The Bounded Rationality Model and Other Decision-Making Models - Literature review Example

MAINTENANCE MANAGEMENT by Student’s Name       Code+ Course Name Professor’s Name University Name City Date Introduction Decision making and strategic planning are an important part of strategic management. These management functions are even more crucial in situations such as those our company finds itself in. Since it is a newly merged company, it is faced with quite a lot challenges including the need to improve communication between the leaders of the two companies as well as maintain and even attract customers and investors. For the integration process to be successful, many changes in the processes, organization structure, as well as systems, have to occur. Better operations and a much different entity than the original entities is an indicator that the merging process was done well (Bryson 2011, p.22). This report discusses the role of decision making and strategic making in the formulation and implementation of a refurbishment and reinforcement program. Decision-Making Models Leaders of an organization have to make decisions from time to time. These decisions may have far fetching effects on the organization, hence the need to involve key stakeholders in the decision-making process. The decision an organization decides to implement or undertake often affects other managerial functions such controlling, planning, directing as well as planning. Policy formulation and planning largely relays on the management decisions. Additionally, it makes it possible for the performance of managers and the organization as a whole to be evaluated (Koontz and Weihrich 2006, p.123). Most decision-making processes consume a lot of time. However, the overall quality or benefits derived from such decisions act as a tool to evaluate the performance of key decision makers in the organization. Decision making is an indistinguishable piece of administration capacities. It is one of the key procedures for the successful operation of an entity. It decides all administration capacities and covers all aspects of the organizational structure. A leader needs to assess all the conceivable options on the premise of organizational procedure and suitability. The choice of the best strategy is critical to acquire smoothness operation and accomplish organizational objectives. Each choice made must be caught up (Nieuwenhuizen, ‎Badenhorst-Weiss and ‎ Rossouw, 2008, p.46). Catching up and criticism is gone for guaranteeing that the choice was effectively executed. Correspondence with each worker included in executing the choice is critical in this situation. Furthermore, a pioneer of an organization ought to get input from those straightforwardly influenced by the choice. Therefore, the organization can know whether the choice was the right one. This helps in gauging how to settle on future vital business choices. Many scholars view decision making as a process that is coherent and rational in which the decision makers select the best choice after considering alternative perspectives and interests in an orderly manner (Nieuwenhuizen, ‎Badenhorst-Weiss and ‎ Rossouw 2008, p.47). The decision-making process occurs at all levels of management, and for the decision to be more effective, businesses have to involve different level managers as well as employees and other stakeholders in the decision-making process. Most organizations utilize different models of decision making, largely depending on the company’s situation and the problem at hand. Decision-making models can be described as the different approaches that an organization utilizes to solve its problems (Ahmed and Triana 2008, p.48). Some of the decision models that organizations use include the political decision-making model, the aesthetic model, the emotional model, the group decision model as well as the bounded rationality decision-making model. The current report will focus on the political decision-making model and the bounded rationality model. Political Decision-Making Model According to Daft and Marcic (2010, p.191), the political decision-making model is best suitable when making un-programmed decisions characterized by conditions of uncertainty, limited information as well as management conflicts about the main goals to pursue and the right course of action to take. It is the best model to utilize when the organizational power is decentralized. In Such organizations, the decision-making process often involves different managers, each with a different set of goals and ambitions. These managers have to talk and negotiate with each other and share information for a consensus to be arrived at. For complex decision making, the managers usually engage in coalition building. Daft and Marcic (2010, p.191) define a coalition as an informal coalition among managers who support a specific alternative. For our organization, a coalition of managers who support the refurbishment and maintenance program is likely to be pitted against an alliance of managers who are against it. Formation of coalitions allows for powerful individuals among the decision makers to influence the whole process and hence the outcome. As opposed to being rational-deductive, the political model of decision making is inductive and often begins with the identification of issues that involve conflict (Bryson 2011, p.23). The model is of great importance when it comes to working out consensual agreements on which programs and policies are best suited to resolving certain issues. According to Bryson (2011, p.24) the decision makers in this model do not focus on a single issue, but they address multiple inter-organizational issues, which reflect each decision maker’s personal goals. The model places emphasis on the natural multiplicity of values, goals and decisions and assumes that bargaining among the coalitions forms the basis of all the decisions. Daft and Marcic (2010, p.191) identifies the main assumptions that the model makes. The first assumption is that organizations consist of groups, which have different goals, interests and values. As such, these groups may disagree on various issues. The second assumption of the model is that information available to the different groups is incomplete and ambiguous. Another assumption the model makes according to Daft and Marcic is that