How to Make Smart Entrepreneurial Decisions With Simon’s Rational Model
Decision-making is an essential part of growth and development strategies in business. Keep reading to learn how to solve business problems with Simon’s decision-making model
Setting up a business today takes one idea, a small team, and a web page to welcome and engage customers. But growing it into an international company is a huge challenge that few entrepreneurs can pull off. The risk of failure can be as high as your expectations. The key to scaling a business at a steady pace is sensible decisions that do not only solve different problems but rather avert them at the right time.
This article dwells on the importance of correct and low-risk decisions in the context of business, using the example of Computools, a full-service software company that employs Simon’s approach to finding effective business decisions at every level of management.
What is Simon’s Model?
Simon’s model belongs to an award-winning American economist Herbert Simon that elaborated a unique approach to dealing with complex and intricate problems. His three-tier model of business decision-making works well for business-related and personal issues that require examination and analysis from different standpoints. Simon’s vision of decision-making is at the foundation of Computools’s operational model, which establishes a solid ground for effective risk management and control.
1. Intelligence Stage
The process of decision-making is initiated with the determination of an issue. The search of a solution is always preceded by the awareness of this problem. Thus, the intelligence stage means that you should detect an issue and examine its nature in detail.
Identifying an issue
The majority of people become able to see a problem only when faced with some negative situation that makes them feel uncomfortable and anxious. This emotional state often signals about someone’s inability to adjust the reality to their expectations. So, identifying a problem is the number-one step towards searching for its solution, as the understanding of what might have led to an unpleasant situation gives you the knowledge to deal with it later.
Formulating a problem
Once the problem gets detected, it is very important to analyse its causes and would-be consequences that you might bear should you fail to handle it properly. At this point, your role is to ask as many questions as possible about the roots of your problem and analyse the biggest contributing factors of it.
Setting a goal
A clear image of what led to the occurrence of your problem allows you to see your weaknesses to be further balanced or improved. You have to define the requirements for your win-win solution, and this will serve a good ground for making the right decision further.
2. Design Stage
The design phase is aimed at generating relevant solutions that have the potential to eliminate or mitigate your problem. Relying on your analysis result, you need to define a set of criteria to apply in the assessment of possible solutions. Similarly, these criteria should be the characteristics of an ideal solution you would like to have to handle your problem. You can use some problem-solving methods that will let you look at your solutions from various points of view.
3. Selection Stage
Assessment of potential solutions
It is difficult to find a workable solution on the first try. To approach your decision-making process with common sense, you should abide by your predetermined criteria that will show you the less risky variant. You can also apply cost-benefit analysis enabling you to assess the value of your solution versus its costs. To put it simply, you need to define the upsides and downsides of each option that you are considering as your potential way out.
Making the ultimate choice is the last step towards defining the best solution in Simon’s model. Most companies, including Computools, prefer that it is the executive director’s responsibility to say the final word in one or another critical issue. This practice is viewed as part of effective management of businesses, as the executive director is commonly the number-one person to decide on the most optimal direction of the company’s development.
While Simon’s model can be the basis for taking smart business-oriented decisions, there are a few complementary techniques that can be of much help at intermediate stages of decision making, such as cause-and-effect diagrams and decision trees.
Cause and effect, or fishbone, diagrams are designed to explore and organize the causality of a problem in a logical manner. This visual tool is actively employed in risk and control management and other business practices aimed to assess diverse scenarios of business decision-making. Once you have defined the factors leading to your problem, you need to group them by nature to detect the major contributing factors to shape your best-fit solution. This method of presenting causes will help you see the weak points that your solution should cover.
A decision tree helps you pave the way towards the best-suited solution. It requires you to think of the intermediate steps that you will have to make to fix your problem, including all alternatives between which you will need to choose throughout your decision-making. Each section of the tree is made of two opposite potential solutions between which you need to choose, proceeding to the end of the decision tree and making the win-win solution eliminating your problem in the best manner possible.
The process of decision-making is complex and at times unexpected. Since you can never know the outcome of your decision, it is better to team up with someone who can initiate a productive brainstorming session with you or give you the opposite standpoint, so you do not approach your problem from a one-sided angle. Simon’s model can become your starting point that will let you reveal the right solution fitting with your business goals.
About the author:
Sergii Tymchuk is the CEO of Computools, a full-service company that delivers software solutions to a wide range of businesses. His approach to business management is based on Simon’s decision-making that proves helpful and allows keeping the company growing and constantly improving.