Organation is an

arangement of people brought together to accomplish some specilie purM

Characteristics of Organizations
Goals

People
Structure

Nonmanagerial employces are people who work on a joh and have o responsibility for oversecing the work
of others.

Managers are individuals who direct & oversee the activities of other people in the organizalion.

Top
Managers
Middle Managers
First Line Managers
Nonmanagerial Employees

role of the top level Role of The middle level Role of The lower level

determinesthe objectives, 1-gives recommendationsto 1-directsthe workers

policies and plans of the
organization.
They mobilizes (assemble
and bring together)
available resources.
3. does mostly the work of
thinking. planning and
deciding (the Brain of the
organization).
4. spend more time in
planning and organizing
5. prepare long-term plans
mace for 5 to 20 years.
6 has maximum authority
and responsibility. They
are the top or final
authority in the
organization.
the top level.
2- It executes (implements)
the policies and plans which
are made by the top level.
3- It co-ordinate the activities
of all the departments.
4- link between the top level
and the lower level.
5- spend more time in
coordinating and
communicating.
6- prepare short-term plans
made for 1 to 5 years.
7-limited authority and
responsibility.
8- directly responsible to the
chief executive officer and
board of directors.
8- report to the middle level
employees.
2- develops morale in the
workers.
3-link between workers and
the middle level.
4- informs the workers about
the decisions which are taken
by the management, and
performance, difficulties,
feelings, demands, etc., of the
workers.
5- more time in directing and
controlling.
6- managers make daily
weekly and monthly plans.
7- limited authority but
important responsibility of
getting the work done.

1
Management is the process of getting things done. effectively and efficiently, thirough other people

Managers can transfom organizations

Sam Waltom- Wal-Mart

Jack Welch GE

Steve Jobs- Apple

Meg Whitman eBay

Functions of a manager:
Planning
Organizing
Staffing
Directing
Controlling

Lead to
Demng goals Ueemning otvating Monitorng
ceabisning What neodoading, and actviies
slralegy, and to be done Achieving the
yobher eure orpanizato
developng OW wll ackons imvolved at hey arg
slae
plana lo be done, and in
dealing with accomplished
coordlinate whois to do if pesp planned
acites

What Skils Do Managers Need2

Conceptual skills are the skills managers use to analy ze and diagnose complex situations.

Interpersonal skills are those skills involved with working well with other people both individually and in
groups.
Technical skills are the job-specilic knowledge and techniques needed to perform work tasks.
 DECISION ANALYSIS
A decision is the selection of an action from among the available
considered to be the best
options.
All
according to some prefixed standard
decisOnmaking situations are characterized by the fact that two or more alternative courses of action to choOSe Iron.
Decision analysis is used to determine optimal strategies where the decision maker is faced with several decison
aliernatives. and uncertain future events.

Decision-Making Conditions
When managers make decisions,
certainty
they face three conditions
risk

uncertainty

A bookstore sells a particular book of tax laws for Rs.100.lt purchases the book for Rs.80 per copy. Since
of the some tas laws
change every year, the copies unsold at the end of a year become ouldated and can be disposed off for Rs.30 each. According
to past
experience, the annual demand for this book is between 18 and 23 copies.
Assuming that the order for this book can be placed only once during the year. the problem before store's manager is to decide
how many
copies of the book should be purchased for the next year.
The decision making process involves the following
steps:
STEP 1: ldentification of the various possible outeomes(states of nature events) for the decision
or
problem [E,|.
There are sis possible esents

Fi 18 copies are demanded.

E2 19 copies are demanded.

Es 20 copies are demanded.

21 copies are demanded.

22 copies are demanded.

23 copies are demanded.

STEP 2: ldentification of all the courses of action that are available to the decision maker [Aj|.

There are six possible actions.

A Buy 18 copies.

A: Buy 19 copies.

A Buy 20 copies.

Buy 21 copies.

s Buy 22 copies.

