General Model of a Human as an Information Processor

A manger or a decision maker uses his sensory receptors to pick information and transmit them to brain for processing and storage. Filtering is a process whereby a manger selectively accepts inputs, which his mental ability can manage to process.

Generalized Model of Information Processor

BRAIN Use of stored knowledge and experience Application, Selection, manipulation Inputs from Eyes ,ears Filtering and Blocking

Mental Processing

Outputs : Decision, Action, registration

Managers Individual difference

Each manager has his own style, a method to perceive the data, organize and process the same as per his frame of reference, confidence in the decision procedures and time available for decision making.

Decision Making

Concepts
Word decision came from Latin root decido ,meaning bring to an end. The concept of decision is settlement, a fixed intention bringing to a conclusive result, a judgment, and a resolution (promise). A decision is the choice out of several options made by the decision maker to achieve some objective in a given situation. Business decisions are made in the process of conducting business achieve its objectives in a given environment.

Characteristics of DM
Sequential in nature Exceedingly complex due to risks and tradeoffs. Influenced by personal values Made in institutional settings and business environments.
Business DM is sequential in nature

Sequential in nature
Business decision making is sequential in nature. Here the decisions are not isolated (lonely) events Each of them has a relation to some other decision or situation or its related after a long chain of developments and a series of related earlier decision.

Exceedingly complex due to risks and trade-offs (swapping)

The decision making process is a complex process in the higher hierarchy of management. Complexity is the result of many factors like interrelationship among the experts or decision makers, a job responsibility, a question of possibility the codes (policy) of morals and a probable (likely) impact on business

Influenced by personal values

The personal values of decision maker play a major role in DM A decision otherwise being very sound on the business principle and economic relationally on basis of personal values which are defeated if such a decision is implemented. The culture, discipline and individual's commitment to the goals will decide the process and success of decision.

Made in organizational settings and business environments.

The process cover a no. of tangible (concrete) and intangible factors affecting the decision process.
It also requires a foresight (insight) to predict the post-decision implication and a willingness to face those implications

Rational DM
A rational (balanced) decision is one which is, effectively and efficiently , ensure achievement of the goal for which decision is made. In reality there is no RIGHT or WRONG decisions, but they are rational or irrational ones. The quality of decision making is to be judged on the rationality and not necessarily on the result it produces.

A decision in given situation is:

Types of rationality Objectively rational Subjectively rational Consciously rational Organizationally rational Personally rational

Cont..
Objectively:: rational if it maximizes the value of the objective. Subjectively:: rational if it maximizes the achievement of value in relation to the knowledge and awareness of the subject. Consciously:: rational to the extent the process of DM is a conscious one Organizationally:: rational to the degree of orientation (direction) towards the organization. Personally:: rational to the extent it achieve's an individuals personal goals

Problems in DM
Ascertain problem:: common source of mistakes in the management decisions is the emphasis (stress) on finding the right answers rather than the right questions. The main task is to define the right problem in clear term. Insufficient knowledge:: for perfect rationality, total information leading to complete knowledge is necessary. An important function of manager is to determine whether the dividing line is reached between insufficient knowledge and enough information to make a decision.

Cont..
Not enough time to be rational:: the decision maker is under pressure to make decisions. If time is limited, he make a hasty (quick) decision which may not satisfy the test of rationality of decision. Environment may not cooperate:: the timing of the decision is such that one is forced to make a decision but the environment is not conducive (helpful) for it. Other limitations :: it means the need for a compromise among the different positions misjudging the motives and values of people, poor communications, misappraisal (improper evaluation) of uncertainties and risks.

DM Methods, Tools & procedures

DM is a process which makes the decision maker to arrive at a decision.
Intelligence

Design

Choice

Herbert Simon Model

Cont.
Intelligence:: Raw data collected, processed and examined. identifies a problem calling for a decision. In this phase the MIS collect the data and then data is scanned, examined, checked and edited. Design:: Inventing, developing and analyzing the different decision alternatives and testing the feasibility of implementation. Assess the value of decision outcome. In this phase the manager develops a model of the problem situation on which he can generate and test the different decision of facilitate its implementation.

