Rational Decision Making Analysis - Literature review Example

Observation Review Student’s Name Institution’s Name Date Observation Review Decision Summary The paper is based on an innovative decision that was made to enhance business operation and to increase its competitiveness in the market. The decision was made by my uncle and his clothe design retailing business partner in their small office. The two business partners had started women fashion retailing shop with intention of retailing modern fashion to the women in town. However, based on high level of competition in the region, they were not able to meet their business sales goal one year after the business establishment. In this regard, they considered establishing a new strategy to employ to meet their sales objective in the future. The decision was made after effective evaluation of the possible solutions. The two partners listed down a number of possible solutions. They had a list of about five possible solutions that could have been employed to enhance their sales. They then evaluated each solution individually, determining the cost of implementation, the challenges and benefits. They listed all the challenges and benefits of each of the identified solution. They later reviewed the listed challenges and benefits and decided on one solution. The selected solution involved the employment of the modern internet technology to enhance the sales and to enlarge their market. The considered factors included the cost involved over the anticipated profit, the duration of the implementation, future business expansion, and the marketing advantage among other things. Ecommerce was selected as the best option to solve the experienced business problem. This involved the development of a website where they can post their new fashions and allow online purchase. This was easy since external host was available and thus, no much cost was to be incurred. This option also created a chance for expanding the market wide enough to enhance sales. It also provided the business a good chance to grow without any limit. Its main limitation was goods delivery and based on the situation, there was an option of overcoming this by use of trusted curie systems in the country. Thus, ecommerce stood as the best option. The decision impact was seen a year after. The business had managed to increase their sales threefold. The demand had highly increased such that the partners had to higher three more designers to increase their level of output. The company’s cost of operation had also gone down since they could easily market their new designs via their website for everyone to see. The decision made one year ago can currently be considered to be the best decision made in their business. Rational Decision Making Analysis Rationality refers to a form of behaviour which is suitable to the attainment of provided goals, within the imposed limits, by provided constraints and conditions. It is the ability or set of skills we employ to evaluate whether we can move from one position to another, to determine the course of action which can result to the attainment of the anticipated goals (Simon, 1993). The decision in this case can be regarded as rational since it involved establishing the best course of action to attain the business goal. There was a clearly defined problem which was: the business inability to attain the anticipated volume of sales. The sales were high determined by the business level of competitiveness and thus, the partners had a goal of enhancing business competitiveness. According to Oliveira (2007), decision makers in rational models of decision making, analyse various possible alternatives based on different scenarios, prior to making a choice. These scenarios are measured by probabilities, where decision makers establish the anticipated scenario for every alternative. The final selected option would be the option that presents the best anticipated scenario, with the largest outcome probability. This was highly followed in the presented scenario. The problem was identified and all possible solutions were listed down, evaluated, and the best option was taken. The list of benefits and challenges was used to weigh the probability of successful outcome in every listed possible solution, and the final selection was made based on this criteria. In this regard, the presented process of decision making can be regarded to be rational, since rational process of decision making techniques were considered to resolve the problem (Oliveira, 2007). The procedure employed by my uncle and his partner is also highly supported by economic theory of rational decision making. According to Simon (1979), methodology of the rational decision making in economic theory results to the alternative selection after completing a modest three step process. This process includes evaluating the alternative feasibility, then pondering the alternative desirability, and lastly selecting the best option by integrating both feasibility and desirability. This process was highly adhered to in the identified case; though, the decision maker in this case did not highly consider the analytical evaluation of the process. Although they highly considered challenges and benefits, they only based this on their own knowledge of the market and the environment they were to operate in. The provided case also seems to fit well in the six step model of rational decision making process. The six step process involves problem identification, alternatives