Decision Making Models & Styles to Make Better Business Choices

It’s Decision Time!

Which decision making models best describe your business’s decision process? COVID has created volatility, uncertainty, complexity, and ambiguity galore. Making decisions is harder than ever, but understanding the different models can help.

Mind map of decision making

Understanding decision making models can help you to make better business decisions

 

We look at some popular decision making models, and we see how bad choices can get made for good reasons. Also, with many businesses claiming ethical stances, we consider what ethical decisions are. We conclude you’ll never please everyone. The secret is to tailor your approach and be authentic.

WARNING! Decisions May Not Be Rational

Human beings are not computers. We’ve evolved from animals. We may think we’re being rational, but powerful motivations often drive us.

We’re social creatures, programmed for attachment. Acceptance is what we crave, from bosses, colleagues, and customers. We seek power over employees and suppliers. Unconscious biases affect our thinking. Decision making models offer us a chance to bring rationality into all this.

What is a Decision Model?

Decision models are templates for perceiving, organising and identifying the logic in making business decisions. They’re prescriptions for evaluating the available facts. And from there arrive at conclusions offering the best meaning and value for your business.

Decision modelling is different. This is a quantitative approach. It uses mathematical, statistical, or scientific methods to determine how best to allocate resources to improve systems’ performance. People also use the terms operations research and management science to refer to decision modelling.

Quantitative Techniques for Decision Making

There’s a long list of quantitative techniques, which are fascinating but outside our scope. They include:

  • Mathematical programming.
  • Cost analysis ( AKA breakeven analysis).
  • Cost-Benefit Analysis.
  • Linear programming.
  • Capital budgeting.
  • Inventory management.
  • Decision tree.
  • Simulation.
  • Game theory.
mathematical drawings on blackboard background

Mathematical decision making is also key to decision making techniques

Returning to our theme, let’s look at some popular decision making models.

The Three Models of Decision Making

This widely accepted analysis categorises decision making in businesses and other organisations into three models:

  • The Rational/Classical model.
  • The Administrative or Bounded Rationality model.
  • The Retrospective Decision making model.

The Rational/Classical Model

This is the simplest decision making scenario:

  • Problems are clear.
  • Objectives are straightforward.
  • Everyone involved agrees about the decision criteria and how the different deciding factors are weighted.
  • You have full information.
  • You know all the alternative possible solutions.
  • The consequences of these different solutions are predictable.
  • All the decision makers are rational.

In this model, everyone is clear about the criteria and the relative importance of the different factors. They are also acting rationally.

Decision makers are considered to be rational when they:

  • Aren’t biased in recognising problems.
  • Can process all the information objectively.
  • Are able to anticipate the present and future consequences of their decisions.
  • Check out all the alternative options.

Cynics will point out that the conditions in this approach rarely, if ever, apply. But don’t give up!

Meanwhile, Back on Planet Earth

As you’ve gathered, the rational/classical model exemplifies how decisions should be made in an ideal world.  But real life business decision making is usually more like our next model:

The Administrative or Bounded Rationality Model

We settle for less than the best because we don’t have the time or capability to process all the available information. This is pretty much the norm for many businesses. And the realist who came up with this model was Herbert Simon.

Black and white photo of Herbet Simon

Herbet Simon’s decision making model consisted of three strands

 

Herbert Simon’s decision making theory covers three strands:

Sequential attention: Examine the possible solutions, one at a time. Stop searching when you find a solution that works. Settle for this, instead of checking out all the possible options.

Heuristic: Look for alternatives in areas most likely to produce successful results.

Satisficing: Pick a course of action that is good enough, or satisfactory. Accept the first alternative that meets the minimum requirements, rather than pushing for the best results.

This approach is fine when you’re pushed for time and there’s not much difference between the alternatives. So, there’s no comeback if you pick the wrong one.

The Retrospective Decision Making Model

As the name suggests, this focuses on how decision makers try to rationalise their choices after they’ve been made! The process sets out to justify, through apparently rigorous analysis, decisions made intuitively. So by working like this, the person concerned convinces themselves they have acted rationally and taken a logical, reasoned decision. Politicians and autocratic managers will be familiar with retrospective decision making…

Making Ethical Decisions

With so many businesses positioning themselves as high principled, it’s timely to visit that tricky subject, ethical decision making. In making ethical decisions, you need to identify and eliminate the unethical options and select the best ethical alternative.

