The Six-Step Rational Decision-Making Model

1. Define the problem.

2. Identify decision criteria
3. Weight the criteria
4. Generate alternatives
5. Rate each alternative on each criterion
6. Compute the optimal decision

Part 1 - Introduction
Identify decision criteria
Once a decision maker has defined the problem, he or she needs to
identify the decision criteria that will be important in solving the
problem. In this step, the decision maker is determining what’s
relevant in making the decision.

This step brings the decision maker’s interests, values, and personal
preferences into the process.

Identifying criteria is important because what one person thinks is

relevant, another may not.

Also keep in mind that any factors not identified in this step are
considered as irrelevant to the decision maker.

Weight the criteria

The decision-maker weights the previously identified criteria in order
to give them correct priority in the decision.

Generate alternatives
The decision maker generates possible alternatives that could
succeed in resolving the problem. No attempt is made in this step to
appraise these alternatives, only to list them.

Rate each alternative on each criterion

The decision maker must critically analyze and evaluate each one.
The strengths and weakness of each alternative become evident as
they compared with the criteria and weights established in second
and third steps.
Compute the optimal decision
Evaluating each alternative against the weighted criteria and
selecting the alternative with the highest total score.

Assumptions of Model
1. Problem clarity. (The decision maker is assumed to have
complete information regarding the decision situation.)
2. Known options (Identify all the relevant criteria and can list all
the viable alternatives. The decision maker is aware of all the
possible consequences of each alternative.)
3. Clear preference (The criteria and alternatives can be ranked
and weight to reflect their importance)
4. Constant preferences (The specific decision criteria are constant
and that weights assigned to them are stable over time)
5. No time or cost constraints
6. Maximum payoff

Part 2 - Improving Creativity in Decision Making

Creative Potential – Get out of the psychological ruts most us get
into and learn how to think about a problem in divergent ways.

Three-Component Model of Creativity

 Expertise (The foundation of all creative work)
knowledge of a subject were necessary conditions for us to
be able to make creative contributions to the fields. The
potential for creativity is enhanced when individuals have
abilities, knowledge, proficiencies, and similar expertise in
their fields of endeavor.
 Creativity Skills (The ability to use analogies to see the
familiar in a different light. Apply an idea from one context to
another)
Intelligence, independence, self-confidence, risk taking, and
internal locus of control, tolerance for ambiguity and
perseverance in the face of frustration.
 Intrinsic task motivation (The desire to work on a task)
interesting, involving, exciting, satisfying, or personally
 challenging these factor would be affect the task motivation.
This would turns creativity potential into actual creative
ideas.
Five organizational factors can impede staff creativity:
1. Expected Evaluation [Focusing on how staff’s work is going
to be evaluated]
2. Surveillance [Being watched while staff are working]
3. External motivators [Emphasizing external, tangible
rewards]
4. Competition [Facing win-lose situations with peers]
5. Constrained choice [Being given limits on how staff can do
their work.]

Part 3 - How Decisions Are Actually Made in Organization

People are usually content to find an acceptable or reasonable
solution to their problem rather than optimal one. Consequently,
decision makers generally make limited use of their creativity.
Choices tend to be confined to the neighborhood of the problem
symptom and to the neighborhood of the current alternative.
“Most significant decisions are made by judgment, rather than by a
defined prescriptive model.”

Bounded Rationality
when a staff considered which college to attend, they will not look
every viable alternative nor identify all the criteria that were
important in decision.
Instead of optimizing, staff probably “satisfied”.

When faced with a complex problem, most people respond by

reducing the problem to a level at which it can readily understand.
The limited information-processing capability of human beings
makes it impossible to assimilate and understand all the information
necessary to optimize. So people satisfied; that is, they seek
solutions that are satisfactory and sufficient.

Because the capacity of the human mind for formulating and solving
complex problems is far too small to meet the requirements for full
rationality, individuals operate within the confines of bounded
rationality. They construct simplified models that extract the
essential features from problems without capturing all of their
complexity. Individuals can then behave rationally within the limits
of the simple model.

Once a 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.

These are the choices that are easy to find and that tend to be
highly visible. In most cases, they will represent familiar criteria and
previously tried-and-true solutions.

Once this limited set of alternatives is identified, the decision maker

will begin reviewing them. But the review will not be comprehensive
– not all of the alternatives will be carefully evaluated. Instead, the
decision maker will begin with alternatives that differ only in a
relatively small degree from the choice currently in effect.

Following along familiar and will-worn paths, the decision maker

proceeds to review alternatives only until he or she identifies an
alternative that is “good enough” – one that meets an acceptable
level of performance.
The first alternative that meets the “good enough” criterion ends
the search. So the final solution represents a satisfying choice rather
than an optimal one.

