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Approaches to Decision Making
In management study, the issue of decision making is crucial as it influences the final result. While entering into a new market with a new product, it is vital to create and develop this product according to market features and requirements. To develop a new product, it is essential to make a market research and market analysis that will bring the necessary knowledge according to its relevance, so every manager should make his or her decision and the way of its implementation. Managers highlight many approaches of decision making in management strudy. Nevertheless, there are three main approaches, namely rational, bounded rationality, and intuitive. These approaches are the main basis of decision making in management that combine all necessary aspects for successful implementation of managerial projects.
The main decision making approach is rational, where the main point is to make a decision based on logic. As any other approach of decision making, rational approach signifies a multistep model, where the first step is to identify a problem and find appropriate decision that is supposed to be based on logic and rational thinking. In this approach, managers should make a significant plan of implementation, where every step must be well-organized and, as a result, the profit should be maximized. During this process, a manager is supposed to possess all required information, which will help him in making decisions. The first step in rational decision making is the formulation of a goal and then identification of possible criteria for making a decision. In addition, in every approach of decision making, it is vital to consider possible risks, so it is necessary to create some alternatives. The last step is analysis and final decision. Rational means that managers will maximize profit and minimize costs ("Rational decision making"). In business, it means that a manager must not implement various costs motivated by altruism, but only rational and necessary costs. In addition to set a goal and find possible alternatives in this decision making model, it is also vital to gather data, and list all possible pros and cons of the future decision plan. After making a decision, it is necessary to implement the decision and analyse the results.
Another approach is bounded rationality, or limited rationality, where the main point is that individuals make rationally limited decisions as they are usually limited by not perfect information and conditions. Moreover, decisions can be bounded by individuals intellectual traits. The main issue of this approach is that rational decision making is relevant for perfect circumstances and perfect information. In reality, this is almost impossible in business environment, so limited rationality is a crucial approach. Managers are always in a lack of time, face various force-majeures and changing environment, so managers search for the best solution in order to find an optimal decision. This approach is more widespread as any situation can bring different challenges, and the same situation at a different time can require different decision (Hontzeas).
The last approach of decision making in management is intuitive approach. The main point is that managers rely on their intuation in order to set the right decision. In this approach, managers should rely on their own feelings, past experience or obtained knowledge. Some may argue that this approach is not rational enough and business environment requires more serious approaches based on logic. However, it is possible to notice that intuition often helps in making right decisions. Intuition is a process dominated by subconscious mind of an individual, like inside voice, which helps in seeing possible results of made decisions. In every business environment or project, before starting a business a manager should recognize the business model and create necessary decisions that will sign the description of future business. This stage is extremely vital for a manager as it is necessary to collect all the information according to possible profit or loss, possession of the resources, and other important aspects. Intuition is based on previous experiences and knowledge, and that is why this approach is rational in many ways. Nevertheless, before making decision with a help of this approach, it is vital to gather data and information as possession of necessary information can help in making right decisions.
In conclusion, when a manager decides to enter a new market, it is vital to make market research and create the necessary strategy as well as make right decisions in order to get profit. Each manager is willing to choose the most profitable decision, that is why there are highlighted three main decision making approaches in management study, namely rational, bounded rationality, and intuitive. The first is rational, where the main point is to make a decision, which is based on logic. Then, there is a bounded rationality, or limited rationality, where the main point is that individuals make decisions rationally limited, as these decision are usually limited by not perfect information and conditions. The main issue of this approach is that rational decision making is relevant for perfect circumstances and perfect information. In reality, this is almost impossible in business environment, so limited rationality is a crucial approach. The last approach is intuitive, where the main point is that managers rely on their intuition in order to set the right decision. In addition, in every decision managers must find alternative ways and approaches because of the possibility of negative events and force-majeure situations.