This article throws light upon the top five models of managerial decision-making. The models are: 1. Rational Model 2. Non-Rational Models 3. Satisficing Model 4. Incremental Model 5. Garbage-Can Model.
Model # 1. Rational Model:
The rational model of managerial decision-making has its roots in the economic theory of the firm. When theories about the economic behavior of business firms were being developed, there was a general tendency among economists to assume that whatever decisions managers made would always be in the best economic interests of their firms.
This assumption was initially accepted by many management theorists. According to the rational model, managers engage in a decision-making process which is totally rational. They have all the relevant information needed to take decisions. They are also aware of different possible alternatives, outcomes and ramifications, and hence make rational decisions.
This view which was in vogue during the first half of the twentieth century has serious flaws, as it is quite difficult to obtain complete information and make “optimal” decisions in complex situations. In spite of its drawbacks, the rational view provides a benchmark against which actual managerial decision-making patterns can be compared.
Model # 2. Non-Rational Models:
Unlike the rational view, several non-rational models of managerial decision-making suggest that it is difficult for managers to make optimal decisions due to the limitations of information-gathering and processing. Within the non-rational framework, three major models of decision-making have been identified by researchers.
(a) Satisficing model,
(b) Incremental model, and
(c) Garbage-can model.
Model # 3. Satisficing Model:
In the 1950s, an economist, Herbert Simon studied the actual behaviors of managerial decision makers. On the basis of his studies, Simon propounded the concept of bounded rationality. This concept suggests that the managers may not always be perfectly rational in making decisions.
Their decision-making ability may be limited by certain factors like cognitive capacity and time constraints. The concept of bounded rationality was offered as a framework to facilitate better understanding of the actual process of managerial decision-making.
According to the concept of bounded rationality, the following factors commonly limit the degree to which managers are perfectly rational in making decisions:
(i) Decision-makers may have inadequate information about the nature of the issue to be decided. They may also not possess enough information about possible alternatives and their strengths and weaknesses.
(ii) The amount of information that can be gathered in regard to a particular decision is limited by time and cost factors.
(iii) Decision-makers may overlook or ignore critical information because of their perceptions about the relative importance of various pieces of data.
(iv) The degree to which decision-makers can determine optimal decisions is limited by the individual’s capacity and intelligence.
(v) The inability to remember large amounts of information is another factor that limits the ability of managers to make rational decisions.
Simon argues that instead of searching for the perfect or ideal decision, managers frequently settle for one that will adequately serve their purpose. He contends that managers accept the first satisfactory decision they uncover, rather than searching till they find the best possible decision.
Simon calls this ‘satisficing’. The satisficing model holds that managers seek alternatives only until they identify one that looks satisfactory.
The satisficing approach can be considered to be an appropriate decision-making approach when the cost of searching for a better alternative or delaying a decision exceeds the potential gain that is likely by following the satisficing approach.
Model # 4. Incremental Model:
Another approach to decision-making is the incremental model. The incremental model states that managers put in the least possible effort – only enough to reduce the problem to a tolerable level.
The manager here is concerned more with finding a short-term solution to the problem than making a decision that will facilitate the attainment of goals in the long-term. The incremental model does not require managers to process a great deal of information in order to take a decision.
Model # 5. Garbage-Can Model:
The garbage-can approach to decision-making holds that managers behave randomly while making non-programmed decisions.
That is, decision outcomes are chance occurrences and depend on such factors as the participants involved in the decision-making process, the problems about which they happen to be concerned at the moment, the opportunities they happen to identify and their favorite solutions or the solutions they use the most to solve most problems.
The garbage-can strategy is effective in the following situations:
(i) When the managers have no specific goal preferences,
(ii) When the means of achieving goals are unclear, and
(iii) When there are frequent changes in the participants involved in decision-making. This approach can have serious consequences. The garbage- can approach is often used in the absence of strategic management.