The Rational Decision Making Model: Steps and Purpose in Organizations

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  • 0:05 Rational Decisions
  • 1:08 Rational Model
  • 2:04 Define the Problem
  • 2:28 Identify/Allocate…
  • 3:43 Develop/Evaluate/Selec…
  • 5:38 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Managers often rely on fact-based analytical decision making. Rational decision making can be very beneficial in the business world and differs from intuitive processes in several ways. Learn more about both decision-making tools, and find out which process provides the best solutions.

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:

  1. Define the problem.
  2. Identify the decision criteria.
  3. Allocate weights to the criteria.
  4. Develop the alternatives.
  5. Evaluate the alternatives.
  6. 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.

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