Decision Theory
Decision theory is a science that acknowledges the presence of conflicting goals and suggests an integrative approach to making decisions in organizations in a rational manner. In other words, a logical framework that enables managers to formulate rules that may lead to advantageous courses of action under the given circumstances is the decision theory. Decision science concerns developing several alternatives and selecting the most viable one for organizational success. The contributors of decision theory are; Herbert Simon, James March, Luther Gullick, and Lyndall Urwick. They criticized classical theorists for decision-making on a horse sense. These theorists also developed several mathematical models and techniques for making decisions like; game theory, matrices, decision trees, etc. This theory indicates the following steps for decision making:
- Identification of problem,
- Identification of pertinent alternatives,
- Evaluation of alternatives,
- Selection of alternatives,
- Implementation of the best alternatives
- Evaluation of results.
Herbert Simon (1916- 2001) is the Nobel Prize (Economics) winner o 1978 for his continuous contribution to decision theory.
The characteristics of decision theory are as mentioned below:
a. Management is essentially decision-making.
b. Organizational members are decision-makers and problem solvers.
c. Quality of decision affects the organizational effectiveness.
d. All factors affecting decision-making are the subject matter of the study of management.
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Administrative Management Theory | Bureaucracy TheoryContributions of Decision Theory
1. The theory helps managers discharge their roles effectively using various tools.
2. The theory has helped for the diagnosis of problems in a scientific manner.
3. The theory is an evidential base for the development of different mathematical models and computer programs.
4. The theory has also helped managers to improve communication, incentives and analyze human values.
Limitations of Decision Theory
1 . The total aspect of management is ignored. The vital aspect is that the management is more than mere decision-making.
2. As like the behavioral theory this theory also considers a partial viewpoint of management. The theory focuses on studying only the decision-making function of management.
3. The theory relies on the use of sophisticated technologies and models like computers, decision support systems (DSS), matrix, etc. Experts are required for this purpose.
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