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Decision Making. Advanced Organizer. Chapter Objectives. Explain the process of management science Be able to solve problems using three types of decision making tools. Relation to Planning. - PowerPoint PPT Presentation
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Decision Making
Advanced OrganizerAdvanced Organizer
D ecision Mak ing
P lanning
O rganizing
Leading
C ontro lling
Managem ent Functions
R esearch
D esign
Production
Q uality
Marketing
Project Managem ent
Managing Technology
Tim e Managem ent
E thics
C areer
Personal Technology
Managing Engineering and Technology
Chapter Objectives
Explain the process of management science
Be able to solve problems using three types of decision making tools
Relation to Planning
Managerial decision making is the process of making a conscious choice between two or more rational alternatives
Types of Decisions
Routine and Non-Routine Decisions
Objective vs. Bounded Rationality
Level of Certainty
Management ScienceCharacteristics
Systems view of the problemTeam approachEmphasis on use of formal mathematical models and statistical and quantitative techniques
Models & Analysis
Formulate the problem
Construct a mathematical model
Test the model’s ability
Derive a solution from the model
Apply model’s solution to real system
Categories of Decision Making
Decision Making under Certainty (Only one state of nature exists.)Decision Making under Risk (Probabilities for states of natures are known.)Decision Making under Uncertainty (Probabilities for states of natures are unknown.)
Payoff TableN1 N2 .... Nj .... Nn
Alt. (P1) (P2) .... (Pj) .... (Pn)
A1 O11 O12 .... O1j .... O1n
A2 O21 O22 .... O2j .... O2n
.... .... .... .... .... .... ....
Ai Oi1 Oi2 .... Oij .... Oin
.... .... .... .... .... .... ....
Am Om1 Om2 .... Omj .... Omn
Tools for Decision Making under Certainty
Linear programming Graphical solution Simplex method Computer software
Non-linear programming
Engineering Economic Analysis
Linear programming Graphical solution
Linear programming Simplex method
BV
Coefficient ofRS
Ratio
P X Y S1 S2
P 1 -10 -14 0 0 0
S1 0 3 2 1 0 120 60
S2 0 1 2 0 1 80 40P 1 -3 0 0 7 560
S1 0 2 0 1 -1 40 20
Y 0 1/2 1 0 1/2 40 80P 1 0 0 3/2 11/2 620
X 0 1 0 1/2 -1/2 20
Y 0 0 1 -1/4 3/4 30
Linear programming Computer Software
Excel: Solver
LINDO: www.lindo.com
max 10x + 14 y
subject to
M) 3x + 2y <= 120
A) x + 2y <= 80
end
Engineering Economic Analysis
Time Value of Money
Minimum Acceptable Rate of Return
Decision Criteria Net Present Worth Equivalent Annual Worth Internal Rate of Return Benefit / Cost Ratio
Expected value
Decision treesDecision NodeChance Node
http://www.mindtools.com/dectree.htmlQueuing theorySimulation
Tools for Decision Making under Risk
n
jijji OpE
1
Tools for Decision Making under Uncertainty
Laplace criteria (Equally likely)
Maximax criteria
Maximin criteria
Hurwicz criteria
Minimax regret crteria
Laplace criteria (Equally likely)
N1 N2 .... Nj .... Nn Max
Alt. (P1) (P2) .... (Pj) .... (Pn)
A1 O11 O12 .... O1j .... O1n EV1
A2 O21 O22 .... O2j .... O2n EV2
.... .... .... .... .... .... .... ....
Ai Oi1 Oi2 .... Oij .... Oin EVi
.... .... .... .... .... .... .... ....
Am Om1 Om2 .... Omj .... Omn EVm
Maximax criteria
N1 N2 .... Nj .... Nn Max.
Alt. (P1) (P2) .... (Pj) .... (Pn)
A1 O11 O12 .... O1j .... O1n MAX1
A2 O21 O22 .... O2j .... O2n MAX2
.... .... .... .... .... .... .... ....
Ai Oi1 Oi2 .... Oij .... Oin MAXi
.... .... .... .... .... .... .... ....
Am Om1 Om2 .... Omj .... Omn MAXm
Maximin criteria
N1 N2 .... Nj .... Nn Max.
Alt. (P1) (P2) .... (Pj) .... (Pn)
A1 O11 O12 .... O1j .... O1n MIN1
A2 O21 O22 .... O2j .... O2n MIN2
.... .... .... .... .... .... .... ....
Ai Oi1 Oi2 .... Oij .... Oin MINi
.... .... .... .... .... .... .... ....
Am Om1 Om2 .... Omj .... Omn MINm
Hurwicz criteria
N1 N2 .... Nj .... Nn (1-) Index
Alt. (P1) (P2) .... (Pj) .... (Pn)
A1 O11 O12 .... O1j .... O1n MAX1 MIN1 I1A2 O21 O22 .... O2j .... O2n MAX2 MIN2 I2.... .... .... .... .... .... .... .... .... ....
Ai Oi1 Oi2 .... Oij .... Oin MAXi MINi Ii.... .... .... .... .... .... .... .... .... ....
Am Om1 Om2 .... Omj .... Omn MAXm
MINm
Im
Minimax regret crteria
N1 N2 .... Nj .... Nn Min.
Alt. (P1) (P2) .... (Pj) .... (Pn)
A1 R11 R12 .... R1j .... R1n MAX1
A2 R21 R22 .... R2j .... R2n MAX2
.... .... .... .... .... .... .... ....
Ai Ri1 Ri2 .... Rij .... Rin MAXi
.... .... .... .... .... .... .... ....
Am Rm1 Rm2 .... Rmj .... Rmn MAXm
First convert payoff table to regret table
Computer-Based Information Systems
Decision Support Systems (DSS) A System under the control of 1 or
more decision makers, that assists in the activity of decision making by providing an organized set of tools intended to impart structure to portions of the decision-making situation and to improve the ultimate effectiveness of the decision outcome.
DSS Components
Data Management SystemModel Management SystemKnowledge EngineUser InterfaceDSS User
