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Decision making is an essence to problem solving. Purposeful selection from among a set of alternatives in light of a given objective. Decision-making is not a separate function of management. In fact, decision-making is intertwined with the other functions.
ORGANISATIONAL DECISION MAKING The process of responding to a problem by searching for & selecting a solution or course of action that will create value for organizational stakeholders.
DECISION TYPES
N1
N2
N3
N4
Nk
Pj1
Pj2
Pj3
Pj4
Pjk
Example: A carpenter is offered 5 tables for Rs. 300 (Rs. 60/- per table). Selling price per table is Rs. 150.
N0
N1
N2
N3
N4
N5
-300
-150
150
300
450
SAVAGE has suggested the regret or the opportunity loss as a measure to assess the consequences of a strategy. Regret : The maximum pay off minus the pay off which we have received.
EXAMPLE: If the pay off of a decision maker under the
strategy chosen with the state of nature that has occurred is Rs.500 & if an alternate strategy under this state of nature would have given him Rs.800, then his pay off is Rs.800-500= Rs.300
Criteria for decision making when probability information regarding the likelihood of the states of nature is unavailable are: the optimistic approach : Maximax criteria the conservative approach: Maximin criteria the minimax regret approach Laplace Criteria
where:
N = the number of states of nature P(sj ) = the probability of state of nature sj Vij = the payoff corresponding to decision alternative di and state of nature sj
Payoff Table
Average Number of Customers Per Hour s1 = 80 s2 = 100 s3 = 120 Rs. Rs. Rs. Model A 10,000 15,000 14,000 Model B 8,000 18,000 12,000 Model C 6,000 16,000 21,000
Decision Tree
2
s1 s2 s3 s1 .4 .2 .4 .4 .2 .4 .4
d1 1 d2 d3
s2 s3 s1 s2 s3
14,000 8,000
18,000
12,000
6,000
.2
.4
16,000
21,000
Model A
Model B d2
Model C
d3