This document discusses managerial decision making. It begins by defining decision as a choice between alternatives and decision making as the process of identifying problems and opportunities to resolve them. It then discusses various characteristics, types, and importance of decision making. The document outlines different decision making models including classical, administrative, and political models. It also discusses decision analysis tools like influence diagrams and decision trees. Finally, it discusses different decision styles like directive, analytical, conceptual, and behavioral. Overall, the document provides an overview of key concepts and approaches related to managerial decision making.

1. Dr.K.Baranidharan
Present by…

2. Engineering
Economics &
Financial
Accountingment
EE&f
2July 13, 2013

3. ManagErial DEcision Making
SRISAIRAM
INFORTION
TECHNOLOGY

4. Managerial Decision
Making
 Decision making is not easy
 It must be done amid
 ever-changing factors
 unclear information
 conflicting points of view
4

5. Decisions and Decision
Making
Decision = choice made from available
alternatives
Decision Making = process of identifying
problems and opportunities and resolving them
5

6. characteristics
 1.decision making is a goal-oriented process.
 2.it aims at achieveing certain specifies goals of the
organisation
 3.selection of process in which best alternativescourses of
action is chosen from amongst alternative courses of
action.
 4,is a continue process because the manager is required
to takedecisions continuously for different activities.
 5.consider is both science and art
 6.responsibilities of manager at different levels of
management
6

7. 7.decision making involves
deep and careful thinking and
hence it is a mental process.
8.decision making can be both
postive or negative
9.Decision are made for further
course of action based on the
past experiences and present
conditions.
7

8. Impotance
DM is an important aspect of
planning
Without D nothing can be done
Performing various aspect of
management function like..
Planning, organising, contro etc.,
Its helps to set objectives, prepare
plans of action, introduce
innovation, determine
organisational structure of the
concern.
8

9. types of Decisions
 Programmed Decisions
 Situations occurred often enough to enable
decision rules to be developed and applied in
the future
 Made in response to recurring organizational
problems
 Nonprogrammed Decisions – in response to
unique, poorly defined and largely
unstructured, and have important
consequences to the organization
9

10.  Basic decision:
 Basic decision involved lomg range commitment and
larhe funds.
 Decisipon with regard to selection of a lication,
selection of a product line, merger of the business are
known as Basic decision.
 Routine decision:
 Decision that are taken to carry out the day-to-day
activities are called Routine decision.
10

11. Group decision:
Group decisions are taken by a group of
persons.
Individual decision:
The decision is taken by one person, it is
called individual decision.
example: decision taken by the Board of
Director and the chief executive in the
interest of the organisation as whole is
known GD,
11

12. Policy decision:
Policy decision are made at top management
levels.
These decision are taken to determine the
basic polices and goals of the organisation.
Operating decision:
Operating decision are taken to executive the
policy decisions.
This decision are taken at middle and lower
management levels and are related to routine
activities of business.
12

13.  Organisational decision:
 Organisational decision are made by the executive in
his capacity as managger in order to acheive the best
interest of the organisation.
 This decision can be delegated other members in the
organisation,
 Example: adoption of strategies, framing on objectives
etc.,
 Personal decision:
 By the manager personal capacity
 This decision are not delegated. Exwcutive personal
work
 Example: leave, medical, surrender etc.,
13

14. Major decision:
The decision with regard to the quality of
the product, price of the product,
developing a new product….
Minor or supplementary decision:
Courses of conversion of major decision
into action
Example: implementing the major
decision developing a new product,
some minor decision as regard to the
colour, size, packing
14

15. Decisions and Decision
Making
Many decisions that managers deal
with every day involve at least some
degree of uncertainty and require
nonprogrammed decision making
 May be difficult to make
 Made amid changing factors
 Information may be unclear
 May have to deal with conflicting points of view
15

16. Certainty, Risk, Uncertainty, Ambiguity
● Certainty
● all the information the decision maker needs is fully available
● Risk
● decision has clear-cut goals
● good information is available
● future outcomes associated with each alternative are subject
to chance
● Uncertainty
● managers know which goals they wish to achieve
● information about alternatives and future events is
incomplete
● managers may have to come up with creative approaches
to alternatives
● Ambiguity
● by far the most difficult decision situation
● goals to be achieved or the problem to be solved is unclear
● alternatives are difficult to define
● information about outcomes is unavailable
16

