Evaluation of Decision Making

Hetauda School Of Managementwww.hsmonline.edu.np

Purushottam Dahal

BIM 7TH Semester

(CT&DM)

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• Decision Making Techniques

• Quantitative Techniques

• Qualitative Techniques

Highlights

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• Decision making is the critical part of management.

• Decision making is the process of identifying and choosing alternative

courses of action.

• Decision-making takes place under conditions of certainty , risk and

uncertainty.

• Vary according to the time span of decisions and complexity of the

situations.

Decision Making Techniques

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• It involves either the extension of historical data or development of

models that attempt to utilize explanatory variables to make decisions.

• Used when data representing the decision are available.

• It therefore , avoids the personal biases and judgment ,instead ,use the

hard core data.

• These quantitative methods of decisions are beneficial for short-run

decision.

Quantitative Techniques

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Queuing Theory• Queues or waiting lines are very common in everyday life.

• A queuing problem arise when the current service rate of a facility falls

short of the current arrival rate of customers.

• Queueing theory is the mathematical study of waiting lines, or queues.

In queueing theory a model is constructed so that queue lengths and

waiting times can be predicted .

• Queueing theory is generally considered a branch of operations research

because the results are often used when making business decisions about

the resources needed to provide a service.

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Game Theory• A game is a competitive situation where players pursue their own interest

and no player is in a position to dictate the outcome.

• These games can be cooperative or can be non-cooperative.

• Payoff matrix contains the outcomes of the pair of strategies in a two-

person game.

• Depending on the actual payoffs in the game and the size of the game a

number of solution techniques have been introduced for the decision.

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Inventory Model

• Inventory model are used to determine optimal timing and quantities for

orders of resources and what quantity of a product should be stored.

• All organizations must maintain some inventory to ensure that

production and sales are not delayed.

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Linear Programming• Every linear programming problem is associated with another linear

programming problem known as its dual problem.

• The original problem in this context is known as the primal problem.

• The formulation of the dual linear programming problem is substantially

helpful to our understanding of linear programming.

• The solution of the dual problem leads to the solution of the primal

problem and thus efficient computational techniques can be developed

through the concept of duality.

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Simulation• Simulation is a quantitative technique used for evaluating alternative

courses of action based upon facts and assumptions with a computerized

mathematical model in order to represent actual decision making under

conditions of uncertainty.

• Simulation is a versatile tool which is very useful when mathematical

analysis is difficult.

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Decision Tree

• This technique is based on probability factors.

• A decision tree is a representation in graphic form of a number of

possible future events that may affect a decision.

• In other word, one of the devices for representing a diagrammatic

presentation of sequential and multi-dimensional aspects of a

particular decision problem for systematic analysis and evaluation is

decision tree.

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BEP Analysis• The relations among cost , volume and profit can be found out clearly

through break-even analysis.

• Break even analysis is regarded as a sophisticated method or tool used in

management.it is the most widely known form of cost-volume-profit

analysis.

• The break-even point is used under break-even analysis . Break-even

point is the level of activity where total cost is equal to total sales.

• Point of “No-profit , No loss”.

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Ratio Analysis

• It is a technique to quantity the relationship between two or more sets

of financial data taken from income statement and balance sheet.

• It provides the information relating to strengthen and weakness of a

financial data in relation to other.

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Standard Costing• A technique of applying standard cost.

• It is the preparation of standard cost and applying them to measure the

variation from standard cost and analyzing the causes of variation with a

view to maintain maximum efficiency in production.

>>Determination of standard cost for each element of cost-direct material ,

direct labour and overhead.

>>Recording of actual cost.

>>Computation of variation between standard and actual cost.

>>Analysis the of variances.

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Flexible Budgeting• It is a budget , which is designed to change in accordance with the level

of activity actually attained . Thus a flexible budget has different

budgeted costs for the different levels of activity.

• The ascertainment of the costs at different levels of activity is the main

objective of a flexible budget.

• A flexible budget can also be defined as a detail plan for controlling

overhead costs that is valid in the company’s relevant range of activity.

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Budgeting• Knowingly or unknowingly , people make plans for their revenue and

expenses.

• Budget is defined as “the quantitative and financial interpretation of the

future plan of operation ”, and as the “overall financial plan for future

activities” .

• It is a plan for the utilization and co-ordination of various resources

available in an organization.

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Capital Budgeting

• Budgeting implies the process. So , capital budgeting is the process of

acquiring the fixed assets or process of investment in capital projects.

• The process of capital budget includes the identification of the

investment opportunity , estimation of relevant cost and benefits of

the identified projects , evaluation of the projects , approval and

monitoring of the projects.

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• Qualitative models are used in the condition where the decision making

time horizon is very large and precise numerical description of decision

making variables could not be formulated.

• This technique permits inclusion of self-information like human factors ,

personal opinions , emotions , hunches etc.

Qualitative Techniques

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Factual Information• Information is the basis of objective and rational decision making.

• For making decisions ,information is collected to define the problem ,

identify alternatives , and evaluating the outcome of these alternatives.

• In these activity ,information vital.

• Decisions which are based on objectives facts and information are

unbiased and more scientific.

• There is no scope for emotions and social pressure when decisions re

based on information.

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Expert Opinion• Decision makers can also use opinion of experts and experienced persons

as a basis of decision making.

• The experienced and knowledgeable persons are asked to give their

opinion through a questionnaire about a particular event and situation.

• The opinion are thus gathered and compiled to get an overall integrated

view of the experts on the subject.

• This integrated version is sent back to the experts for comments and

further opinion.

• Tis expert opinion , thus becomes the useful input for deision-making.

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Delphi Technique• It is a group process intended to achieve a consensus decision.

• A panel of expert from either within or without the organization provides written

comments on the point in questions.

• On Delphi method every one has equal weight.

>>Choice the experts to participate . There should be a variety of knowledgeable people of

different areas.

>>Through questionnaire ,obtain decision from all participants.

>>summarize the results and redistribute them to the participants along with appropriate

new questions.

>>summarize again ,refining decisions and conditions and again develop new questions

>>Repeat step 4 if necessary .Distribute the final results to all participants.

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Nominal Group Technique• It is a group process involving problem identification, solution generation, and decision

making.

• It can be used in groups of many sizes, who want to make their decision quickly, as by a vote,

but want everyone's opinions taken into account.

• First, every member of the group gives their view of the solution, with a short explanation.

Then, duplicate solutions are eliminated from the list of all solutions, and the members proceed

to rank the solutions, 1st, 2nd, 3rd, 4th, and so on.

• Some facilitators will encourage the sharing and discussion of reasons for the choices made by

each group member, thereby identifying common ground, and a plurality of ideas and

approaches.

• In the basic method, the numbers each solution receives are totaled, and the solution with the

highest (i.e. most favored) total ranking is selected as the final decision.

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Intuition and Experience• Information is essential for decision making.

• However ,information is not available all the time . Hence, Decision

maker use intuitions.

• They use their hunches , instincts , inner feelings and previous

experiences to reach the decision .

• Sometimes , the urgency of a problem makes an intuitive decision

appropriate.

• Intuition products goods results because they are derived from previous

experience.

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Thank You

Purushottam Dahal

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