The Rational Decision-Making Process

The rational decision-making process involves careful, methodical steps. The more carefully and strictly
these steps are followed, the more rational the process is. We’ll look at each step in closer detail.

Step 1: Identify the Problem

Though this starting place might seem rather obvious, a failure to identify the problem clearly can derail
the entire process. It can sometimes require serious thought to find the central issue that must be
addressed. For example, you have taken a new job and you may initially decide you need to find a new
car for commuting back and forth from work. However, the central problem is that you need a reliable
way to commute to and from work.

Step 2: Establish Decision Criteria

In this step, the decision maker needs to determine what is relevant in making the decision. This step will
bring the decision maker’s, and any other stakeholder’s, interests, values and preferences into the
process. To continue our example, let’s assume you are married. Some of the criteria identified might
include budget, safety, functionality, and reliability.

Step 3: Weigh Decision Criteria

Because the criteria identified will seldom be equally important, you will need to weight the criteria to
create the correct priority in the decision. For example, you may have weighted budget, safety, and
reliability as the most important criteria to consider, along with several other slightly less critical criteria.

Step 4: Generate Alternatives

Once you have identified the issue and gathered relevant information, now it is time to list potential
options for how to decide what to do. Some of those alternatives will be common and fairly obvious
options, but it is often helpful to be creative and name unusual solutions as well. The alternatives you
generated could include the types of cars, as well as using public transportation, car pooling and a ride-
hailing service.

Step 5: Evaluate Alternatives

After creating a somewhat full list of possible alternatives, each alternative can be evaluated. Which
choice is most desirable and why? Are all of the options equally feasible, or are some unrealistic or
impossible? Now is the time to identify both the merits and the challenges involved in each of the
possible solutions.

Step 6: Select the Best Alternative

After a careful evaluation of alternatives, you must choose a solution. You should clearly state your
decision so as to avoid confusion or uncertainty. The solution might be one of the particular options that
was initially listed, an adaptation of one of those options, or a combination of different aspects from
multiple suggestions. It is also possible that an entirely new solution will arise during the evaluation
process.

Business people are faced with decision making every day. Intuitive and rational decision making are the
two ways that an individual can approach problem solving. Some people are very aware of feelings or
instincts and use them as guides to decision making. These types of feelings are instinctive and rely on
intuition and not facts. In fact, intuition is the ability to have a grasp on a situation or information
without the need for reasoning. In business, people use this type of decision making when facts are
unavailable or when decisions are difficult in nature.

The second, opposing type of decision making is called rational decision making , which is when
individuals use analysis, facts and a step-by-step process to come to a decision. Rational decision making
is a precise, analytical process that companies use to come up with a fact-based decision.

Depending on the methodological foundation, the literature has identified three major perspectives to
decision-making namely; normative theories which are related to how decision makers should make
decisions; descriptive theories which are related to how the decisions are actually made; and
prescriptive theories which are related to how decisions should be made and how it can be made

5. Organisation of Decision Making:

In the organisation of decision making, there are basically two crucial schemes:

(1) Centralisation and Decentralisation, and

(2) Departmentalisation.

(1) Centralisation and Decentralisation:

Possibly Henry Fayol (1841-1925) was modern in this concept. According to him, ‘everything which goes
to increase the importance of the subordinate’s role is decentralisation, and everything which goes to
reduce it is centralisation; the question of centralisation or decentralisation is a simple question of
proportion, it is a matter of finding the optimum degree for the particular concern.’

There are a range of factors that affect the ‘optimum’ proportion.

Of them, three major factors are:

(a) The size of the organisation (the larger the organisation the more difficult it is to exercise detailed
control from the centre);
(b) The degree of diversity in the activities being controlled (it is easier to centralise the control of similar
activities than dissimilar ones); and

(c) The quality of superiors and subordinates (the centralisation presupposes competent superiors and
decentralisation competent subordinates).

The history of the enterprise and the philosophy of management are also other criteria.

The positive features of decentralisation are:

(i) It reduces the load on top management,

(ii) It encourages initiative and drive of middle and junior management,

(iii) It enables quick decisions, and

(iv) It assists in the appraisal of managerial performance.

The negative features of decentralisation are:

(i) Closer coordination and control by the top management are rendered difficult,

(ii) Some duplication of effort and activities takes place,

(iii) Uniform application of policies and standards is difficult at times.

Centralisation and decentralisation are, thus, complex issues. Certain types of decision require
centralisation and certain types decentralisation. Again certain departments may be centralised and
others decentralised. And so, we find that many US companies which went multinational adopted
divisional structure and attempted to combine centralised control with decentralised operations.

(2) Departmentation:

This issue should be discussed along with the matrix structure of an organisation. There are many ways
in which decision makers can be departmentalised.

But the main approaches could be summarised in a diagram next:

It combines the advantages and disadvantages of both functional and product organisations, and the
optimum balance between them would yield results in the strategic choices and applications.

Two basic points emerge therefrom:

(i) The interrelationship between organisational choices over centralisation and decentralisation, and

(ii) The relevance of a management dictum that ‘structure follows strategy’.

One important caution to a practising manager is that he should be a conflict-resolver and a joint
delegator in his total task and should see to the practical realities of organisational decision making,
without having a massive structural upheaval.