Decision Making

Decision Making & Problem Solving

1. Identify and define the problem

2. Determine the set of alternative solutions
3. Determine the criteria to evaluate alternatives
4. Evaluate the alternatives
5. Choose an alternative
6. Implement the selected alternative
7. Evaluate the results to determine whether a
satisfactory solution has been obtained
 Decision Making
The first five steps of Problem Solving
constitute the Decision Making process: i.e.:

1. Identify and define the problem

2. Determine the alternatives
3. Determine the criteria
4. Evaluate the alternatives
5. Choose an alternative

The choice of an alternative is the Decision

Classification of the Stages in
the Decision Making Process
Structuring the Problem

Define the Identify the Determine

Problem Alternatives the Criteria

Analyzing the Problem

Evaluate the Choose an

Alternatives Alternative
 Analyzing a Problem
Qualitative Analysis
• Dependent on the decision maker, his/her
experience, judgment, intuitive feel, relative
simplicity of the problem etc.

• More of an art than a science

• The skills in qualitative approach are inherent in

the manager and improve with experience

• Subjective
 Analyzing a Problem
Quantitative Analysis
• Relatively large/complex problem or when the
manager lacks previous experience with similar
situation or where the nature of the problem
demands quantitative treatment

• The skills in quantitative approach are learnt

only by studying the methods of Management
Science

• Objective
Qualitative and Quantitative Analyses
have their roles in Decision Making
Analyzing the Problem

Qualitative
Analysis
Summary Make the
and Decision
Evaluation
Quantitative
Analysis

A manager who knows quantitative procedures is in a much better

position to compare and evaluate the qualitative and quantitative
recommendations and combine them to arrive at the best decision.
 Summary of the instances
requiring Quantitative Analysis
• The problem is large or complex; the manager cannot
develop a good solution without quantitative analysis

• The problem is important; demands a thorough analysis

• The problem is new; no previous experience to rely on

• The problem is repetitive; quantitative methods save

time and effort for the decision maker
 Stages in Quantitative Analysis
• Analysis begins once the
problem has been properly
structured.

• Model Development follows; i.e. Model Development

creating a mathematical
representation of the problem

• Model Solution, using Model Solution

appropriate techniques

• Generation of Report for the use

of the decision maker giving the Report Generation
recommendations and other
pertinent aspects that aid the
decision making process
 Models
• Iconic
• Analog
• Mathematical
The value of a model-based analysis
depends on how well the model
represents the real situation
 Mathematical Models
• Objective function:
A mathematical function that describes the problem’s objective

• Constraint
Restrictions that limit the degree to which the objective can be
pursued (production capacities, availability of inputs, committed
outputs etc.)

• Uncontrollable inputs
Environmental factors affecting the objective function and the
constraints, but beyond the control of the decision maker

• Controllable inputs or decision variable

 Deterministic Vs Stochastic
• Deterministic Model: Uncontrollable variables
are all known and do not vary. E.g.: tax rates

• Stochastic or Probabilistic Model: One or more

of the uncontrollable variables are uncertain and
subject to variation. E.g.: demand
 Iterative Process
• Often the model development and model
solution steps will be iterative

• Simplifications in the model are often

justifiable for reasons of cost, speed, ease
of developing and understanding, and is
often of acceptable accuracy
 Techniques for Model Solution
• Breakeven Analysis, Financial Models
• Linear Programming, ILP, Network Models
• Inventory Models, Queueing Models
• Simulation
• Decision Analysis / Decision Trees
• Cause-effect (Ishikawa / fishbone)
Diagrams