Dr. Manju Antil | Counseling Psychologist | Psychotherapist | Educator| Founder- Wellnessnetic Care

Unit III: Decision Making in Organisations

How Employees and Managers Make Decisions at Work

(An Organisational Psychology perspective)

Decision making is one of the core psychological processes in organisations. Every organisational outcome—productivity, innovation, conflict, job satisfaction, or failure—is ultimately the result of decisions made by employees and managers at different levels. Organisational psychology studies not only what decisions are made, but how, why, and under what psychological conditions these decisions occur.

1. Meaning of Decision Making in Organisations

Decision making refers to the process of selecting one course of action from multiple alternatives to achieve organisational or personal goals. In organisations, decisions are not made in isolation; they are shaped by:

• Cognitive processes (thinking, perception, judgment)
• Emotional states (stress, motivation, fear, confidence)
• Social influences (group norms, authority, culture)
• Structural factors (rules, hierarchy, time pressure)

From an organisational psychology viewpoint, decision making is both a rational and psychological process.

2. Nature of Organisational Decision Making

Organisational decision making has certain distinctive features:

• It is goal-oriented (linked to performance, targets, outcomes)
• It occurs at multiple levels (individual, group, managerial)
• It is influenced by constraints (limited information, time, resources)
• It is often collective rather than individual
• It involves risk and uncertainty

Thus, decisions at work are rarely purely logical; they are shaped by human limitations and organisational realities.

3. How Employees Make Decisions at Work

Employees make decisions daily, often without formal authority. These decisions relate to:

• Task prioritisation
• Problem-solving
• Interpersonal interactions
• Ethical choices
• Time and effort allocation

a) Individual Decision Making by Employees

Employees rely on:

• Past experiences
• Personal values
• Perception of rewards and punishments
• Emotional states (stress, fatigue, motivation)

For example, an employee deciding whether to report an error may weigh fear of punishment against ethical responsibility.

b) Psychological Factors Influencing Employee Decisions

• Perception: How a situation is interpreted
• Attitudes: Job satisfaction, organisational commitment
• Motivation: Intrinsic vs extrinsic motivation
• Emotions: Anxiety, anger, confidence
• Cognitive biases: Overconfidence, selective perception

Employees often use heuristics (mental shortcuts) rather than detailed analysis due to workload and time pressure.

4. How Managers Make Decisions at Work

Managerial decision making is more complex because it affects others and the organisation as a whole. Managers make decisions related to:

• Planning and strategy
• Resource allocation
• Performance evaluation
• Conflict resolution
• Change management

a) Rational Decision-Making Model

Traditionally, managers are expected to follow a rational process:

1. Identify the problem
2. Gather information
3. Generate alternatives
4. Evaluate alternatives
5. Choose the best option
6. Implement and evaluate

However, organisational psychology shows that this model is ideal but rarely fully achieved in real settings.

5. Bounded Rationality in Managerial Decisions

Herbert Simon introduced the concept of bounded rationality, suggesting that managers:

• Have limited information
• Have limited time
• Have limited cognitive capacity

As a result, managers often choose a decision that is “good enough” rather than optimal—a process called satisficing.

This explains why even experienced managers may make imperfect decisions.

6. Role of Intuition in Decision Making

In fast-paced organisational environments, managers frequently rely on intuition—a rapid, experience-based judgment.

• Intuition is common in senior leadership
• It is shaped by expertise and pattern recognition
• It can be effective but also biased

Organisational psychology views intuition as a complement to rational analysis, not its replacement.

7. Group Decision Making in Organisations

Many organisational decisions are made in groups—teams, committees, boards.

Advantages:

• Diverse perspectives
• Better information pooling
• Higher acceptance of decisions

Disadvantages:

• Groupthink
• Social loafing
• Dominance of powerful members
• Time-consuming processes

Psychological phenomena like groupthink can lead to poor decisions when conformity overrides critical thinking.

8. Organisational Factors Influencing Decision Making

Decision making is strongly shaped by the organisational context:

• Organisational culture: Risk-taking vs risk-avoidance
• Leadership style: Autocratic, participative, ethical
• Reward systems: Performance-linked incentives
• Power and politics: Influence, authority, control
• Technology: Data-driven vs experience-based decisions

For example, a fear-based culture may discourage employees from making proactive decisions.

9. Ethical Decision Making at Work

Ethical decision making is a critical area in organisational psychology.

Employees and managers face ethical dilemmas such as:

• Reporting misconduct
• Fair performance appraisal
• Data privacy
• Use of organisational resources

Ethical decisions are influenced by:

• Moral values
• Leadership behaviour
• Organisational ethical climate

Leaders play a key role in shaping ethical decision-making norms.

10. Contemporary Trends in Organisational Decision Making

Modern organisations are witnessing new decision-making patterns:

• Data-driven decision making (analytics, AI)
• Participative decision making
• Agile and decentralised decisions
• Remote and virtual decision processes

However, psychological challenges such as decision fatigue, cognitive overload, and stress remain significant.

Conclusion

Decision making in organisations is a complex psychological process involving cognition, emotion, social influence, and organisational context. Employees and managers do not always act rationally; instead, they operate under constraints, biases, and pressures.

Understanding how decisions are actually made—rather than how they should be made—is central to organisational psychology. Effective organisational decision making therefore requires not only logical analysis, but also emotional intelligence, ethical awareness, and supportive organisational environments.

This makes decision making one of the most critical and fascinating areas of study for organisational psychology students.