A Buy 23 copies.
STEP3: Determination of thie pay-offfunction which describes the consequnces resulting from the diterent combinations
of the acts & events|Pijl
Construct the pay-of
A pay-off 1able table.
represents the matrix of the conditional values associated with all the possible combinations of the acts and
ihe evens
Iet. D demand in units for the book (Event)
Q quantity decided to be purchased (Action)
P profit
3
When, D >Qthen P 1000 S0Q
P 200
P 100D 30(Q D) 800
When, DQthen
P 100D 300- 30D 80Q
P 70D- 50Q
PAY-OFF TABLE
23
21
12
-19 -20
-18

70D 50Q
70D 50Q
70D 50Q- 70D 50Q= (70x 18)
200 20x18 70D 50Q (70x18)- 110
(70x18)- (70x18) 160 (50x23)
=

360 (70x 18) =

210 (50x22)
=

18 (50x20) =260 (50x21)

(50x19) 310
70D 50Q
70D- 50Q
70D 50QQ 70D 50Q (70x 19)
200 20s 18 200 20x19 (70x19)
380 (70x19) (70x19) 230 (50x23)= 180
360 (50x21)
=
280 (50x22)
-19 (50x20) =330
70D 50Q = 70D 500
200 20x20 70D 500
200 20x 18 200 20x 19 (70x20) (70x20)
(70x20)
400 (50x23)
=
250
360 380 (50x21) = 350 (50x22)
=
300
20
70D 50Q 70D 50Q
200 20x21
200 20x18 200 20x 19 200 20x20 (70x21)
400 420 (70x21) (50x23) = 320
360 380 (50x22) = 370
-21
200 20x22 70D 50Q=
20Q 20x20 200 20x21
20Q 20x19 (70x22)
E-22 20Q 20x 18 = 420 =440
380 -400 (50x23) = 390
360

20Q 20x22 200 20x23

200 20x20 20Q 20x21
200 20x 18 200 20x 19 420 =440 =460
380 400
F
360
23
events can alternatively
be expressed in terms of the
various combinations of the acts and which would
of the c o u r s e of action
The resultant outcomes not adopting the optimal
is the amount of pay-off foregone by
It
opportunity lost/regret.
pay-off, for each possible event from the highest profit
give the highest
transformed into an opportunity
loss/regret matrix by subtracting
can be
The pay-off matrix that
all other value in
row.

value in each row.,

OPPORTUNITY LOSS/REGRET TABLE

-21 22
19 -20
=18
200 250
100 150
0 50
E,
= 18
150 200
50 00
20

=19
100 150
0 50
40 20

-20 0 100
40 20
60

-21 50
40 20
80 60
E-22 0
60 40
100 80

23
 ISIONSUNDERUNCTRIAINTY
decison situations where decision maker cannot assess the probabilities of tie varus
LAPLAC PRINCIPLE
Manl peetediPay-oll1

A 18 60 360+ 360+360 360 360)/6 360

A119 G10 380+ 380 380 380 380)/6 368.3

SELECTED
A 20 (260+330+400 400 400+400)/6 365
A-21 (210 280+350 4201420 420) 6 360

A 22 (I60-230 300+370 440 40)/6 3233

A-23 (110180 250 320 390 460)/6 285

()MANIMIN or MINIMAX PRINCIPLE
Principle adopted by pessimistic decision makers
In case of profit: is sclected.
the maximum value
he inimum pay-olls resulting from various strategies are considered & among them
Mmimum profit associated with various actions:

As: Rs.16l Since the

ARss6t0 A Rs.260
maximum of these
is Rs.360 s0. A is
selected.
As: Rs.210 A: Rs.110
A: Rs.310

In case of costs:
Minimax- Choosing the best(minimum) cost from the set of worst (maximum) cost.
PRINCIPLE
(ii)MAXIMAX or MINIMIN
Prnciple adopted by optimisticdecision makers.
lu case of profit:
considered & among them the highest value is selected.
The maxinmum pay-ofls resulting from various strategies
are

Maximum profit associated with various actions:

A:: Rs.400 As: Rs.440 Since the maxunum

A Rs.360
of these is Rs.460 so.
Au IS selccted.
A: Rs.420 A: Rs.460
A:Rs.380

ln case of costs:
the allernative which minimizes the nminimum cost is selected.
The mininum cost for each allernative is considered & then
(iv)IIURWICZ PRINCIPLE
It stipulates that a decision maker's view fall somewhere between extreme pessimism and extreme optimism.