The steps to ethical decision making are:

  • Gather all the facts: don’t reach conclusions without them. What assumptions are you making?
  • Define the ethical issues.
  • Identify the parties likely to be affected.
  • Anticipate the consequences.
  • Identify the relevant principles: which are the key ones?
  • Consider your own character: what would someone of integrity do?
  • Think creatively about the potential outcomes: have you been forced into a corner? What could happen?
  • Check your gut: does your choice feel right?
  • Decide on the proper, ethical action and prepare to deal with the consequences.

How Do You Know if a Decision is Ethical?

  • Analyse the expected results.
  • Understand the implications of your decision.
  • Check whether the rules and values involved are good practice.
  • Identify the character of your decision.
  • Appreciate your choice of solution.

Decision Making By Numbers

What are the 2 Types of Decision Making?

These divide into programmed decisions and non-programmed decisions.

Programmed decisions are based on well understood criteria: non-programmed decisions are novel, lacking clear guidelines for reaching a solution. Managers can establish rules and guidelines for programmed decisions based on known facts, enabling them to reach decisions quickly.

On the other hand, non-programmed decisions happen in unstructured situations, where the problems are ill-defined and complex. Scenarios include deciding whether to buy another company, which markets offer most potential or whether to discontinue a product. These decisions are unique and non-recurring.

What are the 4 Decision Making Styles?

A white number four

There are 4 key decision making styles

Analytical:  This relies on having all the data about the different options and going over it with a fine toothcomb. The solutions will be comprehensive, detailed and thorough. But, the likely shortcoming is that the findings may overlook the human issues or emotional factors affecting the situation.

Behavioural: By contrast, this focuses on the group members’ feelings and welfare and other social aspects at work. It evaluates this information emotionally and intuitively. This approach focuses on relationships, rather than tasks to be done. As a model, this helps understand individuals’ conflicting desires and how these fit into specific situations. However, it needs the group members’ contribution, and is not Directive.

Conceptual: This is effective for fathoming out long-term solutions, which may call for taking higher risks. It involves brainstorming alternatives and creative approaches to problem-solving. The Conceptual model identifies best options, which then need to be progressed using the Analytical style.

Directive: This is an autocratic style, where employees are led to use their knowledge, experience and judgement to choose the best alternative. Leaders act rationally, but think mostly about the short term. The shortcoming is that the leader rarely has all the information to make effective decisions.

And There’s More

There is a raft of other possible models to assist decision making. Here is a selection:

Intuitive Decision Making Model

Even when we make decisions instinctively, or intuitively, we’re still actually following a decision-making model. Intuitive decisions happen rapidly, but they’re not simply popping into our head! Our brain is doing lightning-speed pattern recognition. It’s reviewing everything we’ve learned from similar past situations to help make our decision now.

Going back to what we said at the start about evolution, intuitive decision making is how our ancestors survived. Hey look, that animal in the cave. The one with the orange and black stripes, that’s a tiger. Quick, the spear!

The Vroom-Yetton Process

We’ve heard a lot about agility, resilience and pivoting in the last year or so. And business people accept this is the way things have to be now. Our next model, the Vroom-Yetton process, helps achieve that flexibility. It gives us a brace of decision making styles to call on, each of which can be appropriate at different times:

  • Being autocratic, either making the decision on our own or collecting information from the team.
  • Seeking advice.
  • Being consultative, as in considering alternative approaches before making a decision.
  • Briefing the group on an issue.
  • Allowing the group to develop the solution.

This is also known as the normative approach.

The Vroom-Yetton Questions

Victor Vroom and Philip Yetton formulated seven questions. These enable leaders and managers to determine which of the above styles is best for their situation.

