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Classical Model
Classical model one of the earliest. Is prescriptive means how decisions should be made.
Premise that once managers recognize need to make decision, should be able to generate complete list of
all alternatives & consequences + make best choice.
 Assumption that managers have access to all info they need to make optimum decision.
 Managers can easily list their own preferences for each alternative and rank from least to most
preferred to make optimum decision
Classical A prescriptive approach to decision making based on the assumption that the
decision decision maker can identify and evaluate all possible alternatives and their
making model consequences and rationally choose the most appropriate course of action.
FBS: The administrative Model
Jessica, Fabian, Patrick Pages 202 – 204
You will find the glossary with the words in bold at the end of the summary.
Origin of administrative model

 James March and Herbert Simon disagreed with assumption of classical model of decision making.
 Opposed to what is stated in the classical model the 2 believed that Managers in the real world do
not have access to all information they need to make a decision.
 Furthermore they stated that even if all the information were on hand, managers would lack mental
or psychological ability to absorb and evaluate it correctly.  Therefore they decided to develop their
own theory called “administrative model”
The purpose of the Administrative model

- Explain why decision making is always a naturally uncertain and risky process
- Why managers can rarely make decision in classical model manner
The Administrative Model based on 3 important concepts:

Bounded rationality
Incomplete Information
Even if managers had unlimited ability to evaluate info, still not able to arrive at optimum decision
because of incomplete information
 Information incomplete because:
- full range of decision making alternatives unknowable in most situations &
- consequences associated with alternatives uncertain
 (why information is incomplete)

Uncertainty & risk
o Risk present when managers know possible outcomes of particular course of action and can assign
probabilities to them.
o Uncertainty = probabilities of alternative outcomes cannot be determined & future outcomes are
unknown  managers work blind. Because probability of a given outcome occurring is not known,
managers have little information to use in making decision (e.g. launch of complete new product /
market field so no data to analyze)
Ambiguous information
o Much of information managers have is ambiguous = not clear. It can be interpreted in multiple, often
conflicting ways.
o Managers often interpret same piece of information differently & make decisions based on own
interpretations
Time constraints and information costs

o Managers neither have time nor money to search for all possible solutions & evaluate all potential
consequences
o Even if time were available not possible  costs of gathering information incl. mangers time would be
exorbitant
Satisficing
Instead of discovering every alternative when being in situation to take a decision Managers use strategy
of satisficing. Satisficing = exploring a limited sample of all potential alternatives.
- When satisficing mangers try to search & choose an acceptable or satisfactory response to problems
and opportunities rather than trying to make best decision.
Conclusion
- March and Simon pointed out that managerial decision making often more art than science.
- In real world managers must rely on intuition & judgment to make what seems best decision because
of uncertainty and ambiguity
- Managerial decision often fast-paced, mangers use their experience and judgment to make crucial
decision with incomplete information.  Decision makers have to be aware human judgment often
flawed. Result even best managers make poor decisions/mistakes.
Glossary (all definitions from the book)

Administrative model An approach to decision making that explains why decision making is inherently
uncertain and risky and why managers usually make satisfactory rather than
optimum decisions.
Bounded rationality Cognitive limitations that constrain one’s ability to interpret, process, and act on
information.
Risk The degree of probability that the possible outcomes of a particular course of
action will occur.
Uncertainty Unpredictability
Ambiguous information Information that can be interpreted in multiple and often conflicting ways.
Satisficing Searching for and choosing an acceptable, or satisfactory, response to problems
and opportunities, rather than trying to make the best decision.

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Classical Model

Origin of administrative model

The purpose of the Administrative model

The Administrative Model based on 3 important concepts:

 (why information is incomplete)

Time constraints and information costs

Glossary (all definitions from the book)

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