Strategic Decision-Making and Business Risk Management: Simon's Bounded Rationality Theory in Organizational Policy Formulation Processes Amid Uncertainty
DOI:
https://doi.org/10.62794/ijober.v4i3.372Keywords:
Bounded rationality, business risk management, Indonesia, strategic decision-making, strategic decision qualityAbstract
This study examines how bounded rationality constraints are associated with strategic decision quality and business risk management effectiveness in Indonesian organizations. A quantitative cross-sectional survey was conducted with 285 organizational decision-makers from manufacturing, financial services, retail and distribution, and public sector organizations. The proposed relationships were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with bootstrapping. The findings show that cognitive limitations, information incompleteness, time pressure, and environmental uncertainty were significantly associated with strategic decision quality (β = 0.29–0.45, p < .01). Strategic decision quality was strongly associated with business risk management effectiveness (β = 0.61, p < .001). Significant indirect effects were found for all four bounded rationality dimensions, with information incompleteness producing the largest indirect effect (β = 0.28). The residual direct effect of the higher-order bounded rationality construct on business risk management effectiveness was not significant (β = 0.19), highlighting the importance of strategic decision quality as a mediating mechanism. These findings emphasize the importance of improving information quality and structured strategic decision processes under uncertainty. However, the cross-sectional design, purposive sampling, and reliance on perceptual measures limit causal inference and broader generalizability, while organizational learning culture was measured but not empirically tested as a moderator. This study extends Simon's bounded rationality framework by empirically linking cognitive, informational, temporal, and environmental constraints with business risk management effectiveness through strategic decision quality in an Indonesian organizational context.
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