There are 6 steps in the rational decision-making process that must be followed to produce optimal results.
Defining the Problem in Rational-Decision Making
Identifying the problem is the very first step in the model. Once the problem or choice that needs to be made is defined then the desired outcome can be more understood. The problem or the issue that needs solving needs to be defined clearly to make all the other steps in the process make sense. Defining the problem is the foundation of the entire rational decision-making process.
Identifying the Decision Criteria in Rational Decision-Making
The second step in the process is to identify the decision criteria needed to make a rational decision. This information should be connected to the problem listed in the first step and also the desired outcome. This step in the process will require adequate research. Identifying the decision criteria will also require self-reflection. The criteria that are chosen should reflect a person's values they wish to see when adding in variables.
Allocating Weights To Criteria in Rational Decision-Making
The next step is to assign a weighting to the criteria chosen in step 2. Criteria should be ranked on factors that are most important when making decisions. This step requires critical thinking skills to find the solution to the problem as well as applying reasoning to each ranking category.
Developing Alternatives in the Rational Decision-Making Model
The fourth step in the process is to develop alternative solutions. This step is important because it gives someone who is making difficult decisions more options. These options should be listed in order of impact to overcome a challenge or complete the target goal. The choices selected need to be reasonable and should be ranked in order of ability to meet the criteria listed.
Evaluating the Alternatives in Rational Decision-Making
Evaluating the alternatives and how they can lead to the successful accomplishment of the challenge or goal is the next step. This step requires a lot of time, research, and reflection to confirm that the alternatives chosen will help make the best decision.
Selecting the Best Alternative in the Rational Decision-Making Process
The final step of the rational decision-making process is selecting the best alternative solution. Choosing the option and evaluating how it will lead to success will solidify the implementation process of this step. One could also optimize their final alternative solutions during this step to best craft their final evaluation of choices. The final decision needs to deliver the best value compared to other solutions. Investing time to do extra research and reflection over the entire process is vital in the final step.
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One of the most common rational decision-making examples is when a high school student is deciding what to do after high school. The example below will illustrate a generic rational decision-making model that a high school senior may use when deciding life choices:
- Defining the problem: The high school senior needs to list all the issues they face when leaving high school. They also need to make sure that they write down the goals they wish to accomplish or challenges they need to overcome.
- Identifying the decision criteria: The student will then need to come up with post-school life criteria. Criteria could be proximity to family, lifestyle, income, enjoyment, or other personal values.
- Allocating weighting towards criteria: The student will then need to rank each criterion to the priorities they desire. This ranking system could be numerical 1-5.
- Developing a list of alternative solutions: The student now needs to come up with a list of other options after high school. The high school student can put options like working right after graduation, going to college, taking a gap year, opening up their own business, or taking some time to travel.
- Evaluating the alternative solutions - Each solution alternative needs to be reflected on and how it will achieve the student's goals or answer issues as listed in the first few steps. Each alternative should be evaluated to see how closely it aligns with the goals the student has set.
- Selecting the best alternative: The student will then need to make their final decision and implement it. If the student chooses to start their own business after high school, they need to evaluate the other choices before doing so. The benefits that come with that decision must outweigh the other possible solutions.
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The Rational Decision-Making Model is a step-by-step process in comparing choices and implementing a solution. Rational decision-making is considered a precise process because the process uses analysis to arrive at a fact-based decision. Rational decision-making is different from intuitive decision making because the intuitive decision is not as precise, but it is much faster. The steps involved in the rational decision-making model are: defining the problem, identifying the decision criteria, allocating weight to criteria, developing alternative solutions, evaluating alternatives, choosing a solution, and implementing it.
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Video Transcript
Rational Decisions
Business people are faced with decision making every day. Intuitive and rational decision making are the two ways that an individual can approach problem solving. Some people are very aware of feelings or instincts and use them as guides to decision making. These types of feelings are instinctive and rely on intuition and not facts. In fact, intuition is the ability to have a grasp on a situation or information without the need for reasoning. In business, people use this type of decision making when facts are unavailable or when decisions are difficult in nature.
