Decision Making Approaches, Management and Organisational Behavior - Case Study Example

Decision Making Approaches Name Institution Executive Summary The paper herein begins with a brief introduction to the context of decision making and the factors that play out in the process of choice. Then an expansive explanation is made regarding the aspect of rationality. Rationality is presented as a viable attribute towards objective decision making and taking actions based on reason. The aspect of bounded rationality is briefly discussed with some limitations noted that render some of decisions made fail to be effective in addressing the intended goals. Intuitive rationality is well exemplified as the third approach to decision making. Under this approach, the beliefs of an individual and own interpretation of knowledge have the biggest bearing of the selection of the best alternative. The limitations of the approach are also stated. An example is formulated, solved and explained representing a case of decision making using the decision tree approach. The second illustration involves a case of rationality using payoff matrix. Finally an illustration is made regarding the intuitive approach to decision making. Based on the findings and discussion ensuing a conclusion is made in light of literature reviewed in the subject area. Introduction Modern organizational decision making is a complicated task given the numerous decision variables that need to be put into consideration. The complexity revolves around determining whose interests among the many stakeholders should be met first. The interests of the entity aside, other stakeholder interests have to be incorporated in any course of action chosen. Equally explosive is the debate as to which principles should be applied in taking organizational decisions. The circumstances that one finds himself/herself have the greatest dimension in evaluating decisions. In this regard, a decision will be ranked as appropriate if going by the prevailing conditions; it is the best course of action. The circumstances can either call for an action to capitalize on an opportunity or to fix a stringent problem as it was the case then. A move is therefore justified if it adds value to the company considering all factors (Holloway 1998). According to Holloway, decisions ought to be based on the perspectives of the decision maker and the extent to which he/she is able to take risk. The guiding principle, however, should be the most likely outcomes of those decisions and the attaching value they will bring. Meaning of Rationality Acting rationally entails taking decisions based on some valid facts. Rationality requires that behavior be based on some reason. In other words people not just do things just for the sake of it, but rather base their actions on some guided facts of reality. Acting irrationally is running away from reality. When one acts rationally, he/she develops a pattern of decisions that can form the basis of future courses of action, should the person be faced with similar circumstances. Rationality does not entail having perfect information about a situation but having a set of reasons as to why a certain behavior is chosen ahead of others. While it requires a critical analysis of the situation, it does not need one to learn everything that there is to be learnt in a specific topic (March, 1994). Being rational therefore means being able to back up a belief. Bounded Rationality Bounded rationality holds that people acts rationally when making decisions. However, the inherent limitations of human nature such as emotions and cognitive attributes they sometimes get those decisions wrong. Decisions exist in complex ends and taking one step towards solving a problem opens up more opportunities. Therefore, preferences for certain behavior patterns in solving problems should not fixed but rather viewed as flexible in line with the changing circumstances. Intuitive Approaches to Decision Making Different scholars have come up with varying definitions as to what as to what intuitions is. According to Gerrity, intuition is “a perception of possibilities, meanings, and relationships by way of insight.” (Gerrity, 2000, p. 63). Another definition suggests that it is a “process whereby the nurse knows something about the patient that cannot be verbalized, that is verbalized with difficulty, or for which the source of knowledge cannot be determined” (Young, 2000, p. 52). These are just but a few of the definitions that have been formulated to try and explain the subject matter of intuition. What authors agree on is the acceptance of intuition as a legitimate basis of making decisions in the medical practice, particularly in the field of nursing. Rationality Using Decision Trees The illustration is based on a case of a project. This project involves undertaking a major construction scheme. The main part is to be handled by the party in question, but some work needs to be sub-contracted. For this the company is at cross-roads as to which sub-contractor to use between the available two. The two sub-contractors differ in two aspects – one who can complete the work in time but charge a relatively higher price and the other who is cost effective but has low reliability. There is a penalty to be incurred for late completion of the project and the loss is borne by the main contractor alone. The penalty is dependent on the time duration when the contract surpasses the stipulated time, where by $ 1000 is charged per day delivered late. Based on experience with the two sub-contractors there exists a summary of the possible outcomes if each of the sub-contractors are awarded the sub-contact. A decision tree approach is to be applied to arrive at the most rational decision. The summary of the details of work of the two sub-contractors are as follows: Sub-Contractor A: Puts a lower bid of $ 110,000. There is a 50% chance that the project will delay by 90 days. Sub-Contractor B: Charges a higher cost of $ 140,000. Has a 10% chance of delivering late by 30 days. Exercise The duty ahead of the decision maker is to come up with a decision on rational basis on the best sub-contractor to use who will be beneficial for the main contractor and the customer. The figure below is used to demonstrate the various circumstances, the probabilities for each event happening costs attaching and the rewards that would be accruing should a certain course of action be selected. $110,000 $ 140,000 Computations The various outcomes are labeled a, b, c and d for ease of identification. Based on this decision criterion the following outcomes will be expected for each course of action: (a) Cash outlay = 110, 000 + (90*1000)0.5 = $ 155,000 (b) Cash Outlay = 110,000 + (0*1000)0.5 = $ 110,000 (c) Cash Outlay = 140,000 + (1000*30)0.1 = $ 143,000 (d) Cash Outlay = 140,000 + (1000*0)0.9 = $ 140,000. In this case the decision maker’s perception of risk will have a bearing on the sub-contractor chosen. But in reality, the choice of the contractors should be dependent upon the economic value gained whereby the best would that which