DIPLOMATIC ACADEMY OF VIETNAM

FACULTY OF INTERNATIONAL ECONOMICS

FINAL ESSAY
Module: Leadership and Management Skills

Topic:
ANALYSIS AND APPLICATION OF THE
DECISION-MAKING MODELS

Instructor : Master. Trần Thị Thuỳ Linh

Implementation Group : Group 01
Administrative Class : KT47A1
Section Class : Monday, Shift 4

Hanoi, November, 2023.

 Members of the Group

No. Name Student code

1 Bùi Thị Thu Thảo KT47A10233
2 Nguyễn Phương Thảo KT47A10235
3 Nguyễn Thị Thanh Bình KT47A10179
4 Nguyễn Huy Hoàng KT47A1
5 Trịnh Thị Hoà KT47A10195
6 Hoàng Thảo Nhi KT47A10219
 CHAPTER 1: OVERVIEW
1.1. Definition and Importance of Decision-making Models
Decision-making plays a crucial role in both personal and professional
contexts. The complexity and importance of decision-making have led to the
development of various decision-making models.

(Source: https://www.agile42.com/en/blog/decision-making-models)
Decision-making is the process of considering various options and choosing
the best one available. Every one of us has to make a wide variety of decisions on a
daily basis. They range from simple decisions like what you wear and eat, to more
complex decisions like which job to take and what house to buy. Decisions are
made either at an individual or organizational level. Decisions made by managers
and leaders affect others, sometimes in complex, far-reaching ways.1

Figure 1. Types of Decisions

1
Decision-Making Models, date access: November 24th, 2023, link access:
https://managementconsulted.com/decision-making-models/
 Figure 2. The Decision-Making Process
1.2. Types of Decision-Making Models
These models provide structured frameworks that help individuals and
organizations make informed and efficient choices. In this essay, we will analyze
and explore the application of decision-making models, including the rational
decision-making model, bounded rationality model, and intuitive decision-making
model.
1.2.1. Rational Decision-Making Model
The rational model of decision-making uses logical steps to select the best
possible solution. It involves analyzing multiple alternatives and using credible data
or facts to choose among options. Rational decision-making is a precise process
that many teams use when they have time to research solutions and discuss possible
outcomes. Its purpose is to maximize the benefits and minimize the costs of
decisions by being objective.

Figure 3. The Rational Decision-Making Process

(Source: https://courses.lumenlearning.com/wm-principlesofmanagement/chapter/
rational-decision-making-vs-other-types-of-decision-making/)
 The rational decision-making model is advantageous as it promotes a
structured and organized approach to decision-making. It encourages thorough
analysis and evaluation of alternatives, leading to optimal choices. However, it has
limitations as it assumes complete information availability and overlooks non-
rational factors such as emotions and personal biases.
1.2.2. Bounded Rationality Model
The bounded rationality model recognizes that decision-makers face
cognitive limitations, time constraints, and limited information. Under this model,
decision-makers strive to make rational decisions within the constraints they
encounter. They optimize under constraints rather than pursuing an ideal solution.

Figure 4. How Bounded Rationality Works

(Source: https://www.wallstreetmojo.com/bounded-rationality/)
1.2.3. Intuitive Decision-Making Model
Intuitive decision-making relies on individuals' instincts, gut feelings, and
rapid assessments of situations. It involves making decisions quickly without
conscious and extensive analysis. Intuition is developed through previous
experiences, expertise, and subconscious processing of information and emotions.
This model involves rapid pattern recognition, subconscious information
processing, and trust in instincts and hunches. It is particularly useful in situations
where time is limited and complex decisions need to be made swiftly.
 Figure 5. Intuitive Decision-Making Model
(Source: https://slidetodoc.com/management-fourteenth-edition-chapter-2-making-
decisions-copyright/)
 CHAPTER 2: ANALYZING DECISION-MAKING MODELS
2.1. Evaluation criteria for decision-making models
The resource intensity of decision-making models varies based on the nature
of the model and the complexity of the decision. The resource requirements for
each model.

2.1.1. Rational Decision Making Model:

 Time: This model demands a

substantial investment of time
due to its systematic and
analytical approach.
 Effort: Significant effort is
required to gather and analyze
data, define decision criteria, and
navigate the sequential steps of
the model.
 Resources: Resource-intensive,
requiring access to extensive
data, skilled analysts, and
infrastructure for thorough
2
analysis .

