SUBJECT :

PRODUCTION AND
OPERATIONS
MANAGEMENT

SUBMITTED TO :
Mr. SABAHAT ALI

ASSIGNMENT 1

21-12-20
 Decision Making Tools

Definition
According to the Oxford Advanced Learner’s Dictionary the term decision making means the
process of deciding about something important, especially in a group of people or in an
organization.

It is a continuous and dynamic activity that pervades all other activities pertaining to the
organization. Since it is an ongoing activity, decision making process plays vital importance in
the functioning of an organization.All matters relating to planning, organising, direction,
coordination and control are settled by the managers through decisions which are executed into
practice by the operators of the enterprise. Objectives, goals, strategies, policies and
organisational designs are all to be decided upon in order to regulate the performance of the
business. Since intellectual minds are involved in the process of decision making,

Further, decision making can be regarded as a check and balance system that keeps the
organisation growing both in vertical and linear directions. It means that the decision making
process seeks a goal. The goals are pre-set business objectives, company missions and its vision.
To achieve these goals, companies may face a lot of obstacles in administrative, operational,
marketing wings and operational domains. Such problems are sorted out through a
comprehensive decision making process.
In a management , decisions cannot be taken abruptly. It should follow steps such as

1.Defining the problem

2.Gathering information and collecting data
3.Developing and weighing the options
4.Choosing best possible option
5.Plan and execute
6.Take follow up action

Fundamentals of Decision Making

1.Terms:
A.Alternative—a course of action or strategy that may be chosen by the decision maker
B.State of nature—an occurrence or a situation over which the decision maker has little
or no control

2.Symbols used in a decision tree:

A.□—decision node from which one of several alternatives may be selected
B.⚪—a state-of-nature node out of which one state of nature will occur

The three types of decision making Models/Environments

A.Decision making under uncertainty

1.Maximax
● Find the alternative that maximizes the maximum outcome for every alternative
● Pick the outcome with the maximum number
● Highest possible gain

2. Maximin
● Find the alternative that maximizes the minimum outcome for every alternative
● Pick the outcome with the minimum number
● Least possible loss

3.Equally likely
● Find the alternative with the highest average outcome
● Pick the outcome with the maximum number
● Assumes each state of nature is equally likely to occur

Example
B.Decision making under risk
● Each possible state of nature has an assumed probability
● States of nature are mutually exclusive
● Probabilities must sum to 1
● Determine the expected monetary value (EMV) for each alternative

Example
C.Decision making under certainty
● (EVPI) Expected Value of Perfect Information
● Expected Value of Perfect Information (EVPI)
● EVPI places an upper bound on what one would pay for additional information
● EVPI is the expected value with perfect information minus the maximum EMV

Example

Decision Tables
● Decision Table displays multiple related rules in a single spreadsheet-style view.
● In Rules Designer a Decision Table presents a collection of related business rules
with condition rows, rules, and actions presented in a tabular form that is easy to
understand.
● Business users can compare cells and their values at a glance and can use
Decision Table rule analysis features by clicking buttons and selecting values in
Rules Designer to help identify and correct conflicting or missing rules.

Example of Decision Tables

Decision Trees
● Information in decision tables can be displayed as decision trees
● A decision tree is a graphic display of the decision process they are Used for
solving problems and indicate decision alternatives, states of nature and their
respective probabilities, and payoffs for each combination of decision alternative
and state of nature
● Appropriate for showing sequential decisions

Analyzing Problems with Decision Trees

1. Define the problem
2. Structure or draw the decision tree
3. Assign probabilities to the states of nature
4. Estimate payoffs for each possible combination of alternatives and states of nature
5. Solve the problem by computing expected monetary values for each state-of-
nature node

Example of Decision Trees