managers and other organizational leaders do not have all the resources and capacity to process all the relevant information and identify all the dimensions of a problem. The final assumption is that organizational leaders engage in debates before coming to a certain conclusion. Therefore, the final decisions are an outcome of discussion and bargaining among team members. Advantages of the political decision-making model The political model takes into consideration the subjective nature of decision making. It recognizes the fact that the right decision can be achieved by involving many people as opposed to one or a few individuals The political model may minimize conflicts as it allows for all the suggestions concerning an alternative or a certain decision to be aired. Since it involves many groups, decision making in these model is likely to be reasoned and based on sound information The model allows for multiple inter-organizational issues to be addressed. It is thus effective when multiple decisions have to be arrived at The model brings together various managers and is thus effective for organizations whose structures are complex, and power is decentralized. Disadvantages of the political decision-making model The final decisions may be politically driven, meaning that the model does not necessarily result in the best decision that the organization can rely on for prosperity. The model favors those decisions that are politically acceptable The model does not identify the person who is responsible for the outcome. As opposed to individual decision making in which responsibility lies with one person, the political decision-making model distributes responsibility among the different group members. This often encourages the group members to feel less responsible for the outcome of the decisions. The political decision-making model is also time-consuming and is therefore not suitable for quick decisions. Bringing together the decision group and evaluating the different alternatives often takes a lot of time. The model encourages the emergence of conflicting self-goals as different group members try to promote their personal views and agendas. As a result, the group focus may turn into infighting and quest for power as opposed to liberating on the key issues at hand The Bounded Rationality Model of Decision Making This model argues that decision makers are rational within the limits of their ability and the circumstances that call for a decision to be made. Developed by Herbert Simons relying on the deficiencies of the rational decision-making model, the bounded rationality model is of the idea that there are certain constraints that make a decision maker to be completely rational. According to this model, individuals who make decisions have the cognitive ability to process information. Additionally, it recognizes the fact that decision makers are faced with many alternatives for which are subjective by weighting to identify the best. Robins et al. (2013, p.75) are of the view that the model takes into consideration the fact that decision making may occur with limited knowledge about the alternatives or outcomes. Even with the decision makers' limited ability to process information, the model suggests that they will still be able to identify the problems that need solutions and the necessary criteria to evaluate alternatives. Despite being able to identify the problems that need solutions and the necessary criteria to evaluate the alternatives, the decision makers under this model still have to use the limited information to search and evaluate the alternatives that could help solve the present organizational problems. According to Robins et al. (2013, p.75) this leads to satisficing, which they describe as a way by which decision makers search for alternatives that fit their decision criteria and which are good enough to solve the problem at hand. As opposed to creating a comprehensive list of the alternatives, decision makers take into consideration a certain range of options. Nelson and Quick (2014, p. 155) point out that managers usually satisfice due to the costs involved in optimizing all the alternatives. They mention the main assumptions that the model makes. The first assumption is that managers always select the first alternative that is satisfying. Secondly, managers know that their conception of the world is simple. The third assumption is that managers are comfortable making decisions without considering all alternatives and that decision makers make decisions by the rule of thumb. The bounded rationality model also assumes that managers usually create shortcuts during the decision-making process. These shortcuts are referred to as heuristics and are aimed at ensuring that mental activity is minimized during the decision-making process. These shortcuts allow managers to make decisions based on the past experiences that worked. Nelson and Quick (2014, p. 155) argues that research has shown that the bounded rationality model portrays the decision-making process more realistically. They go ahead to point out that some of the factors that impact the rationality of managers when it comes to decision making are time and risk pressures. Since the bounded rationality recognizes these pressures, and then it is more realistic compared to other decision-making models Advantages of the Bounded Rationality Model The model takes into consideration the effects of uncertainty and risk pressure on the decision-making process and is thus more realistic The model exhibits satisfying as opposed to optimizing decision-making approach. Since optimizing every other alternative consumes a lot of time, the bounded rationality model allows for decisions to be reached much faster compared to the rational as well as group decision-making models The model makes use of heuristics which apart from saving on time and allowing for decisions to be made much faster, also saves the decision makers mental activity thereby helping prevent exhaustion during the decision-making process The model’s focus on saving time and effort means that it is less costly compared to other models that lead to wastage of time and efforts over decisions that can quickly be arrived at Disadvantages of the Bounded Rationality Model The model’s failure to optimize means that the best available alternative can