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

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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). A cognitive process whereby a person instinctively makes a decision based on his or her accumulated knowledge and experience.
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2. Use Your Intuition

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. Remember that few decisions are forever. Knowing when to quit is sometimes the smartest thing a manager can do.

4. Dont Overstress the Finality of Your Decision

5. Make Sure the Timing Is Right

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Decision Theory
Decision process calls for:
1. 2. 3.

Identification of states of nature, or events

Identification of courses of action, or acts

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) Choosing, on the basis of some criterion, from among different alternatives

4.

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