LECTURE TWO

DECISION MAKING
TECHNIQUES IN P/OM
 Decision making in operations
 Operations Strategy Decisions
management
 Strategic (long-range)
 Needs of customers
(capacity planning)
 Tactical (medium-range)
 Efficient scheduling of
resources
 Operational planning
and control (short-range)
 Immediate tasks and
activities
 DECISION PROCESS IN OPERATIONS

 OM are the decision makers.

 Managers should understand how decision are
made and which decision making tools to use.
 A good decision is based on analysis,logic,and
consider all available data and possible
alternatives

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 STEPS IN DECISION MAKING

 Clearly define a problem and factors that influence it,

 Develop specific and measurable objectives
 Develop or select the model which establish the
relationship between objectives and variables,
 Evaluate each alternative solution based on merits
and demerits,
 Select the best alternative,
 Implement the decision and set timetable for
completion.
 MODELS FOR DECISION
MAKING
 Model is an abstraction of reality; simplified version of
a real phenomenon.
 Eg child’s toy car is a model of a real automobile car –
shape, wheels that make it suitable for the child’s
learning and playing but the toy does not have real
engine,does not carry passenger etc.
 Common examples of models includes formulars,graph
and charts,balance sheet,income statements,financial
ratios,mean,median,mode,range,standard deviation,
regression etc
 CLASSIFICATION OF
DECISION MODELS
 Physical models-these looks like their real life counterpart
examples miniature cars,trucks,airplane,toy animals and trains
and scale model buildings its advantage is their visual
correspondence with reality
 Schematic models-are more abstract than their physical
counterparts ie they have less resemblance to the physical
reality its advantage is that simple to construct and change
.Also have some degree of visual correspondence examples are
graphs, charts ,blue prints pictures and drawings
 Mathematics models –are the most abstract they do not look at
all like their real life counterpart .Examples are like numbers
,formulars and symbols.These models are easiest to manipulate
and they are important inputs for calculators.
 COMMON FEATURES OF
DECISION MODELS
 all are decision making tools,
 They aim simplification of more complex real life phenomenon
In applying models try to learn the following;
 its purpose,
 How it is used to generate results,
 How these results are interpreted and used ,
 What assumptions and limitations apply.
Every model has associated set of requirements that indicates the
condition under which the model is valid ;Hence it is extremely
important to be aware of the assumptions and limitation of each
model
 ADVANTAGES OF USING
MODELS
 They are easy to use
 Less expensive
 Requires users to organize and sometimes quantify information and in
the process ,
 Often indicates areas where additional information is needed,
 Provide systematic approach to the problem solving,
 Increase understanding of the problem,
 Enable managers to analyze what if question,
 Serve as consistent tool for evaluation,
 Enable users to bring the power of mathematics to bear on a problem,
 Provide a standardized format for analyzing a problem.
 LIMITATIONS OF USING
MODELS
 Emphasize more quantitative than qualitative
information.
 models may be incorrectly applied and the results
misinterpreted.
 some models are complex and difficult to use.
 model building can became an end in itself.
Examples of mathematical model

 Decision tree model

 Linear programming model
 Queuing model
 Transportation model
 Inventory models, etc
 Decision tree

•Is a general approach to decision making

that is suitable to a wide range of
operations management decisions
–Capacity planning
–Product and service design
–Equipment selection
–Location planning
 SUITABILITY OF DECISION
TREE
•Characteristics
of decisions that are suitable for
using decision tree.
–A set of possible future conditions that will
have a bearing on the results of the decision
–A list of alternatives from which to choose
–A known payoff for each alternative under
each possible future condition
 Decision Conditions

There are three general decision conditions categories:

–Certainty
Environment in which relevant parameters have known values
–Risk
Environment in which certain future events have probable outcomes
–Uncertainty
Environment in which it is impossible to assess the likelihood of
various future events
 DECISION TREE- CONT
It is composed of:
•Nodes
–Decisions – represented by square nodes
–Chance events – represented by circular nodes
•Branches
–Alternatives– branches leaving a square node
–Chance events– branches leaving a circular node
–Analyze from right to left
•For each decision, choose the alternative that will yield the greatest
return
•If chance events follow a decision, choose the alternative that has
the highest expected monetary value (or lowest expected cost)

EMV=( Payoff x Corresponding Probability)

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