DECISION MAKING
INTRODUCTION
● Decision making is a key managerial responsibility
● Decision making is a choice amongst alternatives
● Steps involved:
○ Defining the problem
○ Setting the objectives
○ Collecting data
○ Analyzing data/Generating alternatives
○ Evaluate and select the best alternative
TYPES OF DECISIONS
Based on Simon’s idea decisions can be:
● Structured decisions which are for routine and typically repetitive problems
for which standard solution method exists
● Unstructured decisions which are for fuzzy, complex problems for which
there are no cut-and-dried solution methods
● Semi structured decisions which are for problems having some structured
elements and some unstructured elements
DECISION TABLE
● Possible for only structured/programmed decisions
● It is a non-graphical way of representing the steps involved in making a
decision
● It is usually easier to construct a decision tree first from the description of
how a decision is made and then create the decision table
● It consists of some conditions, rules and actions
● Conditions – these are created from each decision question. Only one
possible answer from each question is selected for use in the table. Each
answer corresponds to one of each pair of branches in the tree.
● Actions – these are the final outcomes of the decision process and are the
branch ends or outcomes of the decision tree
● Rules – these give the combinations of conditions that lead to the final
actions. Y (for Yes) and N (for No) characters in the table normally indicate
which combinations of conditions are allowed
Discounting policy of a phone card company
DECISION TREES
● A decision tree is a graphical way of representing the steps involved in making a decision.
● A user can look at a decision tree that describes a decision process they use and identify
any errors in the diagram.
● Each horizontal ‘branch’ of the tree represents the result of a decision or a series of
decisions.
● The ‘roots’ where the branches join are the decision points – each point represents a
separate decision, a question that much be answered.
● Decision points typically have two or three branches.
● At the ends of the branches are the outcomes of the decision process
The general arrangement of a decision tree is as shown
below
Decision tree to describes the emergency
sequence
A Library Membership Software(LMS) should support the
following three options: new member, renewal, and cancel
membership. When the new member option is selected, the
software should ask for the member’s name, address, and phone
number. If proper information is entered, the software should
create a membership record for the new member and print a bill
for the annual membership charge and the security deposit
payable. If the renewal option is chosen, the LMS should ask for
the member’s name and the membership number. If the member
details entered are valid, then the membership expiry date in the
membership record should be updated and the annual
membership charge payable by the member should be printed. If
the cancel membership option is selected and the name of a
Decision tree for LMS
New member • Ask for member’s name, address, phone number
• Create membership record
• Print bill
Renewal • Ask for membership details
Yes • Update expiry date
• Print bill
Valid selection?
Cancel membership • Ask for membership details
No • Delete membership record
• Print cheque
• Display error message
Decision table for LMS
SIMON’S DECISION MAKING PROCESS
Simon describes the decision making process with a four phase process of:
● Intelligence phase: searching for conditions that call for decisions
● Design phase: inventing, developing and analyzing possible course of
action
● Choice phase: selecting a course of action from those available
● Implementation phase: once a proposed solution seems reasonable
execution starts and result is either a success or failure
Intelligence Phase
Simplification Problem Identification
Reality Problem Classification
Assumptions Problem Decomposition
Problem Ownership
Problem Statement
Design Phase
Validation of the model Formulate a model
Set criteria for choice
Success Search for alternatives
Predict and measure outcomes
Alternatives
Verification, testing of
Proposed solution
Choice Phase
Solution to the model
Selection of best alternative
Plan for implementation
Implementation
Solution
Phase
Failure
THE INTELLIGENCE PHASE
● Problem (or opportunity) identification
○ Begins with the identification of organization goals and objectives related to an issue of
concern and determination of whether they are being met
○ Determine whether a problem exists, identify its symptoms, determine its magnitude and
explicitly define it
● Problem classification
○ It is the conceptualization of a problem in an attempt to place it in a definable category
○ It helps in leading to a standard solution approach
○ Ex.
