Organizational constraints in decision making


The organization itself constrains decision makers and thus can create deviations from the rational model. Managers, for instance, shape their decisions to reflect the organization’s performance evaluation and reward system, to comply with the organization’s formal regulations, and to meet organizationally imposed time constraints. Previous organizational decisions also act as precedents to constrain current decision.

Performance Evaluation

Managers are strongly influenced in their decision making by the criteria on which they are evaluated. If a division manager believes that the manufacturing plants under his responsibility are operating best when he hears nothing negative, we shouldn’t be surprised to find his plant managers spending a good part of their time ensuring that negative information doesn’t reach the division boss. Similarly, if a college dean believes that an instructor should never fail more than 10% of her students—to fail more reflects on the instructor’s ability to teach—we should expect that instructor who want to receive favorable evaluations will decide not to fail too many students.

Reward systems

The organization’s reward system influences decision makers by suggesting to them what choices are preferable in terms of personal payoff. For example, if the organization rewards risk aversion, manager are likely to make conservative decisions. From the 1930s through the mid-1980s, General Motors consistently gave out promotions and bonuses to managers who kept a low profile, avoided controversy, and were good team players. The result was that GM managers became very adept at dodging tough issues and passing controversial decisions on to committees.

Formal Regulations

All but the smallest of organizations create rules, policies, procedures, and other formalized regulations in order to standardize the behavior of their members. By programming decisions, organizations are able to get individuals to achieve high levels of performance without paying for the years of experience that would be necessary in the absence of regulations. And of course, in so doing, they limit the decision maker’s choices.

System –Imposed Time constraints

Organizations impose deadlines on decisions. For instance, department budgets need to be completed by next Friday. Or the report on new- product development has to be ready for the executive committee to review by the first of the month. A host of decisions must be made quickly in order to stay ahead of the competition and keep customers satisfied. And almost all important decisions come with explicit deadlines. These conditions create time pressure on decision makers and often make it difficult, if not impossible, to gather all the information they might like to have making a final choice.

Historical Precedents

Decisions aren’t made in a vacuum. They have a context. In fact, individual decisions are more accurately characterized as points in a stream of decisions.

Government budget decisions also offer an illustration of our point. It’s common knowledge that the largest determining factor of the size of any given year’s budget is last year’s budget. Choices made today, therefore, are largely a result of choices made over the years.

The inference is that these organizational constraints inhibit fresh ideas and decisions in view of the past actions. It is possible that the new ideas could have outperformed the old methodology but the managers are not willing to take a high risk due to fear of failure which may antagonize the top management. That is how the organization acts as a constraint.