Business Decision Making Styles

The way managers are used to taking decisions usually falls under one of these three types – the classical style, the administrative style, or the political style. The selection of style depends on the manager’s preferences whether the decision is programmed or non-programmed  and the extent to which the decision depends on risk, uncertainty or ambiguity.

The classical style of decision making is based on economic assumptions. This style has risen within the management because managers are expected to make decisions that are economically sensible and in the organization’s best economic interests. The thinking underlying this style is as follows:

  • The decision maker operates to accomplish goals that are known and agreed upon. Problems are precisely formed and defined.
  • The decision maker strives for conditions of certainty, gathering complete information. All possibilities and the expected results of each  are worked out.
  • Methodology for evaluating alternatives are known. The decision maker selects the alternative that will maximize the economic return to the organization.
  • The decision making manager is judicious and uses logic to assign values, evaluate alternatives and make the decision that will maximize the attainment of organizational goals.

The classical style of decision making considers that a decision maker should make decisions. It does not describe how managers actually make decisions so much as it provides guidelines on how to reach an ideal outcome for the organization. The value of the classical model has been its ability to help decision makers be more rational. Many managers rely solely on intuition and personal preferences for making decisions. For example, during the time of rising medical costs, decisions in hospitals about expensive procedures and drugs are usually made on ad hoc basis. Administrators at a University Medical Branch however, are using the classical style to provide some clear guidelines and rules that can be consistently applied.

Patients without insurance must pay up front to see a doctor. Strict rules bar expensive drugs being given to patients who can’t  pay for them. Screeners see patients as soon as they come in and follow clear procedures for determining who is eligible for that service. A special fund can pay for drugs that are off limits to poor patients but approval has to come from the chief medical director, who often uses cost benefit analysis to make her decisions. The hospital’s rationing system is controversial. However top managers argue that it helps the institution impartially care for the poor. Also it is according to the budget  to keep the institution financially well.

In many respects the classical style represents an ideal model of decision making.

For example, new analytical software programs automatically result in programmed decisions, such as  freezing the account of a customer who has failed to make payments.

An energy rental company uses a system that captures financial and organization information about customers to help managers evaluate risks and make credit decisions. The system has enabled the division to reduce costs, increase processing time and improve cash flow.

In the retail industry, software programs analyse current and historical sales data to help companies. Unlocking Creative Solutions Through Technology box describes how Southwest airlines uses quantitative models to help keep costs low and retain its position as the low cost leader.  The growth of quantitative decision techniques that use computers  has expanded the use of the classical approach.  A television network in US uses a computer based system to create optimum advertising schedules.

Administrative  style:

The administrative style of decision making requires managers to actually make decisions in difficult situations, such as those  distinctive qualities of non-programmed decisions,  uncertainty and doubtful decisions. Many management decisions cannot be sufficiently programmed to lend themselves to any level of quantification. In this case managers are unable to make costwise rational decisions even if they want to.

The administrative style of decision making is in shaping the administrative function. This is bounded by rationality. Bounded by rationality means that people have limits, or boundaries on how rational they can be, the organization is impossibly difficult and managers have the time and ability to process only a limited amount of information with which to make decisions. Managers do not have the time or thinking ability to process complete information about complex decisions.

Managers will select for the first option that appears to solve the problem even if better results are supposed to be true to exist. The decision maker cannot justify the time and expense of obtaining complete information.

Rather than pursuing all alternatives to identify the best result that will increase the cost benefits. The decision maker cannot justify the time and expense of obtaining complete information.