■ Classifying according to the degree of
structuredness evident in the problem
● Problem decomposition
○ Many complex problems can be divided into sub-problems
○ Solving these simpler sub-problems helps in solving the complex problem
● Problem ownership
○ It is important to understand whether the problem is a controllable or uncontrollable factor
and if organization has the ability to solve it
THE DESIGN PHASE
● The design phase involves finding and analyzing possible course of action
● These include understanding the problem and testing solutions for feasibility
● A model of the decision making problem is constructed, tested and validated
● Formulate a model
○ Modeling involves conceptualization of the problem and its abstraction to quantitative and/or
qualitative forms
Uncontrollable
Variables
Mathematical Result Variables
Decision Variables
Relationships
GENERAL STRUCTURE OF A QUANTITATIVE MODEL
● Set criteria for choice
○ Selection of a principle of choice describes the acceptability of a solution approach
● Search for alternatives
○ Generating alternatives is a lengthy process that involves searching and creativity
○ It takes time and costs money
○ It is important to decide when to stop generating alternatives
● Predict and measure outcomes
○ To evaluate and compare alternatives, it is necessary to predict the future outcome f each
proposed alternative
○ It is done under three broad categories:
■ Decision making under certainty
■ Decision making under risk
■ Decision making under uncertainty
THE CHOICE PHASE
The choice phase is the one in which the actual decision is made, i.e., the
commitment to follow a certain course of action is made. The boundary
between the design and choice phase is unclear as one can jump frequently
between this two phases. It includes,
● Solution to the model
● Selection of best alternative(s)
● Plan for implementation
GOAL SEEKING ANALYSIS
THE IMPLEMENTATION PHASE
● The implementation phase is the final stage of the decision making process
● It is concerned with implementing and monitoring
● The role of the system is feedback and assessment
Define the problem Establish cause-effect Quantify and measure
relationship against objectives
Look at short range
Objective Setting
Evaluation of
Decide on boundary Alternatives
condition
Gather data Look at long range
Decide on strengths
and weaknesses
Apply qualitative aids
Information
Gathering
Selection of
Alternative
Analyze data
Translate into actions Decide alternative
Impose limits Decide on feasible Implementation
alternatives
Generation of
Alternatives Monitor and
Control
MASSIE’S DECISION MAKING MODEL
● It is a five stage procedure as follows:
1. Understand situation
2. Diagnose and define problem
3. Find alternatives
4. Select action
5. Secure acceptance of decision
DSS
DSS is a computer based support system for processing data to aid the
management in decision making.
CAPABILITIES OF DSS
● Semi structured programs
● For managers at different levels
● For groups and individuals
● Interdependent/Sequential decisions
● Supports intelligence, design, choice phase
● Adaptability and flexibility
● Interactive ease of use
● Ease of construction
● Modelling and analysis
COMPONENTS OF DSS
● Data management subsystem
○ DSS database, DBMS, data directory
● Model management subsystem
○ Model base, MBMS, model directory
● Knowledge-based management subsystem
○ Intelligent system, KBES
● User interface subsystem
○ Dialog, UIMS, GUI
DSS CLASSIFICATIONS
● Text oriented DSS
● Database oriented DSS
● Spreadsheet oriented DSS
● Solver oriented DSS
● Rule oriented DSS
● Compound DSS
● Intelligent DSS
DSS APPLICATIONS
● Market planning and research
○ DSS applications include pricing decisions for each customer, forecasting, termination or
expansion and customer satisfaction
● Operation and strategic planning
○ DSS is used to support both short-term and strategic planning for monitoring, analyzing and
reporting on the market trends
● Sales support
○ DSS helps by generating daily sales summaries
ACTIVITIES OF BUSINESS
INTELLIGENCE
OLAP
Data Data Decision Results
sources warehouse support
Data mining
Visualization Visualization
CHARACTERISTICS OF GROUP WORK
● A group performs a task, sometimes decision making,
sometimes not
● Group members may be located in different places
● Group members may work at different times
● Group members may work for the same or for different
organizations
● The group can be permanent or temporary
● The group can be at any managerial level or span levels
● There can be synergy or conflict in group work
