Chapter 7

Decision-making
 CONTENTS
 Concepts
 Environment
 Decision Types
 Decision-making Models
 Difficulties in Decision-making
 Decision-making for Organizational Effectiveness
 Decision-making Styles
 Quantitative techniques
 Deterministic or EOQ Model
 Formula of EOQ
 Example of EOQ
 Just-in-time Model for Managing Waste
 Material Requirements Planning
 Decision-making tools
 CONCEPTS
 Decision-making is a sequence of steps leading to the selection
of that alternative.

 Decision-making is a process of solving problem.

 Decisions are taken to support organizational growth.

 Developing selection criteria.

 ENVIRONMENT
 Decision Making under Certainty
Example:

Here, decision to invest in policy II is the most optimal solution.

 Decision Making under Uncertainty
Example:

Here, decision is to choose option II using maximax criterion.

 Decision Making under Risk
− Expected Monetary Value (EMV).
 DECISION TYPES
 Structured Decision
− Has processes in place to handle a situation and structured
problems are recurring ones. For example, hiring process.
 Unstructured Decision
− Decision processes that have not been encountered in quite the
same form and for which no predetermined and explicit set of
ordered responses exists in the organization. Company does not
have a process in place to handle this.
 Programmed Decisions
− Managers take decisions for simple and straightforward problems
(structured problems).
 DECISION TYPES
 Non-programmed Decision
− Managers have to take decisions which are not routine but unique
in nature for unstructured problems and are not supported by
proper information and bear certain risks.
 Strategic Decisions
− Decisions taken by the top-level management to fulfil
organizational goals and objectives.
 Tactical Decisions
− Taken by the middle-level management and constitute allocation
of roles and responsibilities to employees and formulating the
budget for the department.
DECISION-MAKING MODELS
 Classical Model:
− Implements the best alternative, and it is assumed that the
manager knows what is best for the organization. In reality, it is that
most of the time the manager does not have all the information he
or she requires.
 Rational Model:
− An evaluation of these alternatives is done by considering the
feasibility, satisfaction, and affordability parameters and the
consequences of implementing the alternative.
DECISION-MAKING MODELS
 Administrative Model:
− Decisions are limited by people’s cognitive limitations and are
known as bounded rationality, which means that leaders tend to
take decisions based on choosing solutions that meet minimum
requirements and are good enough.
 Political Model:
− An individual seeks to take decisions with an aim to satisfy their
own or organization’s interest or goals such as the stakeholders of
the company. The tilt in the outcome of the decision is always in
their favour.
DIFFICULTIES IN DECISION-MAKING
 Incomplete Information.
 Lack of political, social, and economic variables.
 Individual preferences and attitudes often come in the way.
 Managers are always accompanied by compromise and
adjustments.
 Time pressure and personal emotion can affect the quality of
decision making.
 DECISION-MAKING FOR
ORGANIZATIONAL EFFECTIVENESS
 Defined and refined at frequent intervals
 Identifying appropriate authority
 Keeping evidence
 Accountable for decisions made
 To make the right decisions at the right time
 DECISION-MAKING STYLES
 Autocratic
− Leader takes up the entire responsibility of making the
decisions.
− Advantage: Quick decision-making .
− Disadvantage: Solely depends on the decision-making ability of
that individual.
 Participative
− Leader involves the members of his team to take the decision
though the total control resides with him.
− Advantage: Group participation and involvement.
− Disadvantage: Slow and time-consuming process and is
somewhat less secured.
 DECISION-MAKING STYLES
 Consultative
− Leader gives up total control of the decision to his team.
− Advantage: Group consensus is 100%.
− Disadvantage: Lot of effort is put in getting the employees to
collaborate and work together.

 Democratic
− Leader allows his team to vote for a decision and the majority of
the votes will decide the action.
− Advantage: Faster decision-making and certain amount of group
participation.
− Disadvantage: Any individual is not responsible for the outcome.
QUANTITATIVE TECHNIQUES
 Deterministic or EOQ model (rate of demand is constant) for
satisfying consistent demand.

 Probabilistic model ( rate of demand fluctuated) for satisfying

variations in demand.

 Material requirement planning model for managing inventories.

 Just-in-time model for managing waste.

DETERMINISTIC OR EOQ MODEL
Economic Order Quantity 1489.527273
1800 1354.094118
1329.054545 1401.031579
1600 1574.228571 1335.6
1471.2 1458.07619
1400 1402.177778
1309.2
1200 1376.088889
1321.306667
1000 1356.96 1314.133333 1312.114286
800
600 1428.48

400
200
0
350 400 450 500 550 600 650 700 750 800 850 900 950 1000 1050 1100

Inventory level Holding Cost Ordering Cost Total Cost

Holding costs
− Keep small inventories and order frequently.
− Keep large inventories and order at long intervals.
 Ordering Costs
JUST-IN-TIME MODEL FOR
MANAGING WASTE
 Just-in-time Avoid
− Just-in-time is an approach Reduce
that seeks to eliminate all
Reuse
sources of waste in production
Recycle
activities by providing the right
part at the right place at the Recover
right time. Treat
Dispose
MATERIAL REQUIREMENTS
PLANNING
Master Production
Supplier Lead Times
Schedule

Material
Requirements
Planning

Production Cycle Times and

Bills of Material material needs per cycle

 Production Management Processes

 DECISION-MAKING TOOLS
 Herbert Simon’s Model of Decision Making
Intelligence Design Choice

 Cost-benefit Analysis
- This is a technique in which the values of the benefits of a course
of action are added, and the costs associated with it are subtracted
to determine the net result.
 Force Field Analysis
- This is a technique for looking at all the forces for and against a
decision.
 DECISION-MAKING TOOLS
 Grid Analysis Method
- This technique is for doing analysis for each of the options based
on the factors used to arrive at a decision.
 Decision Trees
- It is a way of representing various decisions and its combinations
for specific situations and mainly aims at representing action
sequences. The decisions taken are based on the conditions, and
then actions are executed.
 Decision Table
- It represents all possible conditions and actions. The table
comprises of the conditions, actions, and rules.
 DECISION-MAKING TOOLS
 Paired Comparison Analysis
- This is useful when our priorities are not very
discrete, the core data on which the decision
has to be taken is missing or there are too
many options which have to be ranked .
Thank You…
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