For this, an index of optimism, a, is defined on a ranging from 0 to 1.

scale

Act Ma Min Criterion Value u (Max Value)+(l-aXMin

Value)

A 360 360 (0.6x 360)+ (0.4 x 360) 360

A 380 310 (0.6 x 380)+ (0.4 x 310) 352

260 (0.6 x 400) + (0.4 x 260)= 344

A 400

420 210 (0.6 x 420) (0.4 x 210) 336

A

440 160 (0.6 x 440) + (0.4 x 160) 328

460 110 (0.6 x 460) + (0.4 x 10) 320

Since the value associated with A is the maximum so the decisIOn is to choose A.

5
DECISIONSUNDERRISK Tesung
Maximum Likelihood P'rinciple
demand level of 21 copies, we would consider thepay ots
khown that the probability is the highest for a
is
from adopting different strategies for this demand level
A 18 A:19 200 A 21 22 A.2

21 360 380 400 420 370 320

Decision is to buy 21 copies.

(iExpectationP'rinciple
Even probabilitiesare assigned. Since some ot tne a
bookstore sells a paticular book laws for Rs. 100 lt purchases the book for Rs 80 per copy off for Ks.50 Cachn.
of tax
and can be disposed
aws change every year, the copics unsold attheend of a year become outdated
According to past experience, the annual demand
for this book is
E-22 E-23
Demand L18 : 19 F. 20 21

0.05 0.10 0.30 0.40 0.10 0.05

Probability values
Then add those
For each action, do the follow ing: Multiply the payoff by the probability of that payoff occurring.
together.Select the action with the maximum expected pay-ofl.
Probability A 18 A: 19 A-20 A-21 As 22 23

360 310 260 210 160 110

E-18 0.05

0.10 360 380 330 280 230 180

E-19

E 20 0.30 360 380 400 350 300 250

0.40 360 380 400 420 370 320

E-21

E 22 0.10 60 380 400 420 440 390

420 440 460

E-23 0.05 360 380 400

360 376.5 386 374.5 335 288.5

Calculation of Expected Opportunity Los/Expected Regret
For each action, do the following: Multiply the regret value by the probability of that regret occurring. Then add those
values together. Select the action with the minimum expected regret.
A-18 A:-19 A =20 A=21 As-22 A-23

E 18 0.05 50 T00 150 200 250

E-19 0.10 20 50 100 150 200

Es220 0.30 40 20 S0 100 150

E-21 0.40 60 40 20 0 50 100

Es 22 0.10 80 60 40 20 0 50

,23 0.05 100 80 60 0 20 0

51 34.5 25 36.5 76 122.5

pected value of perfect inforumation (EVPI)
EVPI Expected pay-off of perfect information (EPP) Expected Pay-O1r(EP)
EPPI 005 360) (0.10x 380)+ (0.30 x 400) (0.40 x 420) (0.10s 440)+ (0.05 460) 41
EVPI EPPI EP 41I 386 25
6
A stockist of a particular commodity makes a profit of Rs.30 on each sale made within the same week of purchase. otherwise he incurs a loss of
Rs.30 on each item. The data the past sales
on are given below:

No. of items 5 7 8 9 10 11
sold within
the Same

Week

Frequency 0 9 12 24 9 6

.Find out the optimum number ofitems the stockist should buy every week in order to maximize the profit.
ii. Calculate the expected value of perfect information.

No. of items sold in a week are between 6 and 10.

The frequencies are converted into probabilities by dividing each ofthemby their sum total (i.e. 60).
Expected Pay off Matrix |Expected Monetary Value (EMV)I
No, of units
Frequency Probability No. of units stocked
sold

Ai - 6 A2-7 As-8 As-9 As- 10

E-6 9 0.15 180x0.15 150x0.15 120x0.15 90x0.15 60x0.15

E2-7 12 0.20 180x0.20 210x0.20 180x0.20 150x0.20 120x0.20

Es-8 24 0.40 180x0.40 210x0.40 240x0.40 210x0.400 180x0.40

E-9 0.15 180x0.15 210x0.15 240x0.15 270x0.15 240x0.15

Es-10 6 0.10 180x0.10 210x0.10 240x0.10 270x0.10 300x0.10

Expected Value 180 201 210 195 171

Optimal action: Stock 8 units

EPPI (0.15x180)-(0.20x210)-(0.40x240)-(0.15x270)-(0.10x300)

235.50

EVPI 235 -210 Rs.25.50