Rational decision-making model

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Reference no: EM13906912

The decision-making process is important at every level of an organization. Regardless of position, workers are faced with making daily decisions. Apply the six-step rational decision-making model, to the following situation:

A large advertising agency is working with a client who wants to gain market shares from its competitors by marketing to young professionals. The agency needs to decide whether to spend all of the marketing funds on a single form of media (internet, television, or radio) or to spread it across all three. What decision would you make? Why?

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The six step Rational Decision-Making Model

The basic tenet of the rational decision-making model is to identify and select the out- come that is of maximum value to the organization. In this model, the decision-making process has six steps:

1. Define the problem. Often, identifying the problem is fairly straightforward, as it is in the sample scenarios above. This is not always the case, however, and manag- ers must be careful not to act too quickly, lest they make the mistake of solving the wrong problem. For example, instead of quickly identifying assemblers as the problem after a series of line shutdowns, an assembly-line manager might inves- tigate further and discover that the real problem is an ineffective protocol or a faulty machine.

2. Identify the criteria. After defining the problem, the organization should determine its objectives for the decision and the process needed to accomplish it. Looking back at the scenario about the high-tech company with two new products, the company may have the ultimate objective of increasing sales, but it may also desire greater brand awareness, improved customer loyalty, and greater market share. The company also needs to consider how it plans to mass-produce, distrib- ute, and sell each of the two possible new products. The rational decision-making process requires the decision maker to identify all relevant criteria.

3. Weigh the criteria. Different criteria will have different levels of importance to
the decision maker. The rational decision maker will determine relative values for the various criteria by examining the pros and cons of each. Our high-tech company, for example, would weigh the relative importance of brand awareness versus customer loyalty or the high cost of producing a more innovative product versus the lower cost of producing a new version of an already popular product.

4. Generate alternatives. The fourth step is to generate all possible solutions to the problem. Instead of limiting the scope of the decision to choosing either prod- uct A or product B, the high-tech company might also consider the feasibility of releasing both products on a smaller scale or even waiting on both products in favor of developing a third. The company might also revisit the various develop- ment and marketing criteria for each of the original products to see if more effec- tive or lower-cost alternatives exist. In the rational decision-making approach, this investigation continues until the cost of the search for alternatives exceeds the value of any additional information (Bazerman, 2002).

5. Rate each alternative on each of the criteria. With this step, organizations assign numeric ratings to each of the alternatives generated in step 4 in relation to each of the criteria identified in step 2, in an effort to determine how well each alterna- tive is able to satisfy the criteria. This step can be especially difficult because it requires the decision maker to forecast future events. For our high-tech company, trying to predict which product-the innovative, expensive item or the less- expensive revamp-will ultimately be most profitable will be tricky indeed. This is because the first alternative may have a less favorable rating on price and risk but a more favorable rating on quality or consumer appeal, whereas the second may be at the opposite end of the rating scale on each of these criteria.

6. Compute the optimal decision.In a perfect situation,the optimal decision is calculated simply by multiplying the rating of an alternative by the value of weighted importance given to each criterion, and then adding the totals for an aggregate score. This is done for each alternative, the scores are compared, and the one with the highest score is chosen. The rational model of decision making assumes that the decision maker fulfills each step in a completely rational manner by fully defining the problem, identifying all criteria, accurately weighing the criteria, identifying all possible alternatives, accurately assessing the alternatives, and choosing the alternative that yields the maximum value. Follow- ing the model will always produce a solution that is completely informed, perfectly logical, and economically oriented. As you can probably guess, however, this model is really more useful for theoretical purposes; it describes how decisions should be made, not how they really are made. Real decision makers will always be influenced by subjective factors such as emotions and perceptual biases and are limited by their ability to acquire and process information and their creativity in generating alternatives. Time constraints, budgets, and political considerations also interfere with perfect rationality. These limitations inspired a decision- making model based on the more realistic assumption of bounded rationality.

Reference no: EM13906912

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