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## Decision Making

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**Decision Making & Problem Solving**• Identify and define the problem • Determine the set of alternative solutions • Determine the criteria to evaluate alternatives • Evaluate the alternatives • Choose an alternative • Implement the selected alternative • Evaluate the results to determine whether a satisfactory solution has been obtained**Decision Making**The first five steps of Problem Solving constitute the Decision Making process: i.e.: • Identify and define the problem • Determine the alternatives • Determine the criteria • Evaluate the alternatives • Choose an alternative The choice of an alternative is the Decision**Classification of the Stages in the Decision Making Process**Structuring the Problem Define the Problem Identify the Alternatives Determine the Criteria Analyzing the Problem Evaluate the Alternatives Choose an Alternative**Analyzing a Problem Qualitative Analysis**• Dependent on the decision maker, his/her experience, judgment, intuitive feel, relative simplicity of the problem etc. • More of an art than a science • The skills in qualitative approach are inherent in the manager and improve with experience • Subjective**Analyzing a ProblemQuantitative Analysis**• Relatively large/complex problem or when the manager lacks previous experience with similar situation or where the nature of the problem demands quantitative treatment • The skills in quantitative approach are learnt only by studying the methods of Management Science • Objective**Qualitative and Quantitative Analyses have their roles in**Decision Making Analyzing the Problem Qualitative Analysis Summary and Evaluation Make the Decision Quantitative Analysis A manager who knows quantitative procedures is in a much better position to compare and evaluate the qualitative and quantitative recommendations and combine them to arrive at the best decision.**Summary of the instances requiring Quantitative Analysis**• The problem is large or complex; the manager cannot develop a good solution without quantitative analysis • The problem is important; demands a thorough analysis • The problem is new; no previous experience to rely on • The problem is repetitive; quantitative methods save time and effort for the decision maker**Stages in Quantitative Analysis**• Analysis begins once the problem has been properly structured. • Model Development follows; i.e. creating a mathematical representation of the problem • Model Solution, using appropriate techniques • Generation of Report for the use of the decision maker giving the recommendations and other pertinent aspects that aid the decision making process Model Development Model Solution Report Generation**Models**• Iconic • Analog • Mathematical The value of a model-based analysis depends on how well the model represents the real situation**Mathematical Models**• Objective function: A mathematical function that describes the problem’s objective • Constraint Restrictions that limit the degree to which the objective can be pursued (production capacities, availability of inputs, committed outputs etc.) • Uncontrollable inputs Environmental factors affecting the objective function and the constraints, but beyond the control of the decision maker • Controllable inputs or decision variable**Deterministic Vs Stochastic**• Deterministic Model: Uncontrollable variables are all known and do not vary. E.g.: tax rates • Stochastic or Probabilistic Model: One or more of the uncontrollable variables are uncertain and subject to variation. E.g.: demand**Iterative Process**• Often the model development and model solution steps will be iterative • Simplifications in the model are often justifiable for reasons of cost, speed, ease of developing and understanding, and is often of acceptable accuracy**Techniques for Model Solution**• Breakeven Analysis, Financial Models • Linear Programming, ILP, Network Models • Inventory Models, Queueing Models • Simulation • Decision Analysis / Decision Trees • Cause-effect (Ishikawa / fishbone) Diagrams