Decision Making: Definition, Factors, Limitations, Ethics of Decision Making

Decision making can refer to either a specific act or a general process.

A decision is the conclusion of a process by which one decision is chosen among available alternative courses of action for the purpose of attaining a goal(s). Decision making is defined as the selection of a course of action from among alternatives.

According to Stoner, Freeman & Gilbert, “Decision making is the process of identifying to deal with a specific problem or take advantage of an opportunity.”

R. Terry defines decision making as the “Selection of one behavior alternative from two or more possible alternatives”.

According to Weihrich & Koontz, “All management work is accomplished by decision making”.

According to Trewartha and Newport, “Decision making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem”.

So, decision making means “to cut off” or in practical terms, to come to a conclusion of something. It is a course of action, which is consciously chosen for achieving the desired result.

In terms of managerial decision-making, it is an act of choice, wherein a manager selects a particular course of action from the available alternatives in a given situation. It is done to achieve a specific objective or to solve a specific problem.

How are Decisions Actually Made?

For novice decision makers with little experience, decision makers faced with simple problems that have few alternative courses of action, or when the cost of searching out and evaluating alternatives is low, the rational model provides a fairly accurate description of the decision process.

But in reality, people do not follow the rational decision-making process. As one expert in decision making said, “Most significant decisions are made by judges, rather than by a defined prescriptive model” (Bazerman, ms).

The following reviews will provide a more accurate description of how most decisions in organizations are actually made:

Bounded Rationality

Rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. Individuals are limited by the information they have in order to make a decision in the decision-making process due to the limitation of the rationality of individuals.

Bounded rationality is the idea that when individuals make decisions, their rationality is limited by the available information.

Actually, the capacity of the human mind for formulating and solving complex problems is far too small to meet the requirements for full rationality. Actually here the decision makers construct simplified models that extract the essential features from problems without capturing all their complexity.

Herbert A. Simon proposed bounded rationality as an alternative basis for the mathematical modeling of decision-making, as used in economics, political science, and related disciplines. It complements “rationality as optimization”, which views decision ­making as a fully rational process of finding an optimal choice given the information available.

Many economic models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. The term is thought to have been coined by Herbert A. Simon.

In Models of Man, Simon points out that most people are only partly rational, and are irrational in the remaining part of their actions. These include:

  1. Limiting the types of utility functions
  2. Recognizing the costs of gathering and processing information
  3. The possibility of having a “vector” or “multi-valued” utility function.

Intuition

The word “intuition” comes from Latin verb Intueri translated as consider or from late Middle English word intuit, “to contemplate”. Intuition is a phenomenon of the mind, describes the ability to acquire knowledge without inference or the use of reason.

Intuition has been subject of discussion from ancient philosophy to modem psychology, also a topic of interest in various religions as well as a common subject of writings and is often misunderstood and misinterpreted as instinct, truth, belief, meaning and other subjects.

Some scientists have contended that intuition is associated with innovation in scientific discovery. Experts no longer automatically assume that using intuition to make decisions is irrational or ineffective.

There is growing recognition that rational analysis has been over emphasized and that, in certain instances, relying on intuition can improve decision making. Eight conditions have been identified when people most likely to use intuitive decision-making.

These are-

  1. when a high level of uncertainty exists;
  2. when there is a little precedent to draw on;
  3. when variables are less significantly predictable;
  4. when facts are limited; ‘
  5. when facts don’t clearly point the way;
  6. when analytical data are of little use;
  7. when there are several possible alternative situations from which to choose, with good arguments for each; and
  8. when the time is limited and there is pressure to come up with the right decision.

Problem Identification

Problems that are visible tend to have a higher probability of being selected than ones that are important. There are two reasons behind it.

First, visible problems are more likely to catch a decision maker’s attention.

Second, remember we are concerned with decision making in organizations. Decision makers want to appear competent and “on the top of problems.”

