The document discusses decision theory and decision making. It defines decision making as identifying and evaluating choices to select the best alternative. It describes different types of decisions, conditions for decision making, processes, tools like decision trees, and styles. It also discusses group decision making, techniques to improve it like brainstorming, and theories like classical and behavioral decision theory.

1. Decision Theory
Presented by:
Bina Gupta
Presented to:
Shiva Shrestha
1 BIM Department,HSM 11/10/2014

2. Contents
 Definition
 Types of decisions
 Decision making conditions
 Decision Making Process
 Decision Tree
 Decision Styles
 Decision Theories
 Group Decision Making
 Improving Decision Making
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3. Decision Making
 Decision making is a process of identifying and
evaluating choices.
 Decision making is the process of choosing the
best alternative from the number of available
alternative.
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4. Decision Making
 Decision making is very important in human life:
 In personal life,
 Which profession to choose
 What to have for dinner
 Whether to do home work or watch movie
 Whom to marry.
 In Business environment,
 How much to charge for a product.
 Where and how much to invest .
 Which candidate to hire for a job.
 Which advertising media to adopt
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5. Types of Decision Making
Types by frequency
 Programmed decisions
 decision making that relate to the day to day
running of an organization
 predetermined rules and procedures
 structured type and recurs with some frequency
 Decision making is done by low level management
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6. Types of Decision Making
 Non-programmed decisions
 decisions making with unusual and exceptional
problems.
 Poorly structured
 Decision making is done by top level management
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7. Types of Decision Making
Types by nature
 Operating decisions
 Similar to programmed decision
 Day to day decision
 Aim at maximizing the efficiency and probability of
the organization’s current operations.
 Decision making is done by low level management
team
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8. Types of Decision Making
 Strategic decisions
 Focuses on the issues external to the organization.
 Concerned with goals and objectives of the
organization, selection of product- market mix etc.
 Decision making is done by top level management
 Administrative decisions
 Link between operational and strategic decision
 deal with the issues such as rules, procedures,
reward system etc.
 Decision making is done by middle level
management
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9. Decision Making
Conditions/Environment
 Conditions of certainty
 Problems and alternatives are well known
 Outcomes are predetermined
 Conditions of uncertainty
 Problems are known but alternatives are unknown
 Not enough knowledge about solutions
 Conditions of risk
 Risk is involved in each actions of decision making
 Outcomes are associated with risk
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10. Decision Making Process
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11. Decision tree
 A decision tree is a graphic representation of the
strategy-outcome combinations available to the
decision maker.
 A decision tree consists of nodes, branches,
probability estimates, and payoffs.
 There are two types of nodes: decision nodes
and chance nodes.
 A decision node is usually represented by a
square and indicates places where a decision-maker
must make a decision.
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12. Decision tree
 The chance node is represented by a circle and
indicates a point, at which the decision-maker will
discover the response to his decision, i.e.
different possible outcomes occurred from a
chosen course of action.
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14. Decision Styles
 There are four decision making styles:
 Directive
 Analytical
 Conceptual
 Behavioral
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15. Decision Styles
 Directive:
 The group leader solves the problem, using the
information he possesses.
 He/she does not consult with anyone else nor seek
information in any form.
 This style assumes that the leader has sufficient
information to examine all the relevant options and
make an effective decision, but that is rarely the
case.
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16. Decision Styles
 Analytical:
 When the leader does not possess sufficient
information to make an effective decision, they will
need to obtain information or skill from others.
 They may not tell them what the problem is;
normally, they simply asks for information.
 The leader then evaluates the information and
makes the decision.
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17. Decision Styles
 Conceptual:
 The leader explains the situation to the group or
individuals whom he provides with relevant
information, and together they generate and
evaluate many possible solutions.
 This style tends to be have a long-term perspective
and, as a result, will be more creative and
expansive in their approach entailing a higher level
of risk for the long-term benefit of the organization.
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18. Decision Styles
 Behavioral:
 The leader explains the situation to the group or
individuals and provides the relevant information.
 Together they attempt to reconcile differences
and negotiate a solution that is acceptable to all
parties.
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19. Decision Theories
 Classical Decision theory:
Classical view assumes that decision making is
based on rational process and always follows the
sequence of steps for decision making.
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20. Decision Theories
 Behavioral Theory of Decision Making:
 Developed By Herbert Simon
 Based on administrative model i.e. how decisions
are made
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21. Decision Theories
 The two main component of this theory are:
i. Bounded Rationality:
 Decision maker is limited in their Rationality
because of different factors such as:
 Attitude
 Ability
 Education
 Benefits
 Skills
 Habits
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22. Decision Theories
ii. Satisfying:
 Decision Maker tries to satisfy organization
objectives with his best efforts
 Satisfactory solution is obtained
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23. Group Decision Making
 Process of choosing best alternative from the
available alternatives
 Alternative is chosen through group discussion
 Each member actively involved in decision
making
 Better and effective decision can be made
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24. Group Decision Making
 Group formation:
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25. Group Decision Making
 Advantages
 Synergy:
 Ideas obtained from many minds
 Sharing of information
 Qualitative decision
 Overcome difficult problems
 Build leadership skill
 Disadvantages:
 Time consuming
 Misunderstanding because of poor communications
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26. Improving the Decision Making
 Some of the techniques employed to make the
group decision making process more effective
and decision making more efficient are:
 Brainstorming
 Nominal Group Technique (NGT)
 Delphi Technique
 Electronic Meeting
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27. Improving the Decision Making
 Brainstorming:
 Ideas are generated for specific problem through
group creativity
 Group of people consist from five to ten
 It emphasizes on the generation of large number of
ideas
 This technique is used in advertising and some
other fields
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28. Improving the Decision Making
 Nominal Group Technique (NGT):
 The nominal group technique restricts discussion or
interpersonal communications during the decision
making process
 The group meets face-to-face
 Each member presents one idea to the group
 Discussion and ranking is done
 High ranked idea is used for decision making
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29. Improving the Decision Making
Delphi Techniques:
 A Delphi technique is the modification of NGT
 Each individual member independently writes down
comments, suggestions and solution
 All the comments are sent to a central location,
where they are compiled
 Finally decisions are made in written form through
consensus
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30. Improving the Decision Making
 Electronic Meeting
 Electronic Meeting is one of the techniques that
combine the NGT with sophisticated computer
technology.
 Each member communicate by writing comments
by using computer terminals
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31. ANY
QUESTIONS
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