Herbert Simon (1916-2001)

American winner of the Nobel Prize for Economics in 1978 and an expert in decision making (pictured right).

Key book

Administrative Behaviour (1947)

Management is decision making, and decisions are made in three stages:

1. The intelligence activity 

Finding situations that require a decision.

2. The design activity

Inventing, developing and analysing possible courses of action.

3. The choice activity

Choosing one course of action from the various alternatives that achieves the organization’s objectives.

Managers (administrative man):

1. Satisfice 

i.e. managers choose a decision that is satisfactory or ‘good enough’ to achieve an adequate profit.

2. Are forced to satisfice because of bounded rationality  

Bounded rationality is...

How the quality and rationality of decisions are restricted (or bounded) by inadequate information, intellect and time.

3. Don’t act as economic man

(i.e managers don't choose the best possible decision to maximize profit).

There are two types of decision:

1. Programmed 

Repetitive and routine decisions, dealt with by procedure and habit.

2. Unprogrammed 

New, intuitive and creative decisions that don’t have a procedure e.g. strategy decisions.

To reduce costs an organization should maximize the number of programmed decisions and electronically process them as much as possible.

Key quote on decision making

Decision making is at the heart of administration.