Good Morning

Sumana Chaudhuri

Introducing the way you fundamentally make a decision …

Decision Sciences

Quick Review• Understanding decisions• The decision making process

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Understanding Decision Making• Decision• A choice made between available alternatives.

• Decision Making• The process of developing and analyzing alternatives and choosing from

among them.• Judgment• The cognitive, or “thinking,” aspects of the decision-making process.

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The Decision-Making Process

Define the problem. Clarify your objectives. Identify alternatives. Analyze the consequences. Make a choice.

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Step 1. Define the Problem1. Start by writing down your initial assessment of the problem.2. Dissect the problem.

• What triggered this problem (as I’ve assessed it)?• Why am I even thinking about solving this problem?• What is the connection between the trigger and the problem?

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Step 2. Clarify Your Objectives1. Write down all the concerns you hope to

address through your decision.2. Convert your concerns into specific, concrete

objectives.3. Separate ends from means to establish your

fundamental objectives.4. Clarify what you mean by each objective.5. Test your objectives to see if they capture your

interests.

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Step 3. Identify Alternatives1. Generate as many alternatives as you can yourself.2. Expand your search, by checking with other people, including

experts.3. Look at each of your objectives and ask, “how?”4. Know when to stop.

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Step 4. Analyze the Consequences1. Mentally put yourself into the future.• Process Analysis

• Solving problems by thinking through the process involved from beginning to end, imagining, at each step, what actually would happen.

2. Eliminate any clearly inferior alternatives.3. Organize your remaining alternatives into a

table (matrix) that provides a concise, bird's-eye view of the consequences of pursuing each alternative.

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Consequence Matrix (Illustrative)

Decisions Taken Consequences

MMS from DSIMS

PGDM from DSIMS

MMS from other Institutes

PGDM from other Institutes

MBA from Overseas B’Schools

Other Professional Programs/Maintain Status Quo

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Step 5. Make a Choice• Analyses are useless unless the right choice is made.• Under perfect conditions, simply review the consequences of each

alternative, and choose the alternative that maximizes benefits.• In practice, making a decision—even a relatively simple one like choosing a

computer—usually can’t be done so accurately or rationally.

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How To Make Better Decisions1. Increase Your Knowledge• Ask questions.• Get experience.• Use consultants.• Do your research.• Force yourself to recognize the facts when you see them (maintain your

objectivity).

2. Use Your Intuition• A cognitive process whereby a person instinctively makes a decision based

on his or her accumulated knowledge and experience.

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How To Make Better Decisions (cont’d)3. Weigh the Pros and Cons

• Quantify realities by sizing up your options, and taking into consideration the relative importance of each of your objectives.

4. Don’t Overstress the Finality of Your Decision• Remember that few decisions are forever.• Knowing when to quit is sometimes the smartest thing a manager can do.

5. Make Sure the Timing Is Right

Decision Theory

Decision process calls for:

1. Identification of states of nature, or events

2. Identification of courses of action, or acts

3. Determination of the pay-offs, depicting outcomes of various combinations of acts and events (pay-offs resulting from various act-event combinations can be either gains/losses or costs)

4. Choosing, on the basis of some criterion, from among different alternatives

Definition of a Single Stage Decision Making

Pay-off and Regret Tables

• A conditional pay-off table is set up either using given detailed information or through an algebraically expressed pay-off function

• A conditional regret matrix can also be set up as follows:• When pay-offs are represented as gains: For every event, consider each act one by

one and find excess of largest pay-off (coming from optimal act) over pay-off from the act in consideration

• When pay-offs are represented as costs: For every event, consider each act one by one and find excess of pay-off from the act in consideration over the smallest pay-off (coming from optimal act)

Next Class Scheduled on 18 January 2014• Please go through N D Vohra, Quantitative Techniques in

Management, Chapter 13 and come prepared