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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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