Decision Making

1
Decision Making
2
Decision Making Problem Solving

1. Identify and define the problem
2. Determine the set of alternative solutions
3. Determine the criteria to evaluate alternatives
4. Evaluate the alternatives
5. Choose an alternative
6. Implement the selected alternative
7. Evaluate the results to determine whether a
   satisfactory solution has been obtained

3
Decision Making

• The first five steps of Problem Solving
  constitute the Decision Making process i.e.
• Identify and define the problem
• Determine the alternatives
• Determine the criteria
• Evaluate the alternatives
• Choose an alternative
• The choice of an alternative is the Decision

4
Classification of the Stages in the Decision
Making Process
Structuring the Problem
Define the Problem
Identify the Alternatives
Determine the Criteria
Analyzing the Problem
Evaluate the Alternatives
Choose an Alternative
5
Analyzing a Problem Qualitative Analysis

• Dependent on the decision maker, his/her
  experience, judgment, intuitive feel, relative
  simplicity of the problem etc.
• More of an art than a science
• The skills in qualitative approach are inherent
  in the manager and improve with experience
• Subjective

6
Analyzing a ProblemQuantitative Analysis

• Relatively large/complex problem or when the
  manager lacks previous experience with similar
  situation or where the nature of the problem
  demands quantitative treatment
• The skills in quantitative approach are learnt
  only by studying the methods of Management
  Science
• Objective

7
Qualitative and Quantitative Analyses have their
roles in Decision Making
Analyzing the Problem
Qualitative Analysis
Summary and Evaluation
Make the Decision
Quantitative Analysis
A manager who knows quantitative procedures is in
a much better position to compare and evaluate
the qualitative and quantitative recommendations
and combine them to arrive at the best decision.
8
Summary of the instances requiring Quantitative
Analysis

• The problem is large or complex the manager
  cannot develop a good solution without
  quantitative analysis
• The problem is important demands a thorough
  analysis
• The problem is new no previous experience to
  rely on
• The problem is repetitive quantitative methods
  save time and effort for the decision maker

9
Stages in Quantitative Analysis

• Analysis begins once the problem has been
  properly structured.
• Model Development follows i.e. creating a
  mathematical representation of the problem
• Model Solution, using appropriate techniques
• Generation of Report for the use of the decision
  maker giving the recommendations and other
  pertinent aspects that aid the decision making
  process

Model Development
Model Solution
Report Generation
10
Models

• Iconic
• Analog
• Mathematical
• The value of a model-based analysis depends on
  how well the model represents the real situation
  

11
Mathematical Models

• Objective function
• A mathematical function that describes the
  problems objective
• Constraint
• Restrictions that limit the degree to which the
  objective can be pursued (production capacities,
  availability of inputs, committed outputs etc.)
• Uncontrollable inputs
• Environmental factors affecting the objective
  function and the constraints, but beyond the
  control of the decision maker
• Controllable inputs or decision variable

12
Deterministic Vs Stochastic

• Deterministic Model Uncontrollable variables are
  all known and do not vary. E.g. tax rates
• Stochastic or Probabilistic Model One or more of
  the uncontrollable variables are uncertain and
  subject to variation. E.g. demand

13
Iterative Process

• Often the model development and model solution
  steps will be iterative
• Simplifications in the model are often
  justifiable for reasons of cost, speed, ease of
  developing and understanding, and is often of
  acceptable accuracy

14
Techniques for Model Solution

• Breakeven Analysis, Financial Models
• Linear Programming, ILP, Network Models
• Inventory Models, Queueing Models
• Simulation
• Decision Analysis / Decision Trees
• Cause-effect (Ishikawa / fishbone) Diagrams