DECISION MAKING CONCEPTS

The word decision is derived from the Latin root decido, meaning cut off. A decision is the choice out of several options made by the decision maker to achieve some objective in a given situation. The major characteristics of the business decision making are: a) Sequential in nature. b) Exceedingly complex due to risks and trade offs. c) Influenced by personal values. d) Made in institutional settings and business environment. The decision making process is a complex process in the higher hierarchy of management. a) Inter-relationship among the experts. b) A job responsibility. c) A question of feasibility. d) The codes of morals and ethics. e) A probable impact of business.

RATIONAL DECISION MAKING:

A rational decision is the one which, effectively and efficiently, ensures the achievement of the goal for which the decision made. Eg: If it is raining, it is rational to look for a cover so that you do not get wet. Similarly if we are in business to make profit then sell the product in value higher than its production cost. In reality there is no right or wrong decision but a rational or irrational decision. For example, the business decisions in a private organization & a private sector undertaking differs under the head of rationality only because of the nature of the decision makers over there. Simon Herbert. A , differentiates among the types of rationality. A decision, in a given situation is follows where all the situations maximize the situation values: a. Objectively b. Subjectively c. Consciously Organizationally Personally

DECISION METHODS, TOOLS AND PROCEDURES Decision making is a process in which decision maker will produce a new decision. Herbert Simon describes this process in three steps viz.: a) Intelligence b) Design c) Choice MIS follows this model in its development stage.

INTELLIGENCE

DESIGN

CHOICE
HERBERT SIMON MODEL INTELLIGENCE: Raw data collected, processed and examined. Identifies a problem calling for a decision. DESIGN: Inventing, developing and analyzing the different decision alternatives and testing the feasibility of implementation. CHOICE: Select one alternative as a decision, based on the selection criteria.

In these three phases, if the manager fails to reach a decision, he starts the process again from first where additional data is collected and the decision making model is refined and the decision is arrived at. DECISION MAKING SYSTEMS: There are two types of systems: a) Closed decision making system. b) Open decision making system.

If the manager operates in a known environment then it is a closed decision making system. The conditions are: The manager has a known set of decision alternatives. Through a set of model the altier can be generated, tested and ranked. Choose the best one based on some goal or objective. If the manager operates in an environment not known to him, then it is referred as an open decision making system. The conditions are: The manager does not know all the decision alternatives. The knowledge of the outcome may be a probabilistic one. No method, rule or model is available to study and finalise. It is difficult to make decision therefore, the manager resorts to that decision, where his aspirations or desires are met best.

These are the decision making concepts methods, tools and procedures where the decision maker knowledge plays a vital role.