Good Morning

Sumana Chaudhuri

Introducing the way you fundamentally

make a decision

Decision Sciences

Quick Review

Understanding decisions
The decision making process

Understanding Decision Making

Decision
A choice made between available alternatives.

Decision Making
The process of developing and analyzing alternatives and choosing from
among them.

Judgment
The cognitive, or thinking, aspects of the decision-making process.

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The Decision-Making Process

Define the problem.

Clarify your objectives.
Identify alternatives.
Analyze the consequences.
Make a choice.

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Step 1. Define the Problem

1. Start by writing down your initial assessment of the problem.
2. Dissect the problem.

What triggered this problem (as Ive assessed it)?

Why am I even thinking about solving this problem?
What is the connection between the trigger and the problem?

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Step 2. Clarify Your Objectives

1. Write down all the concerns you hope to
address through your decision.
2. Convert your concerns into specific, concrete
objectives.
3. Separate ends from means to establish your
fundamental objectives.
4. Clarify what you mean by each objective.
5. Test your objectives to see if they capture your
interests.

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Step 3. Identify Alternatives

1. Generate as many alternatives as you can yourself.
2. Expand your search, by checking with other people, including
experts.
3. Look at each of your objectives and ask, how?
4. Know when to stop.

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Step 4. Analyze the Consequences

1. Mentally put yourself into the future.

Process Analysis

Solving problems by thinking through the process involved

from beginning to end, imagining, at each step, what actually
would happen.

2. Eliminate any clearly inferior alternatives.

3. Organize your remaining alternatives into a
table (matrix) that provides a concise, bird's-eye
view of the consequences of pursuing each
alternative.

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Consequence Matrix (Illustrative)

Decisions Taken

Consequences

MMS from DSIMS

PGDM from DSIMS
MMS from other Institutes
PGDM from other Institutes
MBA from Overseas BSchools
Other Professional Programs/Maintain
Status Quo

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Step 5. Make a Choice

Analyses are useless unless the right choice is made.
Under perfect conditions, simply review the consequences of each
alternative, and choose the alternative that maximizes benefits.
In practice, making a decisioneven a relatively simple one like choosing a
computerusually cant be done so accurately or rationally.

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How To Make Better Decisions

1. Increase Your Knowledge

Ask questions.
Get experience.
Use consultants.
Do your research.
Force yourself to recognize the facts when you see them (maintain your
objectivity).

2. Use Your Intuition

A cognitive process whereby a person instinctively makes a decision based

on his or her accumulated knowledge and experience.
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How To Make Better Decisions (contd)

3. Weigh the Pros and Cons

Quantify realities by sizing up your options, and taking into consideration

the relative importance of each of your objectives.

4. Dont Overstress the Finality of Your Decision

Remember that few decisions are forever.

Knowing when to quit is sometimes the smartest thing a manager can do.

5. Make Sure the Timing Is Right

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Decision Theory
Decision process calls for:
1.

Identification of states of nature, or events

2.

Identification of courses of action, or acts

3.

Determination of the pay-offs, depicting outcomes of various

combinations of acts and events (pay-offs resulting from
various act-event combinations can be either gains/losses or
costs)

4.

Choosing, on the basis of some criterion, from among

different alternatives

Definition of a Single Stage Decision

Making

Pay-off and Regret

Tables
A conditional pay-off table is set up either using given detailed information or
through an algebraically expressed pay-off function
A conditional regret matrix can also be set up as follows:
When pay-offs are represented as gains: For every event, consider each act one by
one and find excess of largest pay-off (coming from optimal act) over pay-off from
the act in consideration
When pay-offs are represented as costs: For every event, consider each act one by
one and find excess of pay-off from the act in consideration over the smallest payoff (coming from optimal act)

Next Class Scheduled on 18 January

2014
Please go through N D Vohra, Quantitative Techniques in
Management, Chapter 13 and come prepared