2.1.2. Bounded Rationality:

 Time: Generally requires less

time than the rational model as it
aims for satisfactory solutions
within realistic constraints3.
 Effort: Moderate effort is needed,
focusing on identifying
acceptable solutions given the
limitations on comprehensive
analysis.
 Resources: While less resource-
intensive than the rational model,
2
Harappa, “Rational Decision-Making Model: Meaning, Importance And Examples”, access the link:
https://harappa.education/harappa-diaries/rational-decision-making/, on 22/11/2023
 it still requires access to relevant information and skilled decision-makers

2.1.3. Intuitive Decision-Making Model:

 Time: Rapid decision-making

characterizes this model, making
it less time-intensive compared to
the rational model. The
immediate response is a key
feature.
 Effort: Relies on intuition and
experience, reducing the need for
extensive analysis. Effort is more
concentrated on interpreting
situational cues.
 Resources: Generally lower
resource requirements, as it
depends on personal experience
and quick judgment4.

2.2. Applicability of decision-making models

The applicability of decision-making models depends on the characteristics

of the decision at hand, including its complexity, time sensitivity, and the
availability of resources.

2.2.1. Rational Decision-Making Model

Suitability: Most suitable for

complex and high-stakes
decisions where a thorough
analysis of data and a
systematic evaluation of
alternatives are critical.
Contexts: Long-term strategic
planning, policy development,
and scenarios where the
consequences are significant and warrant a comprehensive approach.

3
The Decision Lab, “Bounded Rationality”, access the link:
https://thedecisionlab.com/reference-guide/psychology/bounded-rationality on 21/11/2023
4
The Decision Lab, “Bounded Rationality”, access the link:
https://thedecisionlab.com/reference-guide/psychology/bounded-rationality on 21/11/2023
2.2.2. Bounded Rationality

Suitability: Ideal for situations

where time and resource
constraints limit the ability to
conduct exhaustive analyses, yet a
satisfactory solution is acceptable.
Contexts: Operational decision-
making, routine tasks, and
situations where a quick and
reasonable decision is required.

2.2.3. Intuitive Decision-Making Model

Suitability: Most suitable in

situations where immediate
responses and quick decisions
are crucial, and where relying
on personal experience and
intuition can lead to effective
outcomes.
Contexts: Emergencies, crisis
situations, and scenarios
where there is ambiguity and
traditional data may be
insufficient.

In summary, the choice of a decision-making model should align with the

specific characteristics of the decision scenario. The Rational Decision Making
Model excels in comprehensive analysis, Bounded Rationality suits scenarios with
time constraints and acceptable solutions, and Intuitive Decision-Making is
effective in fast-paced and unpredictable situations. Selecting the most suitable
model enhances the likelihood of making decisions that align with organizational
goals and context-specific requirements.
 CHAPTER 3: APPLICATION OF DECISION-MAKING
MODELS
3.1. Decision-making in organizations

By considering the rational, bounded rationality, and intuitive approaches,

organizations can make more informed, efficient, and effective decisions that drive
strategic growth, enhance operational efficiency, and minimize risks.

First, the models are used for strategic decision-making. The rational model
can be applied to assess market trends, identify opportunities, and evaluate
potential growth strategies. Bounded rationality can guide strategic decision-
making by acknowledging the need for adaptation, flexibility, and trade-offs in the
face of uncertainty. Intuitive decision-making can play a role in strategic
innovation, where gut feelings and unconventional approaches may lead to
breakthrough ideas.

Second, the models are applied to make operational decisions. In daily

operations, the rational model can guide decisions such as resource allocation,
process optimization, and product pricing. Bounded rationality can be applied to
consider time constraints, resource limitations, and the need for quick responses to
changing conditions. Intuitive decision-making can be useful in resolving conflicts,
managing customer interactions, and making emergency decisions.

Third, the models are applied to manage risks. The rational model can help
organizations assess risks, evaluate mitigation strategies, and allocate resources for
risk management. Bounded rationality can acknowledge the inherent uncertainty
and limitations in predicting future events. Intuitive decision-making can be
valuable in understanding the emotional impact of risks on stakeholders and
making informed decisions under pressure.

Fourth, the models are applied to evaluate performance. The rational model
can be used to set performance goals, establish measurement criteria, and evaluate
the effectiveness of strategies. Bounded rationality can consider the limitations of
data availability, the subjectivity of performance metrics, and the need for context-
specific interpretation. Intuitive decision-making can play a role in evaluating
performance by recognizing intangible factors, such as employee morale, team
dynamics, and overall organizational culture.

Example: Balancing Rationality, Adaptability, and Intuition: Toyota's Journey

to Global Automotive Leadership
 Toyota faced a challenge in the 1980s when its production system, known as
the Toyota Production System (TPS), was criticized for being too inflexible and
slow to adapt to changing market conditions5.

