Decision Making
Advanced Organizer
Managing Engineering and Technology
Management Functions
Planning
Decision Making
Organizing
Leading
Controlling
Managing Technology
Personal Technology
Research
Time Management
Design
Ethics
Production
Career
Quality
Marketing
Project Management
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 Science
Characteristics
Systems view of the problem
Team approach
Emphasis 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 Table
N1
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
S1
Y
P
P
1
0
0
1
0
0
1
X
Y
0
0
P
S1
S2
P
Coefficient of
X
Y
S1
-10
-14
0
3
2
1
1
2
0
-3
0
0
2
0
1
1/2
1
0
0
0
3/2
1
0
0
1
1/2
-1/4
Ratio
RS
S2
0
0
1
7
-1
1/2
11/2
0
120
80
560
40
40
620
-1/2
3/4
20
30
60
40
20
80
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
Tools for Decision Making under Risk
Expected value
n
Ei   p j Oij
j 1
Decision trees
Decision Node
Chance Node
http://www.mindtools.com/dectree.html
Queuing theory
Simulation
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
I1
A2
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
First convert payoff table to regret table
Alt.
A1
A2
....
Ai
....
Am
N1
(P1)
R11
R21
....
Ri1
....
Rm1
N2
(P2)
R12
R22
....
Ri2
....
Rm2
....
....
....
....
....
....
....
....
Nj
(Pj)
R1j
R2j
....
Rij
....
Rmj
....
....
....
....
....
....
....
....
Nn
Min.
(Pn)
R1n MAX1
R2n MAX2
....
....
Rin MAXi
....
....
Rmn MAXm
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 System
Model Management System
Knowledge Engine
User Interface
DSS User