Models of Decision making

Every manager has to take decision

and every manager is model of
decision making
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Models of decision making
The Herbert Simon model
The administrative model
The classical model

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Administrative Model
Manager is the decision maker to
handle the situation
Relevant information is collected by him
Decision making is certainly in the
interest of manager which certainly may
not be in the interest of the
organization
e.g.Expediency ,opportunism
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The classical model
Manager plays major role of decision
making
He collects all the information required
for activity
Decision would be in the interest of
organization.

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Decision making tools
Pay off matrix
Decision Tree
Decision rules
Decision tables

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Pay off Matrix
Essential quantitative technique for
decision making
It summarizes interaction of various
alternative actions and events
Pay off matrix is prepared by using
probabilities
Positive payoff implies profit while
negative payoff implies loss
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Decision Tree
It is basically extension of probability theory to
decision making
It helps decision maker to when he has to make
sequence of decisions
Different alternatives form branches from initial
decision point and then moves on to various
options emanating from different points is known
as decision tree.
Initial decision point is known as decision node
while different points are called as chance nodes.

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Decision tree….
Decision tree is a means of representing
the sequential multistage logic decision
problem
This is oriented to show decision paths
rather than the criteria.
It is convenient for showing
probabilities for outcomes.

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Steps involved in Decision Tree
Build the tree starting fro decision point
Add the branches for external states of
events
Include probability of each state.
Assign value of each unique branch.
Work backward to analyze the
consequences at each node of the tree.
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Standard presentation of
Decision tree

Chance node

2nd Decision point

Initial
Point
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Decision rules
1. Decision rules and tables are used together
2. It enables decision maker to make better decisions and
more economically.
3. These rules
2 are used for programmable and routine
operating
2 decisions.
4. It is imperative
. that decision rules are documented.

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Decision Tables
Decision table documents rules that selects
one or more actions based on one or more
conditions from a set of possible conditions.
It is very precise and compact.
Decision table includes both qualitative and
quantitative bases for decision making
I t is in the form of IF…THEN condition
He helps the analyst to consider all possible
conditions,options and alternative.

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Components of DSS
DSS has three basic components:
1. The database
2. A model Base
3. DSS Software system

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The DATABASE
It is collection of current or historical
data or files which are internally linked
together.
It provides easy access for range of
applications.
DSS extract the data from databases
which could be internal or external

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Model base
It represents components and
relationship of phenomenon
A model can be physical, mathematical
or a verbal model
DSS make use of three basic types of
models.

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Model base ……

Decision support system

Management science Operation research

Behavioural model
model model

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Behavioural Model
The focus is on studying, understanding
and the trends among the variables.
Forecasting, correlation, regression
these are the basic examples

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Management science model
These models are based upon principles
of management, management
accounting and Econometrics.
Cost accounting system, Inventory
management, capital budgeting

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Operation research model
It is application of mathematical
formulae arriving at optimum solutions.
LPP,ABC ANALYSIS

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