● There can be gains/losses in productivity from group work
● The task might have to be accomplished very quickly
● It may be impossible for all members to meet in one place
● Some of the data needed may be located in sources external to the
organization
● The expertise of non-team members may be needed
COMMUNICATION SUPPORT
● Communication is a vital element for decision support
● Without communication there is no collaboration
● Groups of decision makers must communicate, collaborate and
negotiate in their work
● Effective e-commerce is possible only via modern
communication technologies
● Modern information technologies provide inexpensive, fast,
capable and reliable means of supporting communication
● Collaborative technologies like EMS(electronic meeting
systems) and electronic conferencing systems and services
helps in connecting decision makers
TIME/PLACE COMMUNICATION FRAMEWORK
Same Time Different Time
• GSS in a decision room • GSS in a decision room
• Web-based GSS • web=-based GSS
Same Place • Multimedia • Workflow management
presentation systems systems
• Whiteboard • Document sharing
• Document sharing • E-mail, V-mail
• Web-based GSS • Web-based GSS
• Whiteboard • Whiteboard
• Document sharing • E-mail, V-mail
Different Place • Video conferencing • Workflow management
• Audio conferencing systems
• Computer conferencing • Document sharing
• E-mail, V-mail • Computer conferencing
with memory
KNOWLEDGE MANAGEMENT
● It is a process that helps organizations identify, select, organize,
disseminate and transfer important information and expertise that are part of
the organizational memory that typically resides within the organization in an
unstructured manner
● This enables effective and efficient problem solving, dynamic learning,
strategic planning and decision making
● It thus focuses on identifying knowledge, explicating it in a way so that it can
be shared in a formal manner and thus reusing it
IMPORTANCE OF MANAGING KNOWLEDGE
● Intellectual capital is a firm’s only appreciable asset. Most assets depreciate
with time.
● Knowledge work is increasing
● Employees with the most intellectual capital have become volunteers
● Many managers ignore intellectual capital and lose out on the benefits of its
capture and use
● Employees with the most intellectual capital are often the least appreciated
● Many current investment in intellectual capital are misfocussed
FEATURES OF KNOWLEDGE MANAGEMENT
SYSTEM
● Creating a knowledge culture
● Capturing knowledge
● Knowledge generation
● Knowledge explication(and digitization)
● Knowledge sharing and reuse
● Knowledge renewal
Knowledge management system processes are designed to manage
● Knowledge creation through learning
● Knowledge capture and explication
● Knowledge sharing and communication
● Knowledge access
● Knowledge use and reuse
● Knowledge archiving
THE KNOWLEDGE MANAGEMENT
CYCLE
Capture
knowledge
Create Refine
knowledge knowledge
Disseminate Store
knowledge knowledge
Manage
knowledge
IMPLEMENTING KNOWLEDGE
MANAGEMENT
1. Identify the problem by identifying knowledge segments
2. Prepare for change in terms of business efforts and operation
3. Create the team responsible for implementing a pilot project
4. Map out the knowledge by identifying what it is, where it is, who has it
and who needs it
5. Create a feedback mechanism indicating how the system is used and
report any difficulties
6. Define the building blocks for a knowledge management system
7. Integrate existing information systems to contribute and capture
knowledge in an appropriate format
Data, Information and Knowledge
INFORMATION
Processed Relevant and
actionable
DATA KNOWLEDGE
Relevant and actionable data
Knowledge management transforms data and/or information
into actionable knowledge in a format that when it is made
available can be utilized effectively and efficiently throughout an
organization
TACIT AND EXPLICIT KNOWLEDGE
● Tacit knowledge is in the domain of subjective,
cognitive and experiential learning
● Explicit knowledge deals more with objective,
rational and technical knowledge(data, policies,
procedures, software, documents)
● Knowledge management transfers the tacit
knowledge in individuals to value processes that
lead to innovation, knowledge creation and
replenishment of the organization’
Process of explication may generate
New tacit knowledge
Explicit Tacit
Knowledge Knowledge
Convert tacit knowledge to
articulated and measurable
explicit knowledge
Policies, patents, Expertise, know-how,
decisions, strategies etc. Ideas, organization
Core competencies culture, values etc.