Cont..
Choice:: select one alternative as a decision, based on the selection criteria. In this phase the manager evolves a selection criteria such as maximum profit, least cost, minimum waste, least time taken, and highest utility.

DM Systems
Two Types :
Closed DM system Open DM system

Closed DM system
If the manager operates in a known environment then it is a closed DM. Conditions are The manager has a known set of decision alternatives and knows their outcomes fully in terms of value, if implemented. Manager has a model, a method or rule whereby the decision alternatives can be generated, tested and ranked. Manager can choose one of them, based on some goal or objectives. Ex:::: examination system to declare result, an acceptance of fixed deposit.

Open DM system
If the manager operates in an environment not known to him then it is a open DM. Conditions are Here the manager doesnt know all decision alternatives Outcome of decision is also not known fully. No method, rule or model is available to study Difficult to decide an objective or a goal and the manager resorts (choice) to that decision where his appreciations or desires are met best.

Nature of decisions
DM is a complex situation and to resolve the complexity, the decisions are classified as programmed and non programmed decisions.

If a decision can be based on a rule, method or even guidelines, it is called as programmed decision If a decision which can't be made by using a rule or a model is the non-programmed decision.

Decision Alternatives
Methods for selection of decision alternatives:
Optimization Techniques The payoff analysis Decision Tree analysis

Optimization Techniques
Used in cases where DM situation is closed, deterministic and require to optimize the use of resources under conditions of constraints (limits). Termed as Operation Research techniques. E.g. Linear programming, Integer programming, Dynamic programming, Queuing Models, Inventory Model, Capital Budgeting Models and so on. In LNP model Use of resources vs demand is balanced to maximize the profit. In INV model cost of holding inventory vs cost of procuring inv is balanced. In queuing model cost of waiting time of customer vs cost of idle time of facility is balanced

Payoff analysis
Used when all the alternatives (options) and their outcomes are not known with certainty, the decision is made with the help of payoffanalysis. Payoff Matrix is constructed with
Row show the alternatives Columns show the conditions or states of nature with probability of occurrence.

Payoff matrix 1
Your Compe No increas decrea Expect decisio titors change e se ed gain n probab ility 0.50
No change in the price Increase price Decrease price

0.20 5 4 12

0.30 8 3 4 5.40 4.70 8.60

4 6 10

Payoff matrix 2
decisio Compe No increas decrea Expect n titors change e se ed choice utility probab ility 0.50 0.20 0.30
No change in the price Increase price Decrease price

4 200 100

50 4 20

200 400 4

72.00 220.80 54.12

Decision tree analysis

When a decision maker must make a sequence of decisions, the decision tree analysis is useful in selecting the set of the sequence decisions. Where you will find out the highest expected cash flow path the decision is to invest in a small capacity in 1st phase and invest in the remaining capacity in the second phase with the assistance of the collaboration (partnership).

Decision tree analysis

Large capacity
G B D A E I C F H
cash flow (Rs)

J
K

Decision tree analysis

path
ABG-collaboration ABD-no collaboration ACEH-collaboration 1st phase collaboration 2nd phase ACEI-collaboration 1st phase -no collaboration 2nd phase ACFJ-no collaboration 1st phase -Collaboration 2nd phase ACFK-no collaboration 1st phase -no collaboration 2nd phase

Expansion. cash flow

7.9 7.5 9.2 8.0

8.2
7.4

Behavioral concepts in decision making

A manager being a human being, behaves in a peculiar way in a given situation response of one should be diff from other as they differ on behavioral platform. If two managers are placed in two decision making situations, and if their objectives are in conflict, the managers will arrive at a decision objectively, satisfying individual goals.

Organizational decision making

An organization is an arrangement of individuals having different goals. Each individual enjoys diff powers and rights because of his position, function and importance in the organization. The organizational decision making should help in the resolution of conflicts. So its using diff methods for it

Methods are.
Methods for conflict resolution Methods for dealing with uncertainty Organizational learning

MIS and DM concepts

The methods of decision making can be used directly in the MIS provided the method to be applied has been decided. A number of DM problems call for optimization, and OR models are available which can be made a part of the system. The optimization models are static and dynamic, and both can be used in the MIS.