The document discusses various techniques used in decision making processes. It describes stages in decision making such as defining the problem, analyzing alternatives, reviewing factors, and implementing solutions. Quantitative techniques like cost-benefit analysis and decision trees are explained through examples. Qualitative techniques including brainstorming, Delphi method, and nominal group technique are also defined along with their merits and demerits. The document provides an overview of analytical tools and group processes that can be used to evaluate options and make informed decisions.
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Techniques of Decision Making
1. By : Anurag Juyal
19BC512
Techniques of Decision Making
By : Anurag Juyal
19BC512
2. Decision Making
Decision-making involves the
selection of a course of action
from among two or more
possible alternatives in order to
arrive at a solution for a given
problem.
3. Stages In Decision Making
Defining
the
Problem
Analysing
the
problem
Collection
on Data
Developing
the
alternatives
Review of
Key Factors
Selection of
best
alternatives
Implementing
and follow up
12. Cost Benefit Analysis
• This method aims at comparing total benefits derived from a
project with the total costs incurred for the same.
• A CBA involves measurable financial metrics such as revenue
earned or costs saved as a result of the decision to pursue a
project.
• A CBA can also include intangible benefits and costs or effects
from a decision such as employee morale and customer
satisfaction.
• CBA will also factor the opportunity cost into the decision-
making process.
13. A New
Company - ABC
Product X
Product Y
Which one to
produce?
For Instance,
14. Merits
• Figure out whether the benefits outweigh the cost.
• Easy to compare projects of every type in spite of being dissimilar.
• Helps to make a rational decision based on facts and figures.
• Manager relies on data and information from past projects.
• Analysis adds into the project budget.
• Analysis estimates the value over some time. This could
lead to miscalculations and inaccurate analysis.
Demerits
15. Decision Tree
• A Decision Tree Analysis is a graphic representation of various
alternative solutions that are available to solve a problem.
• It is created by answering a number of questions that are continued
after each affirmative or negative answer until a final choice can be
made.
• It is presented in graphic representation on a tree-like structure in
which the problems in decision making can be seen in the form of a
flowchart, each with branches for alternative choices.
• The Decision Tree Analysis makes good use of the ‘what if’ thought.
16. For Instance
You want to have a Party at your house but can’t decide if you should do it inside or in the Backyard due to
weather forecasts regarding rain.
Party
Indoor Outdoor
Rain
No
Rain
Rain
No
Rain
Discomfort
but happy
Discomfort
and regret
Disaster Perfect
17. Merits
• Compared to other algorithms decision trees requires less effort for data
preparation during pre-processing.
• A Decision trees model is very intuitive and easy to explain to technical
teams as well as stakeholders.
Demerits
• The reproducibility of decision tree model is highly sensitive as small
change in the data can result in large change in the tree structure.
• Difficult to Handle Numerous Outcomes.
• Sensitive towards Biasness
18. Risk Analysis
• Risk Analysis is a process that helps you identify and
manage potential problems that could undermine key
business initiatives or projects.
• First identify the possible threats that you face, and then
estimate the likelihood that these threats will materialize.
• It is used to evaluate whether the potential risks of a project
are balanced by its benefits to aid in the decision process
when evaluating whether to move forward with the project.
• Complex process as you will have to take a lot of factors into
consideration such as financial data, security protocols, etc.
19. How to use Risk Analysis
Identify the
risk
Estimate the
risk Avoid the risk
Share the
risk
Accept the
risk
Control
the risk
20. Merits
Demerits
• It encourages the firm to think about its threats.
• In clarifying the risks, it encourages the firm to be better prepared
• It lets the organization prioritize its investment.
• Spending too much time assessing and managing unlikely risks can
divert resources that could be used more profitably.
• It’s a complex process and requires intellectual skills with money.
21. Brainstorming
• A creative process for generating ideas
that encourages quantity over quality
and discourages criticism and
evaluation.
• It generates a large quantity of ideas.
• It generates a large variety of ideas
addressing different aspects of the
problem.
22. Process of Brainstorming
Identify the
Problem
Generation
of idea
No criticism
and
judgement
Analyse pros
and cons
Buy-in from
all
members
Establish
the
members
Implement Record all
ideas
23. Merits
Demerits
• It helps you come up with great ideas.
• It fosters mutual trust and friendship.
• It promotes creativity.
• It promotes fights and arguments.
• It’s not always effective.
• It’s not always the right choice for
everybody.
24. Delphi Technique
• The Delphi method is a forecasting process
framework based on the results of multiple
rounds of questionnaires sent to a panel of
experts.
• Specifically formulated questionnaires are sent
out to the group of experts.
• The experts are allowed to adjust their answers
in subsequent rounds
• After several rounds, the panel is asked as to
what they think as a whole and decision is
achieved through consensus.
25. How to Use Delphi
Identify the
Problem
Call the
experts
Ask for
solutions
Note down
all the
solutions
Opinions on
every
solution
No consensus,
Repeat
26. Merits
Demerits
• Focus is on ideas rather than individuals
• Anonymity of participants which makes contributions of
ideas a safe activity.
• Opportunities for participants to consider their opinions.
• Large amount of time to conduct several rounds.
• Analysis of opinion of experts is a complex activity.
• The difficulty in maintaining enthusiasm and engagement in
long hours.
27. Nominal Group
• Nominal group technique is defined as a
structured method for group brainstorming.
• Team members begin by writing down their ideas,
then selecting which idea they feel is best.
• Everyone presents their favorite idea, and the
suggestions are then discussed and prioritized by
the entire group using a point system.
• Combines the importance ratings of individual
group members into the final weighted priorities
of the group.
28. For Instance
On a summer evening you decide to go on a road trip with your friends. The following
table shows the essential items you should take with yourself.
Particulars
Spare tyre and Tool
kit
First Aid kit
Large water bottles
and food
A B C Total
9
5
3
7
7
9
5
3
7
5
9
3
23
19
17
13Phone Chargers
29. Merits
Demerits
• Involving personnel for decision-making process helps in wider
acceptability of the final decision.
• Silent generation of ideas initially reduce the possibility of biases
and undue influences.
• Subsequent discussions and interactions allow the group to take
the advantage of diversity of minds.
• Reduces the scope of discussion, and thus does not allow for
the full development of ideas.
• It lends itself only to a single purpose, single-topic meeting.
30. Whenever you see a successful business, someone
once made a courageous decision.
- Peter Dru