Effective decision making is an integral part of modern workplace management. Managers, team leaders and even employees need to make rational and sound decisions every day. The right decisions, choices and approaches help in meeting organizational goals more efficiently. It helps organizations adopt and implement measures that optimize growth in terms of products and/or services offered. In other words, decisions drive actions.
Herbert Simon was one of the first theorists to highlight the importance of decisions in a business environment. Read on to see why the Herbert Simon Decision Making Theory still holds relevance in current times.
History Of The Herbert Simon Decision Making Theory
Before we explore the Decision Making Theory, let’s understand the context in which it emerged. Herbert A. Simon is an American economist and popular scientist who was known for his multiple contributions in the fields of psychology, statistics and mathematics, among others. He was awarded the Nobel Prize for Economics in 1978. He is best known for his work on corporate decision making, also called behaviorism.
The Herbert Simon Decision Making Theory first appeared in his renowned book, Administrative Behavior (1947). He suggested that decisions were critical because if they weren’t taken on time, it’ll negatively impact an organization’s objective. The concept can be divided into two parts—one is the decision that someone arrives at and another is the process or actions taken. In other words, implementing a decision is as important as making that decision.
Understanding The Decision Making Theory By Simon
The Simon Decision Making Theory is a framework that provides a more realistic view of the world, where decisions affect prices and outputs. The theorist argued that making a decision is making a choice between alternative courses of action. It can even mean choosing between action and non-action. In contrast to classical theorists, Simon suggests that there is never one best course of action or decision. It’s because one can’t have complete information about something, therefore, there will always be a better course of action or decision.
The Decision Making Theory by Simon also considers psychological aspects that classical economists overlooked or ignored. Internal factors such as stress and motivations, among others, limit an individual’s capacity to solve complex problems. In short, decisions are based on bounded rationality—humans behave differently when there are risks and uncertainty involved. At the core of the theory lies ‘satisficing’, which is a combination of satisfying and sufficing. It suggests that one should pursue objectives or make decisions that involve minimum risks and complications as opposed to focusing on maximizing profits.
There are three stages involved in the decision making process:
Intelligence Activity Stage
At this stage, people identify the problems in an organization and the upper management analyzes the organizational environment to work toward a solution.
Design Activity Stage
In order to identify possible solutions to problems, the upper management looks for suitable strategies. They further analyze the merits and demerits to select a particular course of action.
Choice Activity Stage
After making a list of alternatives, the choice activity stage begins. It critically examines and evaluates the various consequences of all alternatives and the most suitable course of action is selected. This stage requires creativity, judgment and quantitative analysis skills.
Exploring The Types Of Decisions
With respect to organizational decision-making, the Simon Decision Making Theory recognized two types of decisions:
Programmed decision making involves those decisions that already have a plan or rule in place, which is used to reach a solution or conclusion. They follow already established guidelines and formal patterns. For example, managers have already made such decisions before and it’s a repetitive and routine process.
Contrary to programmed decision making, non-programmed decisions are ill-structured and one-time decisions. Problems or situations that don’t have a concrete set of rules or guidelines to follow rely on non-programmed decision making. These are complex and have long-term impact.
Whether it’s a programmed or non-programmed decision, here are effective strategies to make sound decisions at work.
Clearly define the problem you need to solve through your decision
Always do your homework and collect relevant information before arriving at a decision
Evaluate whether the information you gathered addresses the original purpose
Herbert Simon’s Decision Making Theory also emphasized the importance of rationality. He proposed the concept of bounded rationality, where people make decisions within certain limitations. He further supported the behavioral aspect of organization theory as personal biases and perspectives affect the way employees make decisions.
The Herbert Simon Decision Making Theory opened new doors for an organization. By shifting focus to the human mind, he helped administrations identify and resolve many unaddressed issues.
Effective decision making is a much-needed fundamental skill in your personal and professional life. Harappa’s Making Decisions course will equip you with frameworks to process, reflect and include multiple perspectives for informed decision making. Enrolling with Harappa is good decision making!
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