DECISION MAKING
• Decision Making is the most generic term in ‘Management’.
• Decision making precedes any activity- personal or organizational.
• Forecasting and Decision making are two fundamental building blocks
of any managerial function.
DECISION MAKING (CONT….)
Forecasting / Prediction Decision making Action
about future situation
• Decision Making is for finding the best course of action in every
situation.
Directions of focus
A. Normative (Prescriptive)
- how a good decision ought to be made.
Perfect rational/economic person is assumed to have complete
information of all relevant aspects of decision environment, to
possess a stable system of preferences and ability to analyze the
alternative course of action.
Directions of focus ( cont….)
B. Behavioral Study (descriptive)
- How a good decision is actually made.
Decision makers strive to be as efficient as possible in achieving
organizational objectives, given their limited information- processing
abilities - Herbert A. Simon.
Concept of Bounded Rationality – “Administrative Man”
Basic Elements of a decision making
I. Decision Making Unit: who?
II. Set of Possible actions: How?
III. Set of future states of environment: what situation?
IV. Value system: How to evaluate the result
:criteria, preference system utility
V. Set of consequences: Result.
Types of Managerial decision
➢Personal vs. Organizational
decisions.
➢Basic vs. Routine decisions.
➢Programmed vs. Non-
programmed decisions.
➢Structured vs.
Unstructured decisions.
➢Individual vs. Group
decision Making
PHASES OF DECISION MAKING PROCESS
Herbert Simon described Decision Making Process (1977)
1. Intelligence Activity: Recognition, understanding the problem & search for possible
causes.
2. Design Activity: Development & Analysis of alternative courses of action in
corporating constraints.
3. Choice Activity: Evaluation & Selection
Phases of Decision Making (Mintzberg, Raisinghani and Theoret (1976))
Identification Development Selection Action or
Phase Phase Phase Implementation
Dynamicity of the process
1
Stages of decision Problem
making process Diagnosis Problem
Domain
2 Problem
Model definition
Building
3 Identification Decision
of objectives Maker
Model validation
with test data 4 Collection of
Data
Collection of Data Base
Data 5
Generation of
alternatives
Model 6
Solution Evaluation of
Alternatives
Analytical
Methods
8 7 Selection of
Implementation
Alternatives
Individual VS. Group Decision Making
Group Decision Making
ADVANTAGES DISADVANTAGES
1. More Knowledge & facts 1. Slow decision process
2. Broader perspective & more 2. More compromise due to conflicting
alternative generation interest, so less chance of optimum
solution.
3. More sense of participation, so 3. Domination of individuals in fact more chance
of support negates the very purpose of group decision
& objectivity
4. Over use of group decision making leads
to weakening of manager’s ability in
quick decision & sometimes self reliance
Normal/Popular Styles:
• Authoritarian/ autocratic: I am the boss
•Bureaucratic: Rule is the boss – often not a decision making process in realty
•Consultative: Give your ideas, but I am the boss
• Participative: None is the boss – very rarely exists in absolute sense
DECISION MAKING APPROACHES IN PRACTICE
➢ Econologic/ (impure) Economic Man/ Rationality-based model
• Decision maker wants to be rational i.e. maximises his interest objectively
considering all feasible alternatives.
• Most objective/effective approach, but difficulty in data processing
• Management science model based & computer assisted.
➢ Bounded Rationality/ Administrative man model:
• Sequential consideration of alternatives
• Heuristics in evaluation & selection
• Satisficing, not optimal
• More subjective approach
• Sometimes very effective, depends entirely on searching capability of the
decision maker and heuristics
➢ Implicit Favourite/ Games man model
• More for autocratic style
• Entirely subjective & human behavioural
• Select the implicit favourite, then develop the decision rule from rejected lot as
justification and then announce
Modeling - concept
• Representation of reality for meaningful
experimentation in order to generate alternatives, or
assess alternatives or do both.
• How to assess the required detailing in model
building? Simple vs Realistic.
Classification of Mathematical Models
• Descriptive vs. Prescriptive
•Static vs. Dynamic
•Deterministic vs. Probabilistic
•Single objective vs. Multiple Objective
•General vs. Special
Types of Mathematical Model
Mathematical Model
Inventory Theory
Math. Programming Queuing Replacement
Simulation Model
Statistical &
Game theory
Linear Econometric
Programming
•Transportation NLP Dynamic Stochastic
•Assignment Programming Programming
Integer
Programming
All integer Mixed integer 0-1 Programming
Multiple Objective Decision Making (MODM) – A special Class of quantitative methods
