For instance, making decisions about how to cut costs by five percent reflects a problem. The manager also has to make decisions when there is an opportunity that can be exploited. If the firm has surplus funds, the manager has to decide whether the extra funds should be used to increase shareholder dividends, reinvested in current operations, or to expand into new markets.
The quality of managers' decisions is the yardstick of their effectiveness and value to the organization. Managers are usually evaluated and rewarded on the basis of the importance and results of their decisions. (P. Drucker) This indicates that managers must necessarily develop decision-making skills.
The success of an organization depends greatly on the decisions that managers make. (Management Assistant Program) The Rational model which is believed to be one of the major types of models regarding how managers make decisions is discussed below.
The rational model of managerial decision-making has its roots in the economic theory of the firm. When theories about 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. There was a tremendous support for this assumption from many thinkers of management. The rational model of decision-making believes that managers engage in a decision-making process which is totally rational. They not only have all the relevant information needed to take decisions but also are aware of all the possible outcomes and consequence of the decision so taken by them (Administration).
Decision-making is a systematic process and involves a series of steps. (Galbraith) Any decision making process consists basically of the following steps.
Identifying the Problem - The first step in the decision making process is identifying the problem. Prior to identifying the problem, it is essential to first recognize that a problem exists. The manager would have identified the problem when the administration department brings the problem with the photocopier to the notice of their superior - in this case the manager. This decision can be categorized as a non-programmed decision as the replacement of any kind of machines or equipment in a business is not done always. (Biz/ed) Non-programmed decisions are the ones which are taken in unforeseen conditions or which are unstructured.
Identifying Resources and Constraints - Once the problem is identified and diagnosed, the manager should identify the resources and constraints relevant to the problem. Anything that can be used to solve the problem is a resource. Resources include people, money, materials, time, equipment, expertise, and information. On the other hand, constraints are the factors that limit managers' efforts to solve the problem. With respect to the replacement of the photocopier, different companies which deal with that particular equipment, the marketing executives related to the equipment etc, are the resources. Constraints may be mismatch in the price and quality of the equipment, the supplier who can deliver the equipment at the earliest possible date.
Generating Alternative Solutions - Once the problem, resources and constraints of the organization are identified, the next step would be to generate