Bounded Rationality

According to Open University (2005), bounded rationality and political processes are the reasons why organisational decision-making is unstructured and chaotic rather than structured and rational. Despite the arguments that favour the structured approach to decision making, these processes are in reality mostly unstructured because people are limited in their cognitive, information processing and decision making capabilities.

March’s four propositions argue the fact that in reality decision processes are “complicated, confused and erratic” (Open University, 2005:19) because:

  • There are people with problems seeking solutions as well as people with pre-disposed possible solutions that eagerly await a situation where their “solutions” can fit a problem.
  • Organisations and its management deal with many issues at one time.
  • The importance and priority of issues are relative from day to day, are in constant flux and cannot be managed perfectly.

Depending on the nature and amount of decisions to be made as well as who is present on different occassions, managers are faced with occasions of choice. I will now discuss applicable theory to show why organisational decision-making is often erratic and unstructured in an attempt to support March’s propositions that the rational model does not best explain organisational decision-making. In rational decision-making a number of well-defined steps have to be followed to arrive at the best decision, given the information processed in sequential steps.

The rational model assumes a completely informed decision maker that:

  • Knows all possible alternatives;
  • Knows the impact and consequences of implementing each alternative;
  • Has a logical sense of priorities or preferences for each alternative; and
  • Has the ability to compare consequences and to determine final choice/s or preferred alternative. However, the model of bounded rationality seems to oppose this perfect rationality in decision-making. According to Simon’s (1979) work on bounded reality, it is professed that the rational manager does not always have complete information, and that optimal decisions are not always required.

This means that if an alternative satisfies certain minimum criteria, it is said to ‘satisfice’ and the process of further evaluation of alternatives is terminated. In relation to March’s 4 propositions, the work of March (1988) on organisational theory developed a reference to ‘ambiguous behaviours’ i. e. explanations or interpretations of behaviours which contradict rational decision-making theory. He explains that in extreme cases of uncertainty, behavioural responses would appear irrational and not in compliance with logical and structured processes.

The essence of this theory is that it disconnects problems, solutions and decision makers from each other, unlike traditional decision theory. Specific decisions do not follow an orderly process from problem to solution, but are outcomes of several relatively independent stream of events within the organization. ” ( Daft, 1982:139). Problems require attention and are the result of performance gaps or the inability. Problems may originate inside or outside the organisation. Traditionally, it has been assumed that problems trigger decision processes.

If they are serious, this may happen. Usually, however, an organisation has a storage of ideas (e. g. standard operating procedures etc. ) in what theorists call a garbage can . Managers sift through the garbage and looks for a suitable fix, called a solution. Solutions are answers (more or less actively) looking for a question. Participants may have ideas for solutions; they may be attracted to specific solutions and volunteer to advocate these. Significant solutions have to be prepared without knowledge of the problems they might have to solve.

The internal and external environment of an organisation are constantly changing and to keep up to these changes, organisations and their management are faced with many issues at one time. They therefore operate on the basis of inconsistent and unclear priorities. Their own processes are not understood by their members and they mostly operate by trial and error. Their decision-making boundaries are uncertain and ever-changing; and the mix of decision-makers for any particular decision may change without notice. How can they then manage a structured process with these dynamics perfectly?.

We then have the political process of decision-making. There are occasions when organisations are expected (or think they are expected) to produce behavior that can be called a decision (or an ‘initiative’). Just like politicians cherish ‘photo opportunities’, managers and stakeholders needs occasional ‘decision opportunities’. Participation varies between problems and solutions. Choices are swayed depending on which participants are present. Participants may have favourite problems or favourite solutions which they hang on to.

They carry these around until they are able to share them with others (on these so called occasions of choice) They then get assistance in resolving or providing a solution to a problem. Rational decision-making presupposes that there is one best outcome. This model also presupposes that it is possible to consider every option and to know the consequences of each. In reality, this is not all possible. This discussion substantiates March’s viewpoint that decision-making processes are chaotic and unstructured rather than structured and logical!