of the organization
MSS
● Modeling is a key element in most DSS and a necessity in a model-based
DSS
● Management support systems(MSS) are collections of computerized
technologies used to support managerial tasks in general and decision
making in particular
● MSS refers to application of any technology, either as an independent tool
or in combination with other information technologies
IMPLEMENTING MSS
● MSS technology implementation is complex because these systems are not
merely information systems that collect, manipulate and distribute
information; rather they are linked to tasks that may significantly change the
manner in which organizations operate
● MSS implementation is an ongoing process that occurs during the entire
development of the system, through the feasibility study, system analysis
and design, programming, training, conversion and installation
ISSUES OF IMPLEMENTATION
● Technical factors
Technical issues can be classified in two categories:
○ Technical constraints which results mainly from the limitations of available technology. It
disappears when new technology are developed
○ Technical problems which are not result of the technology but are caused by other factors
such as scarcity of resources. It can be solved by increasing the available resources
● Behavioral factors
○ The way people perceive these systems and how they behave in accepting them
○ User resistance is a major behavioral factor
○ Reasons that employees resist new systems:
■ Change in job content
■ Loss of status
■ Change in interpersonal relationships
■ Loss of power
■ Change in decision making approach
■ Uncertainty/unfamiliarity/misinformation
■ Job security
● Process factors
○ Top management support for continuous financial support to maintain the systems
○ Management and user commitment
○ Institutionalization through which an MSS becomes incorporated
● User involvement
○ Participation in the system development process by users is a necessary condition
● Organizational factors
○ Competence skills of the MSS team
○ Adequacy of resources
○ Organizational politics
● Values and ethics
○ Prime concerns are goals of the project, process and possible impact on other systems
● External environment
○ Includes legal, social, economic, political etc.
IMPLEMENTATION STRATEGIES FOR DSS
Implementation strategies for DSS can be divided into four major categories:
● Divide the project into manageable pieces
● Keep the solution simple
● Develop a satisfactory support base
● Meet user needs and institutionalize the system
EXPERT SYSTEM IMPLEMENTATION
● QUALITY OF THE SYSTEM
○ The ES should be developed to fulfill a recognized need
○ The ES should be easy to use even by a novice
○ The ES should be able to increase the expertise of the user
○ The ES should have explorative capabilities
○ The program should be capable to respond to simple questions
○ The system should be capable of learning new knowledge (i.e., the system should be able to
ask questions to gain additional information)
○ The program knowledge should be easily modified (i.e., add, delete, and changed)
● COOPERATION OF THE EXPERTS
○ For an ES to be successfully implemented it must give good advice. Such advice depends,
most of all, on the cooperation of the domain expert
● CONDITIONS THAT JUSTIFY THE NEEDS FOR A PARTICULAR ES
○ An expert is not always available or is expensive
○ Decisions must be made under pressure or missing even a single factor could be disastrous
○ There is rapid employee turnover, resulting in a constant need to train new workers. Such
training is costly and time-consuming
○ A huge amount of data must be shifted through
SYSTEM INTEGRATION
● Integration of computer based systems means that the systems are merged
into one facility rather than having separate hardware, software, and
communications for each independent systems.
● Integration can be at the development tools level or at the application
system level
TYPES OF INTEGRATION
There are two general types:
Functional integration implies that different support functions are provided as
a single system. A user can access the appropriate facilities through a single,
consistent interface and can switch from one task to another and back again
Physical integration refers to packaging of the hardware, software, and
communication features required to accomplish functional integration
WHY INTEGRATE?
● Enhancements of basic tools
● Increasing the capabilities of the application
○ Benefits that each technology provides to the other
○ Improvements in both the process and the outcome
○ It results in combining the strengths of each individual technique
PROBLEMS AND ISSUES IN INTEGRATION
● Need for integration
● Justification and cost-benefit analysis
● Architecture of integration
● People problems
● Finding appropriate builders
● Attitudes of employees in the information system department
● Development progress
● Organizational impacts
● Data structure issues
● Data issues
● Connectivity
OPERATIONS RESEARCH
● Operations research(OR) is a quantitative approach to decision making
● Mostly used as a support for structure decisions
● Characteristics of OR:
○ Systems approach
○ Analytical approach
○ Interdisciplinary approach
○ Deals with real world problems
OR METHODOLOGY
The steps involved are:
Problem Identification
Need analysis
Cause and effect analysis
Model Construction
Data collection
Model design
Model evaluation
Experimentation
Feasibility analysis
Optimality analysis
Adaptivity analysis
Implementation
Management approval
Test operations
Full implementation
Evaluation
CAUSE-EFFECT DIAGRAM
Causes Problem Effects
Date