Rational Decision-Making:
Toyota conducted extensive market research to understand customer
preferences, competitor strategies, and the potential of new technologies. They
analyzed the TPS and identified areas for improvement, such as reducing waste,
simplifying processes, and increasing flexibility. This company benchmarked other
automakers to identify best practices and incorporate them into their own
production system.

Bounded Rationality:
Toyota recognized the need to adapt the TPS to the changing market and
customer demands. They introduced new production methods, such as lean
manufacturing, to improve efficiency and quality. They made strategic trade-offs
between investing in new technologies, maintaining the TPS, and allocating
resources to meet market demands. Moreover, Toyota leveraged data analytics to
track production metrics, identify areas for improvement, and measure the
effectiveness of their changes.

Intuitive Decision-Making:
Toyota encouraged a culture of experimentation and innovation, allowing
engineers to propose new ideas and explore new technologies. Experienced
executives and engineers utilized their gut feelings and experience to make
decisions in uncertain situations and under pressure. They was willing to take
calculated risks, such as investing in new technologies that were not yet proven, in
order to stay ahead of the competition.
By combining rational, bounded rationality, and intuitive decision-making,
Toyota was able to modernize the TPS, improve its production efficiency, and
become the world's leading automaker.
3.2. Personal decision-making
Applying different decision-making models to personal choices allows us to
approach decisions with a versatile toolkit, adapting our strategy to the specific
circumstances and complexity of each situation. Let's explore how the Rational
Decision-Making Model, Bounded Rationality Decision-Making Model, and
Intuitive Decision-Making Model can be applied in personal decision-making.
The first one is the Rational Decision-Making Model. This model provides a
systematic approach to making well-informed decisions based on logical analysis.
It's particularly useful for complex decisions with ample time and information.
Begin by clearly defining the decision at hand, specifying your goals and values.

5
Tetsujiro Toyota, "Toyota: A History of the First 50 Years", page 12, access to the link: 23/11/2023
Gather comprehensive information relevant to the decision from various sources.
Identify and evaluate multiple alternatives based on predetermined criteria. Analyze
and compare these alternatives objectively. Make a decision that best aligns with
your goals, values, and the results of your analysis. Implement your decision with a
well-thought-out plan. Continuously monitor the outcomes and be open to
adjustments if needed.
The second one is the Bounded Rationality Decision-Making Model: This
model acknowledges that perfect rationality is often unattainable due to time,
cognitive, and information constraints. It offers a more practical and efficient
approach to personal decision-making. Firstly, Recognize your cognitive
limitations and accept that exhaustive analysis isn't always possible. Then define
decision criteria that align with your values and goals. Aim to 'satisfice' rather than
optimize, choosing options that meet your criteria adequately. Generate a
manageable list of alternatives to evaluate. Gather pertinent information efficiently
without overburdening yourself with excessive research. Evaluate alternatives
based on your criteria with a focus on key aspects. Make a decision within your
constraints and remain open to adaptation.
Reflect on the process to improve future decisions.
The last one is the Intuitive Decision-Making Model. This model emphasizes
the role of instinct and past experiences in guiding decisions. It's particularly useful
when facing time constraints or when intuition aligns with your values. Develop
self-awareness to understand your intuition and when it has served you well in the
past. Create a quiet space for reflection to let your intuition surface naturally. Trust
your instincts when they align with your values and goals. Combine intuition with
conscious analysis for a balanced approach. Reflect on intuitive choices to
understand the reasons behind them. Recognize that intuition becomes more refined
with experience. Use intuition as a valuable tool for making choices that resonate
with your true self.
In personal decision-making, these models offer flexibility. You can apply
the Rational Model for well-structured decisions, the Bounded Rationality Model
when time or information is limited, and the Intuitive Model when your instincts
align with your values. Adapting your approach based on the specific
circumstances ensures that you make choices that are well-suited to each unique
situation, ultimately leading to more successful and satisfying outcomes in your
personal life.
Besides the three decision-making models above, we also have to consider
factors such as values, emotions, and preferences in personal decision-making.
These elements play a crucial role in shaping our choices, as they reflect our
individuality and what truly matters to us. Our values act as guiding principles,
helping us align decisions with our moral compass. Emotions, on the other hand,
can provide valuable insights into our desires and fears, influencing our perceptions
of options. Preferences, rooted in our unique tastes and experiences, further add
depth to the decision-making process. By integrating these personal factors with
decision-making models, we create a holistic approach that accounts for both
rationality and the intricacies of our human nature.