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Introduction to
Management Science

Body of Knowledge
 The body of knowledge involving quantitative approaches to decision
making is referred to as
• Management Science
• Operations Research
• Decision Science
 It had its early roots in World War II and is flourishing in business and
industry due, in part, to:
• numerous methodological developments (e.g. simplex method for
solving linear programming problems)
• a virtual explosion in computing power

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Management Science, definition

• The application of a scientific approach to solving
management problems in order to help managers make
better decisions.

• Management science encompasses a logical approach to

problem solving.

Problem Solving
• The process of identifying a difference between the
actual and the desired state of affairs and then taking
action to resolve the difference.

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7 Steps of Problem Solving

1. Define the problem.
2. Determine the set of alternative solutions.
3. Determine the criteria for evaluating alternatives.
4. Evaluate the alternatives.
5. Choose an alternative (make a decision).
6. Implement the selected alternative.
7. Evaluate the results.

Decision Making
•The term generally associated with the first five
steps of the problem-solving process.

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Decision Making Process

• Problems in which the objective is to find the best solution with

respect to one criterion are referred to as single-criterion
decision problems.
• Problems that involve more than one criterion are referred to as
multicriteria decision problems.

Relationship Between Problem Solving

and Decision Making

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Categories of Managerial Decisions

•Programmed

•Non-programmed

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Classifications of Problem Solving
Process
•Routine
•Non-routine
Programmed Decision
Used for frequent situations of
organization; both
internal and external.
Mostly Lower level managers are
making these decisions.
Follows structured and non-
creative patterns.
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Non-Programmed Decision
Used for unique and ill-
structured situations of
organization; both internal and
external.
Mostly Upper-level managers are
making these decisions.
Takes an out side of the box
unstructured, logical and creative
approach.
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Decision Making Conditions

Certainty
All of the information the decision maker needs is fully available.

Risk
A decision has clear goals and good information is available, but the
future outcomes associated with each alternative are subject to chance.

Uncertainty
Managers know which goals they wish to achieve, but information about
alternatives and future events is incomplete and managers may have to
come up with creative approaches to alternatives.

Decision Making Conditions and Decisions

Organizational
Problems

Low Possibility of Failure

Certainty Uncertainty High
Risk

Programmed Non-programmed
Decisions Decisions

Solutions for the

problems

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Information for Decision Making

 Information plays a vital role in making effective decisions.

Characteristics of good information:

 Accuracy
 Relevancy
 Perfection
 Timeliness
 Cost-effectiveness

Decision Making Models

• Econological or Economic Man Model

• Bounded Rationality or Administrative Man Model

• Implicit Favorite or Gamesman Model

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Econological or Economic Man Model

• Used in the classical approach of decision-making;

• Two assumptions:
1. Assumes that people are economically rational;
2. Assumes that people attempt to maximize outcomes in
an orderly and sequential process.

Econological or Economic Man Model

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Econological or Economic Man Model

• In business context, the concept of economic man model
cannot be used due to:
(a) The complete rationality is not possible because the
conditions under which economic man makes decision are
seldom available.
(b) Even if rationality is possible, it cannot be used
because it amounts to maximization of profit which is not
possible because of so many pressures from the
environmental forces.

Bounded Rationality or
Administrative Man Model

• Assumes that people, while they may seek the best

solution, usually settle for much less because the
decisions they confront typically demand greater
information processing capabilities than they possess.

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Bounded Rationality or
Administrative Man Model

Implicit Favorite or Gamesman Model

• Deals primarily with non-programmed decisions
(decisions that are novel or Unique / One-shot
decisions)
• Non-programmed decisions are made in intuitive
fashion. By doing so, the individual becomes
convinced that he or she is acting in a rational fashion
and making a logical, reasoned decision on an
important topic.

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Quantitative vs Qualitative
• Quantitative decisions are mostly based on statistical
analysis of collected data;

• Whereas qualitative decisions are based on many

algorithms like type and quality of data, factors that
influence collected data, risk assessments, etc.

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