Module 1.

2: Operations Research
Decision Making
Learning Objectives:

Understand the concept of Managerial Decision Making

List the steps of the decision-making process.

Understand the types of decisions and decision-making environments.

1. INTRODUCTION:
Todays manager faces a whole new era of challenges. Government, labor unions,
consumers, stakeholders, suppliers and a lost of other groups are all of concern to todays
managers many different demands are placed n the modern manager in satisfying these
groups he must thus play the role of an innovator, a negotiator, a fireman, a motivator and
a resource allocater in the decision making process.
Todays manager must supplement experience and intuition with more powerful tools
and process organized and systematic process are necessary in order to cope with the
demands of this new era .
Some authors have defined management and decision making as synonyms. Decisionmaking can be considered as a prim focus of management. Managerial activity as a whole
includes 5-phases
1) Planning
2) Organizing
3) Directing
4) Supervising
5) Controlling.
In performing these, management has to make a choice of the best among the number of
alternatives called decision. Selection from two or more courses of actions is decision.

Decision-making permits all management activities it is essential for setting objectives.

Deciding basic corporate policies, preparing future product and facility programs or other
major plans or proposals that will have an important long run influence on the future

profits and asset requirements of the enterprise. If also involves determining the type of
organization structure, ascertaining how to motivate personal and accepting innovations.

Decision-making may be defined as the process, which results in the selection from a set
of alternative courses of action. The course of action which is considered to meet the
objectives of the decision problem more satisfaction than any others judged by the
decision maker. Scientific decision making/process is characterized by adoption of
systematic, logical and through going reasoning to understand problem situation and
arrive at observation, investigation, experimentation measurement and analysis of data in
the relevant real decision environment.

To a great extent, the successes or failures that a person experiences in life depend on the
decisions that he or she makes. Why and how did the people make their respective decisions? In
general, what is involved in making good decisions? One decision may make the difference
between a successful career and an unsuccessful one.

Decision theory is an analytic and

systematic approach to the study of decision making.

What makes the difference between good and bad decisions? A good decision is one that is based
on logic, considers all available data and possible alternatives, and applies the quantitative
approach we are about to describe. Occasionally, a good decision results in an unexpected or
unfavorable outcome. But if it is made properly, it is still a good decision. A bad decision is one
that is not based on logic, does not use all available information, does not consider all
alternatives, and does not employ appropriate quantitative techniques. Although occasionally
good decisions yield bad results, in the long run, using decision theory will result in successful
outcomes.

2. CHARACTERISTICS OF DECISION MAKING

Decision making is goal oriented

Decision involves alternatives.

Decision making is objective rather than subjective.

If involves reasoning rather than emotion. If can not be completely quantified and is
based mainly on reason orientation may decision are based on instructs.

Decision-making is an orderly precise process rather than haphazard rough and ready
rule of thumb process.

Decision-making has open adherence to certain verified concepts and principles.

Decision-making is not purely intellectual process if has both interactive and

deductive logic if it contains conscious and unconscious aspects. Part of it can be
leant and part of it depends upon the personal characteristics of the decision-maker.

3. NATURE OF DECISION MAKING

If is a dynamic process. It is not entirely the responsibility of top management. Decision
implies freedom to the decision-maker regarding the final choice. It is uniquely
humankind is the product of deliberation, evaluation and though.

A decision represents a judgement, a final resolution of conflict of needs means or goals

and a commitments to action made in the face of uncertainty, complexity and irrationality
it is a process rather than one static ability it is one of the way in which the managers can
influence the efficient and effective accomplishment of goals.
4. TYPES OF DECISIONS
Decision may be classified according to different basics

Routine and strategic decisions: tactical of routine decisions are made repetitively
following certain established rules, procedures and policys, they neither require
collection of new data nor conferring with people. They can be taken without much
deliberation. They may be complicated but are always one-dimensional. Such. The
managements at the middle & lower management level generally take decisions.

Strategic or basic decisions are more imp & they are taken generally by the top and
middle management. The strategic decisions relate to policy matters & so require a
through finding and analysis of the possible alternatives. The managers are more
serious about such decisions as they influence decision making at lower levels.

Policy and operation decision policy decisions are of vital important and are taken by
the top management. They effect the entire enterprise. Operating decisions are taken
by lower management inorde to put into action the policy decisions
E.g.: bonus preparation and issue.

Organizational and personal decisions: organizational decisions are those, which a

manager takes in his official capacity. Such decisions can be delegated. But personal

decisions which relate to manager as an individual and not as a member of the

organization, cannot be delegated.

Individual and group decisions

When an individual in the organization takes a decision it is taken as individual
decisions such decision are taken in small organizations. In those organizations where
autocratic style of management prevails. Groups are collective decision refer to those
decision taken by a group of organizational members say board of directors or
committee.

Programmed decisions

Problems are routine &repetitive problems are unique and novel, solutions are offered
in accordance with some habit, rule, procedure, and the conditions for program
decisions are highly certain. Mode by lower level people in the organisation.