This motivates them to focus attention on problems that are visible to others. If a decision maker faces a conflict between selecting a problem that is important to the organization and one that is important to the decision maker, self-interest tend to win out.

It is usually in a decision maker’s best interest to attack high-profile problems. Moreover, when the

decision maker’s performance is evaluated, the elevator is more likely to give a high rating to someone who has been aggressively attacking visible problems.

Alternative Development

At. this stage managers decide how to move from their current position towards their decided future position. More complex search behavior, which includes the development of creative alternatives, will be resorted to only when a simple search fails to discover a satisfactory alternative.

Finding alternatives are not the problem normally. Reducing the number of alternatives in order to analyze and find out the best one is the problem.

Making Choices

After evaluating all of the possible alternatives, the decision maker will make the final decision. The decision makers rely on heuristics or judgmental shortcuts in decision making. There are two common categories of heuristics- availability and representativeness.

Availability heuristics is the tendency for people to base their judgments on information that is readily available to them. Representative heuristics tend to assess the likelihood of an occurrence by trying to match it with a preexisting category.

Another bias that creeps into decisions in practice is a tendency to escalate commitment when a decision stream represents a series of decisions.

Escalation of commitment refers to staying with a decision even when there is clear evidence that it is wrong. It has obvious implications for managerial decisions.

Many organizations have suffered large losses because a manager was determined to prove his or her original decision was right. In actuality, effective managers are those who are able to differentiate between situations in which persistence will pay off and situations in which it will not.

Read More: Relation between Planning and Decision-Making

Factors Influencing Decision Making

Decision making and problem solving are ongoing processes of evaluating situations or problems, considering alternatives, making choices, and following them up with the necessary actions.

Sometimes the decision-making process es extremely short, and mental reflection is essentially instantaneous. In other situations, the process can drag on for weeks or even months.

The entire decision-making process es dependent upon some factors which are considered by the manager at the time of decision making.

The factors are;

  • Coalition.
  • Intuition.
  • Escalation of Commitment.
  • Risk Propensity.
  • Ethics.

Coalition

Coalition is one of the major elements of decision making. A coalition is an informal alliance of individuals or groups to achieve a common goal.

This common goal is often a preferred decision alternative.

For example, coalition of stockholders is frequently band together to force a board of directors to make a certain decision. The impact of coalitions can be positive or negative.

Managers must recognize when to use coalitions, how to assess whether coalitions are acting in the best interests of the organization, arid how to constrain their dysfunctional effects.

Intuition

Intuition is an innate belief about something without conscious consideration. Managers sometimes decide to do something because they think it is right.

This feeling is usually not arbitrary rather it is based on years of experience and practice in making decisions in similar situations.

Read More: Internal and External Environment Factors that Influences Organizational Decision Making

An inner sense may help managers make an occasional decision without going through a full-blown rational sequence of steps.

Escalation of Commitment

Another important behavioral process that influences decision making is escalation of commitment to a chosen course of action. In particular, decision makers sometimes make decisions and then become so committed to the course of action suggested by that decision.

Risk Propensity

Risk propensity is to which a decision maker is willing to gamble when making decision. Some managers are cautious about every decision they make.

They try to adhere to the rational model and are extremely conservative in what they do.

Such managers are more likely to avoid risk, and they infrequently make decisions that lead to big losses. Other managers are extremely aggressive in making decisions and are willing to take risks.

Ethics

Individual ethics are personal beliefs about right or wrong behavior. A manager should make decisions that maximize the enterprise benefits, even at the cost of his/her personal benefits.

Basically these factors influence the decision making process. At the time of taking decisions managers have to consider so many things. They have to analyze the advantages and disadvantages of all the available alternatives.

When they consider the things and analyze the alternatives the above factors influence their decision making process.

Limitations of Decision Making

Though decision making is a basic and essential function for any organization, there are several limitations of it.

Some of them inherit in the process of decision making like rigidity and other arise due to shortcoming of the techniques of decision making and in the decision maker themselves.

