Decision Making

Can be regarded as the mental processes resulting in the selection of a course of action among several alternative scenarios. The process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation. According to Nickels and others, is the heart of all the management functions.

Process of Decision Making

Diagnose problem Analyze environment Articulate problem or opportunity Develop viable alternatives Evaluate alternatives Make a choice Implement decisions Evaluate and adapt decision results

Diagnose Problem
If a manager wants to make an intelligent decision, his first move must be to identify the problem. If the manager fails in this aspect, it is almost impossible to succeed in the subsequent steps.

Analyze Environment
The objective of environmental analysis is the identification of constraints, which may be spelled out as either internal or external limitations. Internal Environment refers to organizational activities within a firm that surrounds decision-making. External Environment refers to variables that are outside the organization and not typically within the short-run control of top management.

Develop Viable Alternatives

Often times, problems may be solved by any of the solutions offered. The best among the alternative solutions must be considered by management. Prepare a list of alternative solutions. Determine the viability of each solutions. Revise the list by striking out those which are not viable.

Evaluate Alternatives
After determining the viability of the alternatives and revised list has been made, an evaluation of the remaining alternatives is necessary. Proper evaluation makes choosing the right solution less difficult.

Make a Choice
Choice making refers to the process of selecting among alternatives representing potential solutions to a problem. To make the selection process easier, the alternatives can be ranked from best to worst on the basis of some factors like benefit, cost or risk.

Implement Decisions
Implementation refers to carrying out the decision so that the objectives sought will be achieved. At this stage, the resources must be made available so that the decisions may be properly implemented.

Evaluate and Adapt Decision Results

In implementing the decision, the results expected may or may not happen. It is, therefore, important for the manager to use control and feedback mechanisms to ensure results and to provide information for future decisions.

APPROACHES IN SOLVING PROBLEMS

Qualitative evaluation Quantitative evaluation

QUALITATIVE EVALUATION
This term refers to evaluation of alternatives using intuition and subjective judgment. Stevenson states that managers tend to use the qualitative approach when: the problem is fairly simple, the problem is familiar, the costs involved are not great and immediate decisions are needed.

QUANTITATIVE EVALUATION
This term refers to the evaluation of alternatives using any technique in a group classified as rational and analytical.

QUANTITATIVE MODELS FOR DECISION MAKING

Inventory models Queuing theory Network models Forecasting Regression analysis Simulation Linear programming Sampling theory Statistical decision theory

INVENTORY MODELS
Economic order quantity model this one is used to calculate the number of items that should be ordered at one time to minimize the total yearly cost of placing orders and carrying the items in inventory. Production order quantity model - this is an economic order quantity technique applied to production orders. Back order inventory models - this is an inventory model used for planned shortages. Quantity discount model an inventory model used to minimize the total cost when quantity discounts are offered by suppliers.

QUEUING THEORY
This theory is one that describes how to determine the number of service units that will minimize both costumers waiting time and cost of service. This is applicable to companies where waiting lines are a common situation.

NETWORK MODELS
These are models where large complex tasks are broken into smaller segments that can be managed independently.

FORECASTING
Forecasting may be defined as the collection of past and current information to make predictions about the future.

REGRESSION ANALYSIS
The regression analysis may be simple or multiple depending on the number of independent variable present. When one independent variable is involved, it is called simple regression; when two or more variables are involved, it is called multiple regressions.

SIMULATION
Simulation is a model constructed to represent reality on which conclusion about real life problems can be used. It does not guaranty an optimum solution but it can evaluate the alternatives fed into the process by the decision maker.

LINEAR PROGRAMMING
Linear programming is a quantitative technique that is used to produce an optimum solution within the bounds imposed by constraints upon the decision. This is very useful as a decision making tool when supply and demand limitations.

SAMPLING THEORY
Sampling theory is quantitative technique where samples of populations are statistically determined to be used for a number of processes such as quality control and marketing research.

STATISTICAL DECISION THEORY

Decision theory refers to the rational way to conceptualize, analyze, and solve problems in situations involving limited or partial information about the decision environment