The order in which alternatives are considered is critical in

determining which alternative is selected. Remember, in the fully
rational optimizing model, all alternatives are eventually listed in a
hierarchy of preferred order. Because all alternatives are considered,
the initial order in which they are evaluated is irrelevant. Every
potential solution gets a full and complete evaluation. But this isn’t
the case with bounded rationality. If we assume that a problem has
more than one potential solution, the satisfying choice will be the
first acceptable one the decision maker encounters. Decision
makers use simple and limited models, so they typically begin by
identifying alternatives that are obvious, ones with which they are
familiar, and hose not too far from the status quo.

Solutions that depart least from the status quo and meet the
decision criteria are most likely to be selected. A unique and
creative alternative may present an optimizing solution to the
problem, but it’s unlikely to be chosen because an acceptable
solution will be identified well before the decision maker is required
to search very far beyond the status quo.
Intuition
”Sometimes you’re just got to go with your gut feeling,”

Intuitive decision making is an unconscious process created out

of distilled experience. They based on the experience to recognize
patterns and clusters of the problem to make a decision. Experience
allows the expert to recognize a situation and draw on previously
learned information associated with that situation to arrive quickly
at a decision. The result is that the intuitive decision maker can
decide rapidly with what appears to be very limited information.

Identifying Problems
Problems that are visible tend to have a higher probability of being
selected than ones that are important.
1. Easily to catch a decision maker’s attention.
2. Decision maker want to appear competent and “on top of
problems”. This desire motivates DM to focus 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 tends to win out. This tendency also is
related to the issue of visibility. It’s usually in a decision maker’s
best interest to attack high-profiles problems. It conveys to
performance is later reviewed, the evaluator is more likely to give a
high rating to someone who has been aggressively attacking visible
problems than to someone whose actions have been less obvious.

Developing Alternatives
since decision makers rarely seek an optimal solution, but rather a
satisfying one, we should expect to find a minimal use of creativity
in the search for alternatives. And that expectation is generally on
target.

Efforts will be made to try to keep the search process simple. It will
tend to be confined to the neighborhood of the current alternative.
More complex search behavior, which includes the development of
creative alternatives, will be resorted to only when a simple search
fails to uncover a satisfactory alternative.

Decision maker avoid the difficult task of considering all the

important factors, weighing their relative merits and drawbacks, and
calculating the value for each alternative.

Instead, they make successive limited (incremental) comparisons.

This branch approach simplifies decision choices by comparing only
alternatives that differ in relatively small degree from the choice
currently in effect. This approach also makes it unnecessary for the
decision maker to thoroughly examine an alternative and its
consequences; one need investigate only hose aspects in which the
proposed alternative and its consequences differ from the status
quo.

It acknowledges the non-comprehensive nature of choice; in other

words, decision makers make successive comparisons because
decisions are never made forever and written in stone, but rather
they are made and remade endlessly in small comparisons between
narrow choices.

Making Choices
In order to avoid information overload, decision makers rely on
heuristics, or judgmental shortcuts, in decision making.

1. Availability Heuristic
The tendency for people to base their judgments on information
that is readily available to them. Events that evoke emotions,
that are particularly vivid, or that have occurred recently tend to
 be most available in our memory.
[When doing annual performance appraisals, tend to give more
weight to recent behaviors of an employee than to those of 6
months ago]
2. Representative Heuristic
decision makers tend to assess the likelihood of an occurrence by
trying to match it with a pre-existing category.
[Frequently predict the performance of a new product by relating
it to a previous product’s success]
3. Escalation of Commitment
tendency to escalate commitment when a decision stream
represents a series of decisions. Escalation of commitment is an
increased commitment to a previous decision in spite of negative
information.
They “throw good money after bad” to demonstrate that their
initial decision wasn’t wrong and to avoid having to admit they
made a mistake. People try to appear consistent in what they say
and do. Increasing commitment to previous actions conveys
consistency.
[“I have a lot invested in the relationships.”
“I have to go back and complete some deficiencies if I changed
to work on a degree in other fields.”]

Individual Difference
1. Decision-Making Styles
The foundation of the model is the recognition that people differ
along two dimensions. The first is their way of thinking (intuitive
and creative). The other dimension addresses a person’s tolerance
for ambiguity. Some people have a high need to structure
information in ways that minimize ambiguity; Others are able to
process many thoughts at the same time.
 Tolerance for Ambiguity
Analytical Conceptual

Directive Behavioral

Way of Thinking (Rational -> Intuitive)

- People using the directive style have low tolerance for

ambiguity and seek rationality. They are efficient and logical.
But their concern for efficiency results in their making
decisions with minimal information and assessing few
alternatives. Directive types make decision fast, and they
focus on the short run.

- The analytical type has a much greater tolerance for

ambiguity than do directive decision makers. They desire
more information and consider more alternatives than do
directives. Analytical managers would be best characterized
as careful decision makers with the ability to adapt or cope
with new situations.

