Decision Theory - Explanation, Contribution and Limitations | Principle of Management

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Decision Theory - Explanation, Contribution and Limitations

The Decision Theory:

Herbert Simon, Luther Gulik, and Lyndall Urwick have been the major contributor to this management thought. This theory focuses on managerial decisions. Decisions are made through rational choice among different alternatives available. It is a choice-making activity and choice determines our activity.

Herbert Simon’s (One of the major contributors of decision theory) model is based on two concepts

  1. Bounded rationality: rational decision making is constrained by the limitation of knowledge, resource, etc.
  2. Satisficing: Maximization is not possible in decision making. The decision makes should “satisfice” and achieve the satisfactory outcome administrative man always satisfice.

This theory advocates that decision making should be rational. The rational approach to decision making should involve the following steps:

  1. Define the problems
  2. Identify relevant alternatives
  3. Evaluate the alternatives.
  4. Select the best course of action
  5. Implement the action
  6. Evaluate the result of the action

Contribution and Limitation of Decision Theory:

Contribution:

  1. In the field of management the decision theory provides guidelines for the manager to make a decision and solve problems.
  2. This theory provides the “science” of improved organizational decision making through quantitative methods.
  3. The theory makes the path for studying the process by which administrative organization makes decisions.

Limitations:

  1. It does not take a total view of management. Its scope is limited.
  2. Sometimes it is difficult to claim whether a decision finalizes the action or commence the action.

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