Decision-making process

1. DECISION MAKING

2. DECISION MAKING
Decision making is an important part of management
process. Decision is a choice made from available
alternatives. Decision making is the process by which
individuals select a course of action among several
alternatives, to produce a desired result.

3. DECISION MAKING
Characteristics of Decision Making:
Decision making is goal oriented.
Decisions are made to achieve organizational
goals.
Decision making is the process of choosing an
alternative form among various alternatives.
Analytical Process: Decision making is an
outcome of analytical process.
A process of defining the problem,
identification of alternative courses of action,
analysis of alternatives and choosing the best
alternative in the light of availability of
resources and goals.

4. DECISION MAKING
A decision represents a judgement : a final
resolution of a conflict of needs, means and
goals; and a commitment to action made in
the face of uncertainty; complexity and even
irrationality.
Decision making is pervasive;
Decision making permeats all management
situations and covers every part of an
enterprise.
Continuous activity: Decision making is a
continuous activity.
Integral part of planning; Decision making is
an integral part of management.

5. DECISION MAKING
Decision making process;
1. Premising- Planning Premises are
the assumptions about the
environment in which plans are to be
implemented. Understanding
premises will be a basic pre-
requisite for decision making
2. Identifying alternatives
3.Evaluating alternatives in terms of
goals sought
4 Choosing an alternative

6. DECISION MAKING
Rationality in decision making:
Effective decisions must be rational. What is rationality?
People acting or deciding rationally are attempting to reach some goal that cannot be reached
without action.
Having knowledge about logical consequences
Taking proper steps after due weightage to pros and cons
Ability to expect consequences
Practically we normally encounter situations which may not be completely rational: In this
scenario the decisions are bounded by their dislike to take risk or play it safe mode.
This is called bounded rationality- Simple example- reach college in time break signals or
drive through a short distance one way or take a U turn at a place where U turn is prohibited.
We are bounded by circumstances and pressures which may underplay rationality.

7. DECISION MAKING
Development of alternatives and limiting factor:
When we are clear on goals and planning
premises the next step in decision making is
developing alternatives.
Development of right alternatives will help in
choosing the appropriate one. Development of
alternatives is done through the information
inputs from premising, experience, problem
understanding skills where understanding
limiting factors will be a key factor.
By recognizing and over coming limiting factors,
the best course of action can be selected.

8. DECISION
MAKING
AND
DECISION
TREES
Evaluation of Alternatives:
Quantitative and Qualitative factors
Marginal Analysis- Additional
Revenue Vs Additional Cost by
increasing output
Selection of Alternatives:
Experience
Experimentation
Research and Analysis

9. DECISION TREE
Decision Tree:
Decision Tree is a sophisticated statistical tool that
enables a decision maker to consider various alternative
courses of action and select the best alternative.
It is a graphical representation of possible actions and
events, utilizing the probability factor( also known as the
chance factor) that allows the decision maker to trace the
most ‘optimum path’ through the tree diagram.

11. DECISION MAKING
AND DECISION
TREES
Advantages of Decision Tree:
Decision Tree provides a comparatively simple graphic method for analysing the potential outcomes of a complex
problem and arriving at a satisfactory solution.
It offers the decision maker a way of showing the future courses by using probability techniques.
Decision tree is useful in presenting complex decision situations in a simple and logical way.
Decision trees are self–explanatory and when compacted they are also easy to follow.
Decision trees can handle both nominal and numeric input attributes.

12. DECISION MAKING
AND DECISION
TREES
Decision tree representation is rich enough to represent
any discrete value classifier.
Decision trees are capable of handling datasets that may
have errors.
Decision trees are capable of handling datasets that may
have missing values.
Decision trees are considered to be a nonparametric
method. This means that decision trees have no
assumptions about the space distribution and the
classifier structure.

13. DECISION MAKING
AND DECISION
TREES
Disadvantages of Decision Trees:
Time-consuming
Abnormal analysis may dampen the
effectiveness of decision making
Threat of wasting precious time in the
analysis loop
Excess usage of models and numbers
may become a communication barrier in
decision analysis and choosing right
decision.
An analytically excellent decision may
prove to be wrong on the ground
because of market forces

14. •Instability: decision trees are heavily
dependent on the data they are given
and whereas a tree can become
extremely accurate if you provide it
with additional data the whole tree can
be thrown off.
•Complexity: decision trees are easy to
use compared to other decision-
making models, however a very
complex decision tree with multiple
branches can be very time-consuming
both in preparation and computation.

15. MAKE OR BUY DECISIONS
What is a Make-or-Buy Decision?
A make-or-buy decision refers to an act of using cost-benefit to make a strategic
product in-house or purchasing from an external supplier.
It arises when a producing company faces a diminishing capacity, experiences
or sees changing demand.

17. MAKE-OR-BUY
DECISION TRIGGERS
A company’s decision on whether to
make or buy is based on its core
competence.
The production cost and quality
problems are the major triggers of a
make-or-buy decision.
Other factors are managerial decisions
and a company’s long-term business
strategy that dictate the current
operations pattern.
A trend towards making or in-sourcing
can be attributed to better quality
control, existing idle production
capacity, or unsatisfactory performance
of outside suppliers.

18. MAKE-OR-BUY
DECISION
TRIGGERS
In contrast, factors that may trigger
a company to outsource a part rather
than produce internally include
the need for multiple sourcing, lack
of internal expertise, cost reduction,
the introduction of a new product or
modification of an existing product
or service, and reduced risk
exposure.
A company with a previous reputation
for successfully providing
outsourcing services may be
considered to sustain a long-term
relationship.

19. BENEFITS OF A MAKE-
OR-BUY DECISION
A make-or-buy decision framework
relates to autonomy, and a company
selects from the many advanced options
to account for various factors associated
with outsourcing.
1. Lower costs and higher capital
investments
One of the most notable advantages that
a company enjoys when embracing a
make-or-buy decision approach is that it
can lower costs and increase capital
investments, regardless of whether it
decides to make materials in-house or
subcontract from an external vendor.

20. BENEFITS OF A MAKE-
OR-BUY DECISION
2. Source of competitive advantage
A rigorous make-or-buy analysis can also act as a source of
competitive advantage. For example, a company can increase the
value it delivers to customers and shareholders through its core
service and skills. It can also stay flexible by adopting a make-or-
buy decision approach.
Such a company is better placed to weather the storm of a market
downturn.
To realize the benefits, companies must consider the internal and
external environment in which they operate.
In particular, the culture in which such decisions are reached, and
the agenda of the parties involved can influence the decisions and
their implementation, as well as the sustainability of the policy