This document introduces decision theory and decision-making under certainty. It defines decision theory as a descriptive and prescriptive approach to classify levels of knowledge when making decisions. Under certainty, a decision maker has perfect information about outcomes for each alternative, allowing them to choose the best option. An example is provided where a manufacturer must choose between two machines, M1 and M2, to process an order of 1000 units. All costs are known for each machine's setup time, tooling costs, and machining time per unit. Calculations show the total cost is lower to use machine M2, so it is the best choice under the certain conditions given.

1. INTRODUCTION TO DECISION
THEORY AND DECISION - MAKING
UNDER CERTAINTY
Shri Sa’d Vidya Mandal
Institute of technology,
Bharuch
Subject : Operations Research
Enrollment no : 130450119043
130450119047
Guided by : Ass. Professor and HOD,
Mr. S. J. Thanki
SVMIT, Bharuch

2. CONTENT
 Introduction to decision theory
 Decision making under certainty

3. INTRODUCTION TO DECISION
THEORY
 The success or failure that an individual or
organization experiences, depends to a large
extent, on the ability of making acceptable
decisions on time.
 To arrive at such a decision, a decision maker
needs to enumerate feasible and viable courses
of action (alternatives or strategies), the
projection of consequences associated with each
course of action, and a measure of effectiveness
(or an objective) to identify the best course of
action.

4. INTRODUCTION TO DECISION
THEORY
 Decision Theory is both descriptive and
prescriptive business modeling approach to
classify the degree of knowledge and compare
expected outcomes due to several courses of
action.
 The degree of knowledge is divided into four
categories :
o Certainty
o Uncertainty
o Risk
o Ignorance

5. INTRODUCTION TO DECISION
THEORY
 In day to day life everyone is taking decision
under different scenarios as discussed below :
 Decision making under certainty
If there is complete certainty about future, it is
possible to
take the best decision as there is only one
state of nature
exist for each alternatives.
This decision environment is called decision
making under

6. INTRODUCTION TO DECISION
THEORY
 Decision making under uncertainty
If there is more than one states of nature
exist, the
uncertainty about the event to happen
increase and hence
the decision gets affected as there is
insufficient
knowledge about the probabilities of any
event to happen.
This decision environment is called decision
making under

7. INTRODUCTION TO DECISION
THEORY
 Decision making under risk
In the above condition, if the probabilities of
event to
happen is known, then calculated risk is taken
for each
states of nature which is existing and
appropriate decision
is taken.
This decision environment is called decision
making
conditions of risk.
Ignorance Uncertainty Risk Certainty
Increasing Knowledge

8. DECISION MAKING UNDER
CERTAINTY
 In this decision making environment, decision
maker has complete knowledge (perfect
information) of outcome due to each decision
alternative (course of action).
 Example of decision under certainty :
A manufacturer has two different kinds of
machines – M1
and M2. He has received an order which can
processed either

9. Cont…
 The following data is available :
Which of the two machines will you choose to do
the job if the order quantity is 1000 numbers?
Machine M1 M2
Set up time (min) 90 120
Tooling up cost Rs.600 Rs.1800
Machining time per
piece (min)
12 4
Machine cost per
hr.
Rs.40 Rs.90

10. Answer
Let’s first we consider two machines M1 and M2
which is shown in figure.

11. Cont…
 Step 1 : Find the Total Cost for both machine
Total Cost = Set up Cost + Tooling up Cost + Machining
Cost
o Set up Cost
for 60 min the cost is 40 Rs.
∴ for 90 min the cost is (?) Rs. 𝑥 =
90∗40
60
= 60 𝑅𝑠.

12. Cont…
o Tooling up Cost = 600 Rs.
o Machining Cost
for producing 1 piece required time is 12 min.
∴ for producing 1000 piece time required =12000
min.
(Same as set up time )
∴ 𝑥 =
40 ∗12000
60
= 8000 𝑅𝑠.

13. Cont…
∴ Total Cost = Set up Cost + Tooling up Cost + Machining
Cost
∴ Total Cost = 60 + 600 + 8000
For machine M1,
∴ Total Cost = 8660 Rs.
 Same method is apply for Machine M2 and find the Total
Cost.
For machine M2,
∴ Total Cost = 7980 Rs.
∴ Machine M2 is more suitable machine for doing this job.

14. THANK YOU