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4th Sem > Quantitative Techniques 1

4th Sem > Quantitative Techniques 1

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Published by: api-3704742 on Oct 18, 2008
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1. a.Introduction:

Decision making involves choice of the best course of action among two or more available alternatives to achieve the objective. The need for a decision arises only when some kind of choice can be made. If there is only one course of action then there is no problem of decision making.

Steps in the Decision Making Process:
Insufficient data
Defining the problem:
200309032 \u2013 Quantitative Techniques
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Define the problem
Gather data
Identify alternatives
Implement the selected alternative
Select the best alternative
Establish solution criteria and evaluate

This is the important step in the decision making process. The problem must be clearly and precisely defined so that quantitative amounts that are relevant to its solution can be determined.

Securing facts:
Once the problem is defined, the next step is to collect data. This implies collecting
background material, pertinent facts, decisions taken in the past and their outcome, etc.
Identifying alternatives:

The possible alternative solutions to the problem should be identified. Sometimes consideration of more alternative solutions may make the matters more complex. In order to do away with this difficulty, after having identified all alternatives, the analysts should eliminate on a judgment basis those that are clearly unattractive.

Evaluation of alternatives:

Each alternative is usually associated with a number of advantages and disadvantages. The decision maker should evaluate each of the relevant factors in quantitative terms to determine the largest net advantage. However in certain cases there may be qualitative factors associated with certain alternatives, which may not be capable of being expressed correctly and easily in quantitative terms. Evaluating such qualitative factors against the quantitative factors depends on the judgment of the decision maker.

Selection of an alternative:
After having identifying, evaluating and weighing the problem, the decision maker
should select the best alternative.
Implementation of the alternative:
Once the final choice has been made the next step is to implement the decision.
b. Difference between decision making under uncertainty and decision-making
under risk:

Decision making under uncertainty encompasses those decisions where even the probabilities of the different events cannot be eliminated. Whereas in case of decision making under risk includes those decisions where the consequences of each alternative are contingent upon some probabilistic event

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In decision making under uncertainty, in the absence of knowledge of probabilities of the events, the decision maker has no way to compute expected payoff for his strategies. Whereas in case of decision making under risk the decision maker knows the probability of occurrence of each state, probabilities having been determined from the past historical data or market research data.

iii. Availability of historical data:

In decision making under uncertainty, there is no past experience or historical data to compute the probabilities of events. Whereas in case of decision making under risk the decision maker knows the probability of occurrence of each state, probabilities having been determined from the past historical data or market research data.

iv. Techniques of Decision-making:
\u2022In decision making under uncertainty:

1. Maximin
2. Maximax
3. Laplace criterion
4. Regret criterion
5. Hurwicz Alpha criterion

\u2022In decision making under risk:
1. Payoff matrix
2. Expected monetary value
3. Selection of optimal alternative

Thus decision-making is identifying the problem, collecting needed information, listing available alternatives, assessing and weighing the risk associated with each alternative, selecting the best alternative and implementing the decision.

2. a. Introduction:
Linear programming is a technique for allotting limited resources of a firm in an optimum
manner. Linear programming is one of the most popular techniques of operation research.
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