- Individual with a conceptual style tend to be very broad in

their outlook and consider many alternatives. Their focus is
long range, and they are very good at finding creative
solutions to problems.

- A behavioral style decision maker who work well with

others. They’re concerned with the achievements of peers
and subordinates. They’re receptive to suggestions from
others and rely heavily on meetings for communicating. This
type of manager tried to avoid conflict and seeks acceptance.

Some managers rely almost exclusively on their dominant style;

more flexible managers can make shifts depending on the
situation.
Level of Moral Development
Moral development is relevant in decision making because many
decision have an ethical dimension. An understanding of this
concept can help you see how different people impose different
ethical standards on their decisions.

Level Stage/ Description

Pre-conventional 1 Sticking to rules to avoid physical punishment
2 Following rules only when it’s in your immediate interest
Conventional 3 Living up to what is expected by people close to you
4 Maintaining conventional order by fulfilling obligations to which
your have agreed
Principled 5 Valuing rights of others; and upholding non-relative values and
rights regardless of the majority’s opinion
6 Following self-chosen ethical principle even if they violate the
law
Part 4 – Organizational Constraints
The organization itself constrains decision makers. They shape their
decisions to reflect the organization’s performance evaluation and
reward system and organizationally imposed time constraints.
Previous organizational decisions also act as precedents to constrain
current decisions.

Performance Evaluation
Decision maker are strongly influenced in their decision making by
the criteria by which they are evaluated.

[If a division manager believes that the manufacturing plants under

his responsibility are operating best when he hears nothing
negative, we shouldn’t be surprised to find that his plant managers
spend a good part of their time ensuring that negative information
doesn’t reach the division boss.]

[If a college dean believes that an instructor should never fail more
than 10 percent of her students – to fail more reflects on the
instructor’s ability to teach – we should expect that new instructor,
who want to receive favorable evaluations, will decide not to fail too
many students.]

Reward System
What choices are preferable in terms of personal payoff?
If the organization rewards risk aversion, managers are likely to
make conservative decisions.
[General Motors consistently gave out promotions and bonuses to
manager who kept a low profile, avoided controversy, and were
good team players. The result was that GM managers became very
adept at dodging tough issues and passing controversial decisions
on to committees]

System-Imposed Time Constraints

Organizations impose deadlines on decisions.
A host of decisions have to be made quickly in order to stay ahead
of the competition and keep customers be made quickly in orders to
stay ahead of the competition and keep customers satisfied.
And almost all important decisions come with explicit deadlines.
These conditions create time pressures on decision makers and
often make it difficult, if not impossible, to gather all the information
they might like before having to make a final choice. The rational
model ignores the reality that, in organizations decision come with
time constraints

Historical Precedents
Rational decision making takes an unrealistic and insulated
perspective. It views decision as independent and discrete events.
But that isn’t they way it I in the real world! Decisions aren’t made
in a vacuum. They have a context. In fact, individual decisions are
more accurately characterized as points in a stream of decisions.

Decisions made in the past are ghost that continually haunt current
choices.
It’s common knowledge that the largest determining factor of the
size of any given year’s budget is last year’s budget.
Choices made today, therefore, are largely a result of choices made
over the years.

Cultural Differences
The rational model does not acknowledge cultural differences. But,
we need to recognize that the cultural background of the decision
maker can have significant influence on his or her selection of
problems, depth of analysis, the importance placed on logic and
rationality, or whether organizational decisions should be made
autocratically by an individual manger or collectively in groups. (Like
Japan Manager is more group-oriented. Before making an important
decision, they collect a large amount of information, which is then
used in consensus-forming group decisions.)
Some cultures emphasize solving problems; others focus on
accepting situations as they are. Problem-solving decision maker
believe that they can and should change situations to their benefit.
Part 5 – Ethics in Decision Making
Utilitarian criterion
Decisions are made solely on the basis of their outcomes or
consequences.
The goal of it is to provide the greatest good for the greatest
number. This view tends to dominate business decision making.
(Efficiency, productivity, and high profits)
[
+ A focus on utilitarianism promotes efficiency and productivity.

- Ignoring he rights of some individuals particularly those with

minority representation in the organization.
]

Right criterion
This call on individuals to make decisions consistent with
fundamental liberties and privileges as set forth in documents such
as the Bill of Right.
An emphasis on rights in decision making means respecting and
protecting the basic rights of individuals.(The right to privacy, to
free speech, and to due process)

[
+ Protects individuals from injury and is consistent with freedom
and privacy
- Create an overly legalistic workplace that hinders productivity and
efficiency.
]

Justice criterion
This requires individual to impose and enforce rules fairly and
impartially so there is an equitable distribution of benefits and costs.

[
+ The interests of the underrepresented and less powerful
- Encourage a sense of entitlement that reduces risk taking,
innovation, and productivity.
]