generation, alternatives evaluation, selection of an alternative, implementation of the selected alternative, and evaluating the effectiveness of the decision (Lunenburg, 2010). The summarized decision making process clearly involved an identified problem, which was inability to attain the anticipated annual sales. There was listing of the possible alternatives, alternatives were evaluated by determining their benefits and challenges, and the most feasible solution was selected and implemented. Nevertheless, the sixth step was not performed immediately. The decision outcome was only reviewable a year after. Despite this, it can clearly be stated that the decision making process was highly guided by the six step model of rational decision making process. Bounded Rational Decision-Making Analysis Full rationality needs unconstrained cognitive aptitude. According to Selten (1999), a full rational human is a legendary hero who has the solutions to all arithmetical issues and can do all computations immediately, irrespective of their complexity. A rational man is thus an ideal situation that cannot be easily attained. People are different and their cognitive aptitude is highly limited. Thus, according to bounded rational theory, the human being behaviours can never imitate the ideal aspect of full rationality. This is highly true in the presented case. Although the followed decision making process was highly rational, it stills has its own limitation. The two decision makers highly based their evaluation of the listed alternatives on their own knowledge of the market, which was definitely limited. To attain a full level of rationality, the two were supposed to conduct an intensive survey in the market to obtain tangible data that could be used to measure feasibility of each listed alternative. Mathematical evaluation was highly required to demonstrate the cost of each listed alternative, the implementation complexity, and the possibility of increasing the business competitiveness in the market. This did not happen. The decision was barely based on tangible information. A lot of assumptions were made while making choices and also while stating benefits and challenges. According to Grune-Yanoff (2007), human have limited knowledge regarding the world, limited aptitude to evoke the knowledge, limited aptitude to raise probable courses of action, and aptitude to arbitrate among the competing needs. These among other deficiencies deny them the ability to make ideal rational decisions. There is always a certain level of deficiency in their decision, irrespective of how perfect they may think they are. This can highly be demonstrated by the presented case of decision making. The two decision makers had limited knowledge of possible solution that can be employed to enhance their sales; otherwise, they could have managed a bigger list of possibilities. Despite this, they were unable to evoke this knowledge. They did not consider doing research in books, consulting experts, or asking other experienced individual for more information on how they could increase their sales. They only depended on their limited mind and all that it could present, and worked fully with that. The fact that they got a feasible solution in the long run does not eliminate the fact that there are other more feasible solutions that they did not consider while making their decisions. The human limitations clearly demonstrate their limitation in decision making. People can only make decision based on what they have or what they can get in their surroundings. This limits their ability as decision makers (Grune-Yanoff, 2007). The limited knowledge on various aspects makes it impossible for a human being to make an ideal rational decision (Barros, 2010). However, this still has its own benefits. The bounded rationality limits the number of possibility that one may be forced to work with while making a decision. For instance in this case, the decision makers were able to make their decision swiftly due to the limited list of possible solutions. If the two had more extensive knowledge regarding possible solutions, they could have taken much longer to evaluate them. Maybe a longer list could have presented a situation where the decision makers have a number of possible solutions with equal degree of best feasibility and benefits. This could have made it more difficult to make the final decision. In this regard, the limited knowledge worked to their benefit. References Barros, G. (2010). Herbert A. Simon and the concept of rationality: Boundaries and procedures. Brazilian Journal of Political Economy, 30(119), 455-472. Grune-Yanoff, T. (2007). Bounded rationality. Philosophy Compass, 2(3), 534-563. Lunernburg, F. C. (2010). The decision making process. National Forum of Educational Administration and Supervision Journal, 27(4), 1-12. Oliveira, A. (2007). A discussion of rational and psychological decision-making theories and models: The search for cultural-ethical decision-making model. Electronic Journal of Business Ethics and Organization Studies, 12(2), 12-17. Selten, R. (1999). What is bounded rationality. SFB Discussion Paper B-454: Dahlem Conference 1999. Retrieve from < http://www.wiwi.uni-bonn.de/sfb303/papers/1999/b/bonnsfb454.pdf> Simon, H. A. (1979). Rational decision making in business organization. The American Economic Review, 69(4), 493-513. Simon, H. A. (1993). Decision making: Rational, nonrational, and irrational. Educational Administration Quarterly, 29(3), 392-411. Read More