Non programmed decisions

There are no pre established policys different and needs a creative solution. The
conditions non- Programmed decisions are highly uncertain. Top managements take
all responsibilities
5.0 FACTORS IN DECISION MAKING
The factors influencing decision making are as follows.

1. Personal values and organization culture: an important variable that influences the
decision of the enterprise is personal values, primarily those of management
(managers). However values influence decision making at all organizational levels
managers and non-managers, alike. Thus the pattern of behavior, shared believes and
values of members of an organization do influence decision making.

2. Group making decision: in modern organization decision are often made by groups
of individuals, such as committees or teams.

3. Creativity and innovation: effective decision making require creativity and

innovation.
6. DECISION MAKING PROCESS
The structured decision process is a logical systematic procedure for selecting actions
that will achieve ones objectives .
Decision making process: A diagrammatic representation .
Awareness
Of
A problem

Diagnose
State the
problem

Developing
The
alternatives

Evaluation
Of the
alternatives

Internal environment

Feed back

Implement
And
verify

Select the
Best
alternatives

External environment
In practice, the application of the structured decision process is usually a very dynamic
and heuristic experience if may involve a substantial amount of human interaction.
It consists of following steps
1. Problem definition-problem definition involves becoming fully aware of the existence
of the problem and its larger contest

2. Analyzing the problem-if involves classifying the problem and gathering information.
Classification is necessary in order to know who should take the decision and who
should be consulted in taking it. Without proper classification the effectiveness of the
decision may be jeopardized.
The problem should be classified keeping in view the following guidelines:

Nature the decision i.e. whether it is strategic, routine etc

The futurity of the decision.

Limiting or strategic factor relevant to the decision.

Specification of goals to be achieved and their relation importance: the specification

of

the goals and their relative importance establishes the desired state of affairs,

Developing alternatives: if establishes the various ways of achieving some or all of

the goals. It should also be noted that development of alternatives is no guarantee
finding the best possible decision, but it certainly helps in weighing on alternative
against the others, and thus minimizing the uncertainties.

Evaluation of each alternative- if determines their relative benefits ,regrets and costs.

Selecting the best alternative: two methods are followed

intuition ie choosing the solution that seems to be goal at that time .there is an
inherent may be wrong on certain occasions.

The second way to choose the best alternative is to weigh the consequence of one
against those of others .peter dicker laid down four criteria i.e. (risk economy of
effort ,situation or timing limitation of resources) cu order to weigh the
consequence of various alternatives.

Post operational analysis : the optimum decision is tested to determine whether or not
it is the best choice under a wide range of possible circumstances.

Controlled implementation : in this step the decision is carried out in such a way as to
prevent any in direct consequences.

Follow up : the reason for following up of decision are as follows:

If the decision is good one, one will know what to do if faced with the same
problem again.

If the decision is bad ,one will know what not to do next time.

If the decision is bad one, and one follows up soon enough ,corrective action may
still be possible.

Thus in order to achieve proper follow-up, the management should devise an efficient
system of feedback information. This information will be very used in taking the
corrective measures and in taking right decision in future.

8.TYPES OF DECISION-MAKING ENVIRONMENTS

The types of decisions people make depend on how much knowledge or information they have
about the situation. There are three decision-making environments:

A. Decision making under certainty

B. Decision making under risk
C. Decision making under uncertainty

A. Decision Making under Certainty

In the environment of decision making under certainty, decision makers know with certainty the
consequence of every alternative or decision choice. Naturally, they will choose the alternative
that will maximize their wellbeing or will result in the best outcome. For example, lets say that
you have Rs.10, 000 to invest for a one-year period. One alternative is to invest in a business
which pays 6% interest and another is to invest in a government Treasury bond paying 10%
interest. If both investments are secure and guaranteed, there is a certainty that the Treasury bond
will pay a higher return. The return after one year will be Rs.1000 in interest.

B.Decision making under Risk

In decision making under risk, there are several possible outcomes for each alternative, and the
decision maker knows the probability of occurrence of each outcome. We know, for example,
that the probability of getting a heart from well shuffled pack is 0.25. The probability of rolling a
4 on a six faced die is 1/6. In decision making under risk, the decision maker usually attempts to
maximize his or her expected well-being. Decision theory models for business problems in this
environment typically employ two equivalent criteria: maximization of expected monetary value
and minimization of expected loss.

C.Decision Making under Uncertainty

In decision making under uncertainty, there are several possible outcomes for each alternative,
and the decision maker does not know the probabilities of the various outcomes. As an example,
the probability that a communist will be president of India after 25 years from now is not known.
Sometimes it is impossible to assess the probability of success of a new undertaking or product.

References:
1. U K Srivastava; G V Shenoy; S C Sharma Quantitative Techniques for Managerial
Decisions New age international P Ltd 2nd Edition 2002
2. S.D.Sharma Operations Research Kedar nath Ramnath & Co. 12th Edition 2001.
3. N.D.Vohra Quantitative Techniques in Management Tata McGraw Hill 2nd Edition 2001.
4. J.K.Sharma Operations Research, Theory and applications, Macmillan India Ltd.2001
5. Pannerselvem.R., Operations Research, Prentice Hall, New Delhi, 2002