Models of Decision making

Every manager has to take

decision and every manager is
model of decision making
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Models of decision making
The Herbert Simon model
The administrative model
The classical model

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Administrative Model
Manager is the decision maker to
handle the situation
Relevant information is collected
by him
Decision making is certainly in the
interest of manager which
certainly may not be in the interest
of the organization
e.g.Expediency ,opportunism
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The classical model
Manager plays major role of
decision making
He collects all the information
required for activity
Decision would be in the interest of
organization.

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Decision making tools
Pay off matrix
Decision Tree
Decision rules
Decision tables

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Pay off Matrix
Essential quantitative technique
for decision making
It summarizes interaction of
various alternative actions and
events
Pay off matrix is prepared by using
probabilities
Positive payoff implies profit while
negative payoff implies loss
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Decision Tree
It is basically extension of probability
theory to decision making
It helps decision maker to when he has
to make sequence of decisions
Different alternatives form branches
from initial decision point and then
moves on to various options emanating
from different points is known as
decision tree.
Initial decision point is known as
decision node while different points are 7
Mrs.Shubhalaxmi Joshi
Decision tree….
Decision tree is a means of
representing the sequential
multistage logic decision problem
This is oriented to show decision
paths rather than the criteria.
It is convenient for showing
probabilities for outcomes.

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Steps involved in Decision Tree
Build the tree starting fro decision
point
Add the branches for external
states of events
Include probability of each state.
Assign value of each unique
branch.
Work backward to analyze the
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Standard presentation of
Decision tree

Chance node

2nd Decision point

Initial
Point
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Decision rules
1. Decision rules and tables are used together
2. It enables decision maker to make better decisions and
more economically.
4. These2 rules are used for programmable and routine
operating
2 decisions.
4. It is imperative
. that decision rules are documented.

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Decision Tables
Decision table documents rules that
selects one or more actions based on
one or more conditions from a set of
possible conditions.
It is very precise and compact.
Decision table includes both qualitative
and quantitative bases for decision
making
I t is in the form of IF…THEN condition
He helps the analyst to consider all
possible conditions,options
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Components of DSS
DSS has three basic components:
2. The database
3. A model Base
4. DSS Software system

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The DATABASE
It is collection of current or
historical data or files which are
internally linked together.
It provides easy access for range
of applications.
DSS extract the data from
databases which could be internal
or external
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Model base
It represents components and
relationship of phenomenon
A model can be physical,
mathematical or a verbal model
DSS make use of three basic types
of models.

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Model base ……

Decision support system

Management science Operation research

Behavioural model
model model

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Behavioural Model
The focus is on studying,
understanding and the trends
among the variables.
Forecasting, correlation, regression
these are the basic examples

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Management science model
These models are based upon
principles of management,
management accounting and
Econometrics.
Cost accounting system, Inventory
management, capital budgeting

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Operation research model
It is application of mathematical
formulae arriving at optimum
solutions.
LPP,ABC ANALYSIS

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