maximizes monetary value or the one which minimizes the expected costs. Rationality Using Payoff Matrix This approach entails a summary of the various alternatives that are available to the decision maker and the various state of nature that are likely to occur. Each of the cell represents the outcome value for each alternative under the various states of nature. Then a total is taken for each row, and based on the expected monetary value the alternative with the highest payoff is selected. Based on the expected opportunity loss the alternative with the least amount of monetary loss is selected. The alternatives and the states of nature jointly determine the payoffs. The decision maker considers each alternative presently and this is within his/her means but it is not possible to predict with precision the exact state of nature that will occur in the future. This aspect becomes the source of risk in the decision making process by this approach. Example: A trader wants to diversify his operations into a completely new line of business. He has three possibilities that he can exploit: establish a travel agency chain; a property modernization and upgrading firm or a fast food firm. The first option is based on the reasoning that the population is on the precipice of having more mature families with higher levels of disposable income and probably more time for travelling. In the second alternative, the trader expects that small and medium sized businesses find it expensive to construct new houses and with the economic growth being on the rise there are immense opportunities for sourcing contracts to refurbish existing premises. The decision to enter in the fast food industry is based on the observation that people are continuously becoming busy and want more time for working and hence give little attention to preparing their own food. This trader is confronted with two states of nature based on the future status of the economy – a desirable state with sustained growth that supports production and high aggregate demand and another undesirable sate defined by uneven trends in economic tools such as interest rates, inflation and currency exchange rates. The former has a probability of 0.7 of occurrence and the later has 0.3. The table below summarizes the payoffs for each alternative under the various state of nature. States of nature Uneven growth sustained growth Alternatives 0.3 0.7 Travel Agency chain ($ 10,000,000) $ 50,000,000 Property Modernization and Upgrading firm $ 90,000,000 $ 15,000,000 Fast Foods Firm $30,000,000 $25,000,000 Intuitive Approach to Decision Making If intuition were to be considered a type of knowledge, then some clarity must be sought as to the nature of that knowledge and the impact it has on the decision making process. Lack clear visibility is the major source of concern for using it as a type of knowledge in making health care decisions. When applying intuition the set of beliefs and values that guide the thought process are explicit to the decision maker only. The lack of consistency that accrues to that system makes its validity be treated at suspect by critics. This is especially so in today’s world where greater patient participation in matters of their health is being advocated not only by the professionals in the field but also national policy makers. The sensitivity of one’s health cannot also be slighted when determining how to evaluate decision making in the health sector (Quattrone & Tversky 2003). According to Pellegrino, explication of decisions is morally questionable. He asserts that “to resort to terms like ‘art’ or ‘intuition’ is to impede explication of a socially significant process” (Pellegrino, 1998). This attribute raises the question of moral validity of the approach to arriving at the right decision, by criticizing the very process through which the decisions are arrived at. The application of intuitive approach in the health sector is a risky move to make. Largely due to the sensitivity of human life and the technicality with which medical cases have to be resolved. A standard way of diagnosing patients would be the most welcome idea and this is the approach that is widely in application. For example, Elstein, who was doing research in the medical field studied fifty community \physicians’ intuitive decisions regarding a decision of whether or not to recommend oestrogen therapy. He compared their findings with the results of decision analysis system. The estimates of the physicians were incorporated in the decision tree. These estimates were subjective and regarded the risks of endometrial cancer against the benefits of preventing osteoporosis. The results of this study found out that there were serious deviations between the physicians’ intuitive judgment and the model. The physicians were found to be reluctant to prescribing the treatment. In this case the physicians were overly cautious to endometrial cancer than to the preventive measures against osteoporosis (Elstein et al., 2003). Conclusion It is safe to state that making a decision is a complex case. Furthermore, evaluating its validity is even more cumbersome. Much appreciation, however, has to be made to the contributions of the theories devised. To be on the safe side calls for involvement of the various factors and circumstances and being as objective as possible. The interests of other parties who are likely to be victims of the consequences of the decision must not be ignored. In the case of health care decision making context, professionals take decisions the consequences of which have an impact on the lives of others. They have a noble duty to take care of life and this makes their position very sensitive and the decisions they take alike. They hence have to employ much more analytic approach to decision making so as to avail the vital information on health of individuals known to them and other interested parties. Systematic approach to decision making is important in this field of science and a move to use support systems to aid the process would be a prudent move. References Elstein, A.S., Holzman, G.B., Ravitch, M.M. Metheny, W.A., Holmes, M.M., Hoppe, R.B., Rothert, M.L., & Rovner, D.R. (2003). Comparison of physicians’ decisions regarding oestrogen replacement therapy for menopausal women and decisions derived from a decision analytic model. In J. Dowie & A. Elstein (Eds.), Professional judgment. A reader in clinical decision making. Cambridge, UK: CUP. Gerrity P. (2000). Perception in nursing: The value of intuition. Holistic Nursing Practice, l (3), 63-71. Holloway C.A. (1998). Decision Making Under Uncertainty: Models and Choices, Englewood Cliffs, NJ, Prentice-Hall. March J.G. (1994). A Primer on Decision- Making. New York: Free. Pellegrino, E.D. ( 1998). The anatomy of clinical judgments. Some notes on right reason and right action. Dordrecht: Reidel. Quattrone GA, Tversky A. (2003). Contrasting rational and psychological analyses of political choice. Am. Polit. Sci. Rev. 3: 719–36. Young C. (2000). Intuition and Nursing process. Holistic Nursing Practice, l (3), 52-62. Read More