Aspects of business decision
Can be made by a group rather than an individual.
There may be hundreds/thousands of alternatives.
There may be several contradictory objectives.
Will be materialized in future ; prediction may not be perfect
Involves risk
Decision makers are interested in asking what-if questions.
Experimentation with real system- may also cause loss.
TYPES OF MODEL
ICONIC
Physical replica of the reality in a different scale
3D models
Least abstracted
ANALOG
2D models
In the form of chart, diagrams, maps etc
MATHEMATICAL
More abstracted ones can be described mathematically using numbers and equations ( budget decisions )
HEURISTIC
When guided by mental abilities and experience.
DECISION MAKING PROCESS
3 phases of decision making
INTELLIGENCE PHASE
Problem identification
Problem classification
Structured
Unstructured
Programmed
Non programmed
Problem decomposition
Problem ownership
[ the phase ends with generation of problem statement ]
DESIGN PHASE
(use of variables; 4 types of variables are used)
Decision variables
Uncontrollable variables
Result variables
Intermediate result variables
CHOICE PHASE
(A)Search approaches
Analytical technique
Blind search
Heuristic search
( B)Evaluation
Problems with multiple goals
Sensitivity analysis
What-if analysis
Goal seek analysis
USE OF MODELS IN DECISION MAKING
What is model ?
Simplified representation or abstraction of reality
Why we will use model ?
compression of time
Easy manipulation
Cost effective
Mathematical models can yield infinite numbers of alternatives
What is decision ?
Choosing from alternatives to attain a goal
Involves asking questions like
What to be done ?
When it should be done ?
How it should be done ?
Where it should be done ?
Who should do it ?......etc.
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