Management Information System Chapter-6

2. The word ‘decision’ is derived from the Latin root decido, meaning to cut off.

3. The concept of decision, therefore, is settlement, a fixed intention bringing to a conclusive result, a judgment, and a resolution.

5. Influenced by personal values: The personal values of the decision maker play a major role in decision making. The culture, the discipline and the individual’s commitment to goals will decide the process and success of the decision. Made in institutional settings and business environment : The decision making process requires creativity, imagination and a deep understanding of human behavior. The process covers number of tangible and intangible factors affecting the decision process.

7. A rational decision is the one which effectively and efficiently, ensures the achievement of the goal for which the decision is made.

8. If it is raining, it is rational to look for a cover so that you do not get wet.

9. If you are in business and want to make profit, then you must produce goods and sell them at a price higher than cost of production

11. Simon Herbert A differentiates among the types of rationality.

12. A decision, in a given situation is:

13. Objectively rational if it maximizes the value of the objective.

14. Subjectively rational if it maximizes the attainment of value within limitation of the knowledge and awareness of the subject.

15. Consciously rational to the extent the process of the decision-making is deliberate and a conscious one.

17. Gross Bertram M suggests three dimensions of rationality :The degree of satisfaction of human interest. The degree of feasibility in achieving the objectives. A consistency in decision-making.

19. 5. Other limitations : are the need for a compromise among the different positions, misjudging the motives and values of people, poor communications, misappraisal of uncertainties and risks, and inability to handle the available knowledge and human behavior.

21. Decision-making is a process which the decision maker uses to arrive at a decision. The core of this process is described by Herbert Simon in a model.

22. There are three phases in this 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. Assess the value of the decision outcome. Choice: Select one alternative as a decision, based on the selection criteria.

27. There are two types of systems based on the managers knowledge about the environment:

28. Closed decision making system

29. Open decision making system

32. The condition of this system is:The manager does not know all the decision alternatives. The outcome of the decision is also not known fully. The knowledge of the outcome may be a probabilistic one. No method , rule or model is available to study and finalize one decision among the set of decision alternatives. It is difficult to decide an objective or a goal and therefore, the manager resorts to that decision, where his aspirations or desires are met best.

34. The types of decisions are based on the degree of knowledge about the outcomes or the events yet to take place.

35. If the manager has full and precise knowledge of the event or outcome which is to occur, then the decision making is not a problem. If the manager has full knowledge, then it is a situation of certainty.

36. If he has partial knowledge or a probabilistic knowledge, then it is decision-making under risk.

38. Decision-making in the operations management , is a situation of certainty. This is mainly because the manager in this field, has fairly good knowledge about the events which are to take place, has full knowledge of environment, and has a predetermined decision alternatives for choice or for selection.

39. Decision-making at the middle management level is of the risk type.

41. Decision making is a complex situation. To resolve the complexity, the decisions are classified as programmed and non-programmed decisions.

42. If a decision can be based on a rule, method or even guidelines, it is called the programmed decision. If the stock level of an item is 200 numbers, then the decision to raise a purchase requisition for 400 numbers, is a programmed-decision-making situation.

44. The programmed decision-making can be delegated to a lower level in the management cadre.

45. A decision which cannot be made by using a rule or a model is the non-programmed decision. Such decisions are infrequent but the stakes are usually larger.

49. The method of decision tree can be adopted, if the decision-making situation can be described as a chain of decisions.

50. The process of decision-making is sequential and a chain of decisions achieves the end objective.

52. Linear Programming, Integer Programming, Dynamic Programming, Queuing Models, Inventory Models, Capital Budgeting Models and so on are the examples of optimization techniques.

53. These methods are used in cases where decision-making situation is closed, deterministic and requires to optimize the use of resources under conditions of constraints.

55. When all the alternatives and their outcomes are not known with certainty, the decision is made with the help of payoff analysis.

56. The payoff matrix is constructed where the rows show the alternatives and the columns show the conditions or the states of nature with the probability of occurrence.

57. The intersection of column and row shows the vaue of an outcome resulting out of the alternative and the state of the nature.

60. Utility is measured in terms of utile. Money has a value of a different degree to different decision makers depending upon the amount, and also the manner in which it is received.

61. If rupee 1 is equal to 1 utile, then Rs 100 million is not 100 million utile but could be much more.

62. The utile value will be different if the money is received in one lot as against in parts in several years.

65. When a decision maker must make a sequence of decisions, the decision tree analysis is useful in selecting the set of the decisions.

66. The method of analysis can be explained by an example.

69. In this decision situation there are two decision points and six paths as given below.

72. Since the highest expected cash flow path is ACEH, the decision is to invest in a small capacity in the Ist phase and invest in the remaining capacity in the second phase with the assistance of the collaboration.

74. The process is executed through analytical modeling of problem and solution.

75. The model is analyzed in four ways:What if analysis Goal Seeking Analysis Sensitivity Analysis Goal Achieving Analysis

77. The considered values of variables or relationship in the model may not hold good and therefore solution needs to be tested for an outcome, if the considered values of variables or relationship change. This method of analysis is called ‘What if analysis’.

79. The model with changed lead time would compute the cost of holding inventory under new conditions.

80. Such type of analysis can be done for purchase price change, demand forecast variations and so on.

81. Such analysis helps a manager to take a more learned decisions.

83. But in sensitivity analysis, a special case of what if analysis, only one variable is changed and rest are kept unchanged.

84. In the problem of inventory, sensitivity analysis can be used to assess the cost of holding inventory, if cost of item increases by 20 per cent in sensitivity analysis, you are testing how sensitive is the cost of holding inventory to the change in cost of item.

86. In goal seeking analysis, goal is fixed and you go down to analyze the variables and values, which would help to seek that goal.

87. For example in our inventory problem you would fix a goal of achieving the cost of holding inventory of an item at the level of Rs. 10,00,000.

89. In Optimization analysis, you come to know which are critical constraints and which are limiting the value of goal.

91. A manager, being a human being, behaves in a peculiar way in a given situation. The response of one manager may not be the same as that of the two other managers, as they differ on the behavioral platform.

92. Even though tools, methods and procedures are evolved, the decision is many a times influenced by personal factors such as behaviour.