17. Process
1.identifying the problem:- recognizing
problem-formulating the problem-clear
and completely.
2.analysing the problem:- collection and
classification
3.developing alternative solution for the
problem:- sound decision-identify limted
factors-
4.evaluting the alternative:- choose the
best one -
17

18. 5.deciding the best course of action:-
manager take into account the economy,
risk factor, the limitation of resource,
feasibility of its implementation etc., past
experience…experimentation…research
and analysis
6.conversion of decision into action:-
comverted action, implement,
communication, develop procedure.
7.control;- once the decision
implementation next step contolling,
comparing actual with expected
performance
18

19. Selecting a Decision Making Model
 Depends on the manager’s personal
preference
 Whether the decision is programmed or non-
programmed
 Extent to which the decision is characterized
by risk, uncertainty, or ambiguity
19

20. Three Decision-Making Models
20
 Classical Model
 Administrative Model
 Political Model

21. Classical Model
Assumptions
 Decision maker operates to accomplish goals
that are known and agreed upon
 Decision maker strives for condition of
certainty – gathers complete information
 Criteria for evaluating alternatives are known
 Decision maker is rational and uses logic
Normative = describes how a manager should
and provides guidelines for reaching an ideal
decision
21
Logical decision in the organization’s best economic interests

22. Administrative
Model
 Two concepts are instrumental in shaping
the administrative model
● Bounded rationality: people have limits or
boundaries on how rational they can be
● Satisficing: means that decision makers
choose the first solution alternative that
satisfies minimal decision criteria
22
Herbert A. Simon
How nonprogrammed decisions are made--uncertainty/ambiguity

23. Administrative Model
● Managers actually make decisions in difficult situations
characterized by non-programmed decisions, uncertainty,
and ambiguity
● Decision goals often are vague, conflicting and lack
consensus among managers;
● Rational procedures are not always used
● Managers’ searches for alternatives are limited
● Managers settle for a satisficing rather than a maximizing
solution
● intuition, looks to past experience
● Descriptive = how managers actually make decisions--not
how they should
23
How nonprogrammed decisions are made--uncertainty/ambiguity

24. Political Model
● Closely resembles the real environment in which
most managers and decision makers operate
● Useful in making non-programmed decisions
● Decisions are complex
● Disagreement and conflict over problems and
solutions are normal
● Coalition = informal alliance among manages who
support a specific goal
24
Closely resembles the real environment

25. Characteristics of Classical, Political, and
Administrative Decision Making Models
25
Classical Model Administrative Model Political Model
Clear-cut problem and goals Vague problem and goals Pluralistic; conflicting goals
Condition of certainty Condition of uncertainty Condition of uncertainty/ambiguity
Full information about Limited information about Inconsistent viewpoints; ambiguous
alternatives and their outcomes Alternatives and their outcomes information
Rational choice by individual Satisficing choice for resolving Bargaining and discussion among
for maximizing outcomes problem using intuition coalition members

26. Decision Styles
 Differences among people with respect to how
they perceive problems and make decisions
 Not all managers make decisions the same
 Directive style
 Analytical style
 Conceptual style
 Behavioral style
26

27. Directive Style
 People who prefer simple, clear-cut
solutions to problems
 Make decisions quickly
 May consider only one or two alternatives
 Efficient and rational
 Prefer rules or procedures
27

28. Analytical Style
 Complex solutions based on as much
data as they can gather
 Carefully consider alternatives
 Base decision on objective, rational data
from management control systems and
other sources
 Search for best possible decision based
on information available
28

29. Conceptual Style
 Consider a broad amount of information
 More socially oriented than analytical style
 Like to talk to others about the problem and
possible solutions
 Consider many broad alternatives
 Relay on information from people and
systems
 Solve problems creatively
29