The second, opposing type of decision making is called rational decision making, which is when individuals use analysis, facts and a step-by-step process to come to a decision. Rational decision making is a precise, analytical process that companies use to come up with a fact-based decision. Let's take a look at how the rational decision-making process can work in an organizational environment.
Rational Model
Violet Jones is a manager at the Intestinal Distress Tacos fast food restaurant. She is under enormous pressure from headquarters to increase her monthly profits. Violet is not sure what the solution is for her financial dilemma. She has to decide to use the rational decision-making model to determine the best path for a solution. To do this, Violet must follow these six steps:
- Define the problem.
- Identify the decision criteria.
- Allocate weights to the criteria.
- Develop the alternatives.
- Evaluate the alternatives.
- Select the best alternative.
Let's take a look at the process Violet used to determine how to increase company profits for her store.
Define the Problem
Violet first needs to define the problem. This step is relatively easy for Violet, as upper management has already identified the issue. Her store profits have not increased month to month, so she needs to find the best solution to increase profits. The next step facing Violet is to determine what criteria she will use to make her decision.
Identify the Decision Criteria
The next step in the rational decision-making process is to identify the decision criteria. This step deals with choosing variables that will determine the decision outcome. In Violet's case, she needs to determine the criteria or information that is relevant and will help her increase her profits. The criteria are usually dependent upon the individual's values and beliefs. Violet will make her decision based on her belief that she should not eliminate any employees to save money. She will only cut costs in other ways, such as finding cheaper vendors, shortening store hours, changing menu options, etc. Her criteria will be:
- How will employees be affected?
- How will changes affect customers?
- How will changes affect quality?
Allocate Weights to Criteria
Violet's next step is to allocate weights to the criteria. This means ranking which criteria is the most important to the decision-making process. Violet feels that the biggest weight should be given to how the change will affect employees. The other weights are then distributed equally. The next step starts to consider solutions.
Develop the Alternatives
The next step is to develop alternatives, which is where the potential solutions need to be considered. There will not be any consideration in this step, just a generated list of alternatives. Violet has brainstormed a short list of alternative solutions:
- Select a new distributor of food and supplies that will cost less money.
- Shorten store hours, which will limit overall overhead costs.
- Lay off some employees who are making larger salaries.
- Increase promotions to lure new customers and sales.
Now, Violet needs to consider the alternative list she developed.
Evaluate the Alternatives
Violet spent all weekend evaluating the alternatives to see which choice would have the least impact on employees yet solve her financial dilemma. After much consideration, Violet has decided to submit her recommendation to management with the hopes that it will increase store profits.
Select the Best Alternative
The last step in the rational decision-making process is to select the best alternative, or choose the best decision. Violet feels that in order to increase profits and protect her employees' jobs, she needs to look for other ways to cut costs. Her recommendation to management is to find new vendors for areas of the company that will not affect product quality. For example, Violet has already found a cheaper vendor of cash register receipts that will save her $200 a month.
In general, excellent managers are able to easily switch between analytical and intuitive decision making. In addition, managers should not look at rational, analytical decision making as exclusive of intuitive decision making. In fact, a combination of both types of decision making usually yields the best result. In the rational model, the business decision maker needs to optimize the solution, or select the best alternative.
Lesson Summary
Certain types of business decisions are instinctive and rely on intuition and not facts. Intuition is the ability to have a grasp on a situation or information without the need for reasoning. The opposite of intuitive decision making is rational decision making, which is when individuals use analysis, facts and a step-by-step process to come to a decision. The decision maker needs to optimize, or determine the best solution for the problem, by using a six step model. The steps are:
- Define the problem.
- Identify the decision criteria.
- Allocate weights to the criteria.
- Develop the alternatives.
- Evaluate the alternatives.
- Select the best alternative.
In summary, employees should rely on a mixture of both intuitive and rational decision making in order to provide the best solution to business decisions.
Learning Outcomes
After you've concluded this lesson, you'll be able to:
- Distinguish between intuitive and rational decision making
- Illustrate scenarios when one might choose intutive over rational decison making and vice versa
- Detail the six steps when utilizing the rational decision making model
- Note the ways in which the use of both intuitive and rational decision making can lead to the best solutions
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