Models of Decision making

Every manager has to take decision and every manager is model of decision making

Models of decision making

The Herbert Simon model The administrative model The classical model

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

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.

Decision making tools

Pay off matrix Decision Tree Decision rules Decision tables

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

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.

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.

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 2 rules are used for programmable and routine operating decisions. 2 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 IFTHEN 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 Behavioural model model

Operation research 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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