Limitations of decision making are;

  • Time Consuming.
  • Compromised Decisions.
  • Subjective Decisions.
  • Biased Decisions.
  • Limited Analysis.
  • i Uncontrollable Environmental Factors.
  • Uncertain Future.
  • Responsibility is Diluted.

Time Consuming

A lot of precious time is consumed for decision making. Individual decisions take a lot of time because the manager has to study the merits and demerits of all the alternatives.

He also has to take advice from many people before making a decision.

All this consumes a lot of time. Group decisions are also time consuming. This is because it involves many meetings and each member has to give his opinion.

This results in delayed decisions or no decisions.

Compromised Decisions

In group decisions, there is a difference of opinion. This results in a compromised decision.

A compromised decision is made to please all the members. It may not be a correct and bold decision. The quality of this decision is inferior.

So it will not give good results on implementation.

Subjective Decisions

Individual decisions are not objective. They are subjective because the decisions depend on the knowledge, education, experience, perception, beliefs, moral, attitude, etc., of the manager. Subjective decisions are not good decisions.

Biased Decisions

Sometimes decisions are biased. That is, the manager makes decisions, which is only beneficial for himself and his group. These decisions Have a bad effect on the workers, consumers or the society.

Limited Analysis

Before making a decision the manager must analyze all the alternatives. He must study the merits and demerits of each alternative.

However, most managers do.not do this because they do not get an accurate date, and they have limited time. Inexperienced researchers and wrong sampling also result in a limited analysis.

This limited analysis results in bad decisions.

Uncontrollable Environmental Factors

Environmental factors include political, social, organizational, technological and other factors. These factors are dynamic in nature and keeps on changing every day.

The manager has no control over external factors. If these factors change in the wrong direction, his decisions will also divert and go wrong.

Uncertain Future

Decisions are made for the future. However, the future is very uncertain. Therefore, it is very difficult to take decisions for the future.

Responsibility is Diluted

In aft individual decision, only one manager is responsible for the decision. However, in a group decision, all managers are responsible for the decision.

That is, everybody’s responsibility is nobody’s responsibility. So, the responsibility is diluted.

For the above reasons sometimes decision making losses its importance, even it becomes impossible to achieve the organizational goals.  For this reasons, at the time of decision making the managers should be aware about the above limitations.

Ethics in Decision Making

Ethics are the set of moral principles that guide a person’s behavior These morals are shaped by social norms, cultural practices, and religious influences.

Ethics reflect beliefs about what is right, what is wrong, what is just, what is unjust, what is good, and what is bad in terms of human behavior. Ethical decision-making refers to the process of evaluating and choosing among alternatives in a manner consistent with ethical principles.

In making ethical decisions, it is necessary to perceive and eliminate unethical options and select the best ethical alternative.

An individual can use three different criteria in making ethical choices. The first is the utilitarian criterion, in which decisions are made solely on the basis of their outcomes or consequences.

The goal of utilitarianism is to provide the greatest good for the greatest number. The view tends to dominate business decision making. It is consistent with goals like efficiency, productivity, and high profits. Another ethical criterion is to focus on rights.

An emphasis on rights in decision making means respecting and protecting the basic rights of individuals, such as the right to privacy, to free speech, and to due process.

A third criterion is to focus on justice. This requires individuals to impose and enforce rules fairly and impartially so that there is ah equitable distribution of benefits and costs.

Each of these criteria has advantages and liabilities. A focus on utilitarianism promotes efficiency and productivity, but it can result in ignoring the rights of some individuals, particularly those with minority representation in the organization.

The use of rights as a criterion protects individuals from injury and is consistent with freedom and privacy, but it can create an overly legalistic work environment that hinders productivity and efficiency.

A focus on justice protects the interests of the underrepresented and less powerful, but it can encourage a sense of entitlement that reduces risk taking, innovation, and productivity.