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.