30. Behavioral Style
 Have a deep concern for others as individuals
 Like to talk to people one-on-one
 Understand their feelings about the problem
and the effect of a given decision upon them
 Concerned with the personal development of
others
 May make decisions to help others achieve their
goals
30

31. DECISION ANALYSIS
 DA is the art of science of formal DM.
 DA is often employed in making business
D and uses specific methods and tools to
identify and access factors, risk and
possiable outcome to reach
31

32. Definiation
 DA is the discipline of evaluating complex
alternatives in terms of values and
uncertaintity.
32

33. Decision
Analysis

34. Decision Analysis
 Decision Analysis providers structure and
guidance for thinking systematically
about hard decisions.
 To help a decision maker take action with
confidence gained through a clear
understanding of the problem.

35. Decision Analysis
 Once a decision making problem is
understood and defined it is time to
analyze it.
 You might wonder if the decisions you
make are suitable for decision analysis. If
you are looking for a way to structure your
decisions to make them more organized
and easier to explain to others, you
definitely should consider using formal
decision analysis.

36. Influence Diagrams
 Influence diagrams present a decision in a
simple, graphical form.
 Decisions, chance events and payoffs (values)
are drawn as shapes (called nodes) and are
connected by arrows (called arcs) which
define their relationship to each other.
 In this way, a complex decision may be
reduced to a few shapes and lines.
 Influence diagrams are excellent for showing
the relationship between events and the
general structure of a decision clearly and
concisely.

37. Influence Diagrams
 The term influence refers to the dependency of a
variable on the level of another variable.
 The variables are connected by arrows which
indicate the direction of influence.
Rectangle: Decision Variable
Circle: uncontrollable or intermediate variable
Oval: result (outcome) variable, intermediate or final

38. Influence Diagrams The shape of arrow indicate the type of relationship:
 Certainty
 Uncertainty
 Random (Risk variable)
 Dereference (between outcome variables):
Amount
In CDs Interest
Collected
Price
Sales
~
Demand
Sales
A double lined arrow

39. Example Consider the following profit
model:
 Profit = income – expenses
 Income = unit sold x unit price
~
amount used in advertisement
Units
Sold
Units
Cost
Fixed
Cost
Unit
Price
 Unit Sold = 0.5 x amount used in advertisement
 Expenses = unit cost x units sold + fixed cost
Income
Expenses
Profit

40. Example: An Influence
Diagram for the Profit Model
~
Amount used in advertisement
Profit
Income
Expense
Unit Price
Units Sold
Unit Cost
Fixed Cost

41. Decision Trees
 Decision trees are a comprehensive tool
for modeling all possible decision options.
 While influence diagrams produce a
compact summary of a problem, decision
trees can show the problem in greater
detail.
 Decision trees describe events in
chronological order but can be much
larger than influence diagrams.

42. Decision Trees
 It utilizes a network of two types of
nodes: decision (choice) nodes, and
states of nature (chance) nodes
 Square represents decisions to be
made.
 Circles represents chance events.
Chance nodes, are random variables
and they represent uncertain
quantities that are relevant to the
decision problem.
 Branches from a square correspond to
the choices available to the decision
maker.

43. Example
 Venture capitalist's situation in decision
weather to invest in a new business.
 Objective: to make money.
Do not Invest
Typical Return Earned on Less Risky Investment
Venture Succeeds
Venture Fails
Large Return On Investment
Funds Lost
Invest

44. Interpretation of Decision
Trees The options represented by branches from a
decision node must be such that the decision
maker can choose only one option.
 Each chance node must have branches that
correspond to a set of mutually exclusive and
collectively exclusive outcomes ( only one of
them can happen, No other possibilities exit)
 A Decision Tree must show all the possible paths
that the decision maker might follow through
time. Including all possible decision alternatives.
 Some times the nodes might occur in a time
sequence.
 The sequence of decisions is shown in the tree
from left to right.

45. Modeling Decisions
 Given a complicated problem, how
should we begin?
 A critical first step is to identify elements of
the situation:
 Values and Objectives,
 Decisions to make,
 Uncertain events,
 Consequences

46. Dr.K.Baranidharan
thank you
K YOU