ruled out if people didn’t take the chance if the people simply didn’t see it as having some possibility of success.
They wanted to take it on as something new, something which had not been tested before, something which had not been used before, and that’s how we get new products.
The classical model is very useful when using quantitative techniques such as, for example,
- Decision trees or
- Break-even analysis
- Linear programming,
- Critical path analysis.
Break-even analysis is based on the classical model, and the fixed costs are fixed, the variable costs don’t change over that period, sales is a fixed price, or it’s a nice straight line.
In fact, it’s using this mathematical approach to decision making based on perfect information.
Limitations of Classical Model of Decision Making
The model sets guidelines on how decisions should be made, but it does not consider how managers actually decide in practice. In a sense, the model recommends that managers be logical and make decisions with full information, but managers have to work with what they’ve got in practice. Managers might not have those resources accessible to decision-making techniques, which would need to be a better decision if the information was available.
Working out in the classical solution is time-consuming, looking at all possible alternatives before a decision is made. That’s not really what management does; management looks out for several possible outcomes, then tries to pick the best one from that number.
They don’t wait and wait to look for every conceivable outcome. If they made that decision making very slow, and perhaps competitors would out with them and take more of the market.
The management itself may not have the skills to make extensive calculations and sophisticated statistical techniques to estimate or look at sophisticated programs, linear programming or integer programming, or look at any of these techniques. The management simply wants to know what the decision is or what the likely outcomes could be and what the assumptions are, and which that likely outcome is based, then try to make a decision.
There are external influences, social, political, and cultural. These influences are constantly changing, which changes the market, which changes the attitude towards the business changes doing the environment in which the business operates.
The government may not like particular businesses, or the taxation system may be very high, leading to all sorts of issues in terms of profitability and survival of the business.
Administrative Model of Decision Making
Unlike the classical model, which is normative, which is what should happen, the administrative model looks into how managers actually make decisions in difficult situations.
It is a decision-making model that describes how management actually makes decisions in situations characterized by non-programmed decisions, uncertainty, and ambiguity.
It is a model that is quite realistic because non-program decisions and no unique decisions, one-off decisions, no experience to help the decision-maker, and no information from the past.
They’re confronting uncertainty in the marketplace, confronting uncertainty at various levels, such as the technology of the product purchased, and dealing with ambiguity.
H.A Simon proposed the Administrative model, and he developed two concepts to deal with this. What is called bounded rationality and Satisficing?
It deals with how decisions are made under conditions of uncertainty on ambiguity; these are not programmed decisions. They are one-off decisions, unique decisions, and quite a realistic view of how decisions are actually made.
Bound Rationality Decision Making
In bounded rationality, the organizations have limitations regarding rationality. Organizations are made up of people, and people are generally irrational, not 100% rational, and can make bad decisions. People were emotional, have feelings and do things wrongly, and make decisions badly because we don’t see all of the factors we don’t calculate accurately. This is again because organizations operate under extreme pressure and complexity. There are so many variables to take into account at any one moment in time on the management doesn’t have time.
They also can’t analyze all of the likely outcomes and look at all of the different scenarios. The management has a limited time scale, and the management is also human.
It is a view of the organization working in situations that are not entirely rational. There is some information on how reliable the information is debatable.
Satisficing Approach Decision Making
The approach is that organizations opt to look for the best solution, and they don’t have much research to have as many researchers that can afford in the time span and with the financial constraints, but that’s the research. They’ve got and try to analyze it as quickly as possible.
They don’t go through exhaustively through all the possibilities; as suggested in the classical model here, they pick some solutions and try to choose the best one from those implemented.
So, bounded rationality looked at the organization’s constraints, and the management can’t take everything into account. They have to make the decisions based on whatever time they’ve got available and the information they’ve got available and work within the real business’s constraints, the bounded rationality situation.
In satisficing, they pick several solutions on the pick, the best one on to keep their fingers crossed that they have selected the best one.
The Assumptions of The Administrative Model
Well, organizations are complex on management is not always aware of problems that occur within the organization. Organizations are complex because many variables keep saying involved in running a business, what the competitors are doing, the sources of the raw materials, the technology that may be used, the labor market conditions, importation, and globalization.
Decisions are often vague and poorly defined. Sometimes when a decision is made, the managers may think they don’t understand why that decision was made that understand the logic for it; they don’t understand why it was done or why it’s being proposed because the decisions are vague.
People are trying to make the best decisions with very little information or very little insight.
The decision-making procedures considered to be sophisticated, like decision trees, linear programming, statistical techniques, drawing graphs and plotting trends and working out weighted averages, and so on, sometimes they’re not used. They simply have to look at the information and make a quick decision to look at what you know or the thing to know and make a quick decision.
Looking at all the alternatives, it is not realistic and very difficult for the manager to acquire all the information to make the decision.
There are many factors the labor force motivation issues on the shop floor, issues in the office, training programs, skills, the need to improve skills, type of technology, the obsolescence of the technology, the physical conditions of the business, globalization, cheap imports, the rate of inflation, the interest rate and exchange rates.
Management tends to favor satisficing over maximizing due to external constraints and limitations.
They attempt to maximize and make the best of what they’ve got. This satisficing means making decisions with limited information. They don’t try to gather all the information and make a decision based on very sophisticated techniques to analyze the information.
Again, it is an exhaustive process to collect more information, engage in sophisticated analysis, reflect on the analysis, and have discussions and meetings.
The Limitations of the Administrative Model.
The model is too descriptive and only explains how managers make decisions, but it fails to suggest how they should make the decisions. The administrative model tells us how decisions are made, but not how the decisions should be made.
Political Model of Decision Making
The political model is used in decision making where uncertainty and ambiguity pose a high risk of decision failure.
When the business is facing decisions that could lead to failure and there a high risk or chance of catastrophic failure in this decision, they may reach for the political model.
Management comes together to form a coalition, and different departmental heads meet and bring their perspectives of the problem to bear on the decision.
And the workers, a team to resolve the problem, identify goals and share information, for example, the production people will have one perspective, the marketing people have a different perspective, the HR people another and so on and will help make an informed decision.
The political model offers opportunities for managers to participate in the decision-making process. Sometimes managers are bypassed as the top management makes the decision, and the middle management implements the decision.
In this case, the middle management may be involved in the decision because their opinions are sought.
It’s going to be a complex decision, and the is a chance to fail, so they want as many opinions as possible to bear on the issue. Management at all levels might be involved in making the decision, so it’s good for motivation.
Decisions are made through bargaining discussion and negotiation. When the managers meet to make the decision coming together as a group, they all have their own opinions and perspectives. The forum enables them to bargain, discuss, and negotiate until a new outcome is reached.
The political model means managers on decision-makers of all types come together to make a decision, and a corporate decision is made.
Assumptions of Political Models
- Organizations consist of people from different backgrounds, experiences, interests, goals, and values. This cause conflicts and disagreements
- Information is incompletes, and there is no rationality due to the complexity of the problem.
- Managers do not have the resources or time to collect information, and they rely on the exchange of viewpoints and intuitions to gather information.
Problems with Political Models
- The model relies on the viewpoints, discussions, and debates in the form of a coalition rather than obtaining information.
- Dominant members in the group can influence the decision.
- The model doesn’t follow a structure and merely relies on individual views and points.