  • Is there a quality requirement? Is the nature of the chosen solution critical? Or is there a technical or rational basis for our choice?
  • Do I have enough information for a high-quality decision?
  • Is the problem structured? Are the alternative courses of action and the methods for their evaluation known?
  • Is acceptance of the solution by subordinates critical to its implementation?
  • If I make the decision by myself, is it reasonably certain that it would be accepted by my subordinates?
  • Do my subordinates share the organisational goals to be obtained in solving this problem?
  • Is causing conflict among subordinates likely to result in obtaining the preferred solution?
Question marks chalk drawing on blackboard background

The Vroom-Yetton Questions are made up of 7 questions

The Only Game in Town

Talking about decision making is like commentators discussing sport. Everyone round the table has a view.

The Top 5 Decision Making Models

Some commentators list five models:

  • Rational
  • Bounded rationality
  • Vroom-Yetton, with its brace of styles
  • Intuitive

We’ve covered these. The fifth model in this list is new:

  • Recognition-primed

Recognition-primed decision making is similar to intuitive decision making. We recognise a pattern, which prompts us to pick a course of action. Then we run through the action script in our mind. If it’s likely it will work we go ahead. If it doesn’t, we dump it and try something else.

The management consultancy world is good for generating theories about decision making. Here are two:

The RAPID decision-making model: Developed by Bain & Company, this gives organisations a clearer way to make decisions. The letters stand for the key roles Recommend, Agree, Perform, Input and Decide. The central role is Decide, with all the others in support.

The McKinsey approach to categorising decisions: McKinsey categorise decisions into:

Big bet: Infrequent and high-risk, these can affect the business’s future.

Cross-cutting: Frequent and high-risk decisions, these tend to be relatively small and interconnected, made by different groups. They might include investments in a property portfolio.

Delegated:  These are frequent but low-risk decisions handled by an individual or team, with limited input from others.

Ad hoc: This covers infrequent, low stakes decisions, which again don’t really affect the business’s overall wellbeing.

Mintzberg’s Modes of Strategic Decision Making

The Canadian academic and business author Henry Mintzberg identified four common approaches for strategic decision making:

Entrepreneurial mode: The strategy maker here is a powerful individual with entrepreneurial competences like innovation and risk-taking. Typically they are the founder of the business: their vision guides the strategy, based on bold decisions.

Planning: This harks back to our first three models, Rational, Bounded Rationality, and Retrospective. Planning involves systematic information gathering, generating alternative strategies, and rational selection of the most appropriate option.

Adaptive mode: This is characterised by reactive solutions to problems, not proactive searching for new opportunities. Also known as the Incremental model, priorities are set by bargaining: strategy is fragmented. The organisation moves forward, but in small steps. This tends to happen when policy makers don’t identify objectives and examine alternatives, as required in the Rational ideal.

Logical Incrementalism: In this mode, management develops a clear idea of the mission and objectives. It then uses an interactive process to probe the future, experiment and learn from partial commitments. This is important in fast changing environments, where you need to build consensus and develop resources before committing further.

And Finally… It’s in the Garbage Can

If you’re feeling jaded at work, you might think your organisation’s decision making fits into our last model. But if you do, you said it, not us…

The garbage can model: The blurb says this describes “the chaotic reality of organisational decision making in an organised anarchy.” This model originated in a 1972 paper, A Garbage Can Model of Organisational Choice. The authors were Michael Cohen, James March and Johan Olsen. In their model, such an organisation was “a collection of choices looking for situations where they could be aired.”  They also called it, “a set of solutions looking for issues to solve and decision makers looking for work!” Harsh but fair?

Before we go, when you’re making decisions, you need to look into all the factors that could affect them. Here are some common pitfalls to beware of:

Indecisiveness: Fear of choosing the wrong outcome makes you timid about decision making.

Lack of method: You may end up not finding the problem’s root cause. To define the objectives, criteria and constraints, you need a system like the ‘GROW’ model.

Letting emotions creep in: Sometimes making choices is tough. Formalising decision processes reduces the chances of emotions affecting decisions.

Procrastination: Allow time to tackle problems. Don’t delay to the last minute!

Follow through: Set ‘SMART’ goals: Specific, Measurable, Achievable, Realistic and Time bound.

The Last Word

In a McKinsey survey, 72% of executives felt bad strategic decisions were as frequent in their business as good ones. Or, they thought bad decisions were the prevailing norm. Remember, you can’t win ’em all. Be authentic and flexible, and go for it!

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