easily be foregone at the expense of a useful option. The can thus not be used for long decisions The shortcut taken in making decisions under this model creates room for bias and error to enter the decision-making process. As a result, the final decision might be of poor quality. The model does not require decision makers to analyze all the information. This may also affect the overall quality of the decision Recommendations The choice of a decision-making model mostly depends on the nature of the problem and the period within which the solution has to be found. For the company’s situation, a solution to the current stock situation as well as the strategic plan formulation and implementation has to be achieved within a three years. This is a short period. Therefore, the most appropriate model would be the bounded rationality model. This model does not focus on all the available alternatives and identifies the most useful alternative for the current alternative. Unlike the political decision-making model, which is time-consuming and which creates room for politicking thus encouraging a shift from the main problem, the bounded rationality allows managers to focus on the problem at hand. Additionally, it is less costly as it saves time and effort. Adopting a strategic plan A strategic plan is a document that communicates the way forward for an organization. It highlights an organization’s mission, values, vision and objectives and how the company aims at achieving these objectives. Strategic planning, which is basically the process of creating a strategic plan, is also a function of management. A strategic plan ought to unmistakably characterize the motivation behind the organization and to set up practical objectives and goals predictable with that mission in a characterized time span inside of the organization's ability for usage (Simmerson 2013, p.4). Aside from that, it ought to guarantee the best usage is made of the organization's assets by concentrating the assets on the key needs. The booking for the strategic planning procedure relies on the nature and needs of the organization and its prompt outer environment. Strategic planning ought to be done when an organization is simply beginning and in arrangement for another real wander including a new line of items and client base (Steiner 2006, p.3). Advantages of a strategic plan Helps the organization communicate its goals and objectives to the key stakeholders. An organization with well-articulated goals and objectives is an indicator that it is serious about its operations The plan also helps inform the stakeholders on how the firm intends to achieve its aims and objectives. This in turn boosts the confidence of the important stakeholders in the company It helps the organization focus their resources on the main priorities and objectives. A strategic plan thus ensures that the resources an organization owns are effectively utilized A strategic plan also forms the basis upon which organizational progress can be measured. These in turn helps in coming up with the right instruments for informed change whenever necessary Disadvantages of a strategic plan The strategic planning process involves many steps and might thus prove to be quite complex. It might take a lot of time for the strategy to be formulated and successful y implemented The time, effort and resources required for successful strategic planning may render the whole process costly The complexity due to the many steps involved in creation of a strategic plan and the heavy commitment of resources may result in low success rates for the strategic plan Recommendations The organization needs to formulate and implement a strategic plan because: The plan would provide the focus and direction the organization needs as it seeks to move forward after the merger The strategic plan will enable the firm to make fundamental decisions about the markets it wishes to operate in, the values it seeks to exhibit as well as the skills that the company’s employees need to have The strategic plan will help the organization evaluate its internal and external environment, which in turn will be useful in the decision-making process The plan will form the basis upon which organizational progress can be measured It would help bridge the gap between the employees and managers of the two companies Conclusion Decision making and strategic planning are an important part of strategic management. These management functions are even more crucial in situations such as those our company finds itself in. Since it is a newly merged company, it is faced with quite a lot challenges including the need to improve communication between the leaders of the two companies as well as maintain and even attract customers and investors. This report focused on two decision-making models and recommends that the decision makers should consider the bounded rationality model. This model does not focus on all the available alternatives and identifies the most useful alternative for the current alternative. Unlike the political decision-making model that is time-consuming and which creates room for politicking thus encouraging a shift from the main problem, the bounded rationality allows managers to focus on the problem at hand. Additionally, it is less costly as it saves time and effort. The report also recommends the formulation and adoption of a strategic plan due to the various benefits its promises to offer. References List Ahlstrom, D. and Bruton, G. (2010). International management. Australia: South-Western Cengage Learning. Ahmed, K. and Sánchez Triana, E. (2008). Strategic environmental assessment for policies. Washington, DC: World Bank. Bryson, J. (2011). Strategic planning for public and nonprofit organizations. San Francisco, CA: Jossey-Bass, a Wiley Imprint. Bryson, J. (2011). Strategic planning for public and nonprofit organizations. San Francisco, CA: Jossey-Bass, a Wiley Imprint. Daft, R. (2011). Understanding management. Mason, OH: South-Western Cengage Learning. Grünig, R., Kühn, R. and Kühn, R. (2005). Process-based strategic planning. Berlin: Springer. Hodgkinson, G. and Starbuck, W. (2008). The Oxford handbook of organizational decision making. Oxford: Oxford University Press. Koontz, H. and Weihrich, H. (2007). Essentials of management. 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