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Unit 5: Decision-making

There are pros and cons of both the options. Outsourcing can be cost effective and time saving Notes
whereas it might be difficult to control. On the other hand, developing an in-house panel will
require a lot of investment but it will be easier for the higher level managers to monitor their
performance.
Managers need to weigh each pros and cons and then decide on an alternative. Here, the long
term benefit should also be considered.
If the need is urgent, it is better to outsource as the other option will take time to materialise.
Final Step: Finally, the solution is implemented. The manager must seek feedback regarding
the effectiveness of the implanted solutions. Feedback allows managers to become aware of the
recent problems associated with the solution. It permits managers to monitor the effects of their
acts to gauge their success. They can evaluate their own decision-making abilities. Consistent
monitoring and periodic feedback is an essential part of the follow-up process.

Task Discuss an occasion where you had to make a decision on your own? Were
you happy with your decision-making process?

5.3 Simon’s Model of Decision-making

Recognizing the deficiencies of the rational model, Herbert Simon suggested that there are
limits upon how rational a decision-maker can actually be. His decision theory, the bounded
rationality model, earned him a Nobel Prize in 1978. The essence of the bounded rationality and
satisficing model is that, when faced with complex problems decision-makers respond by reducing
the problems to a level at which they can be readily understood. This is because the information
processing capability of human beings makes it impossible to assimilate and understand all the
information necessary to optimize. Since the capacity of the human mind for formulating and
solving simplex problems is far too small to meet all the requirements for full rationality,
individuals operate within the confines of bounded rationality.
Simon's model – also referred to as the "Administrative Man" theory – rests on the idea that there
are constraints that force a decision-maker to be less than completely rational. The bounded
rationality model has four assumptions:

1. Managers select the first alternative that is satisfactory.
2. Managers recognize that their conception of the world is simple.
3. Managers are comfortable making decisions without determining all the alternatives.
4. Managers make decisions by rules of thumb or heuristics.
How does bounded rationality work for the typical individual? Once the problem is
identified, the search for criteria and alternatives begins. But the list of criteria is likely to
be far from exhaustive. The decision-maker will identify a limited list made up of the
more conspicuous choices. Once this limited set of alternatives is identified, the decision-
maker will begin reviewing them. But the review will not be comprehensive. That is, not
all alternatives will be carefully evaluated. The decision-maker proceeds to review
alternatives only until he or she identifies an alternative that satisfies – one that is
satisfactory and sufficient. So the satisficer settles for the first solution that is "good enough",
rather than continuing to search for the optimum. The first alternative to meet the 'good
enough 'criterion ends the search. The Figure 5.2 below illustrates the satisficing model.

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