Presentation of decision modeling

decision modeling

1. CH # 18 Presented By M Tahir Sabir DECISION MODELING MBA-III

2. Decision making tools Operation managers are decision makers. A good decision is one that uses analytic decision making.

3. Six steps in decision making Clearly define the problems & factors that influence it. Develop specific & measurable objectives. Develop a model—i.e. relationship between objectives and variables. 4. Evaluate each alternative solution based on it merits and drawbacks.

4. Six steps in decision making Select the best alternatives. Implement the decision & set timetable for completion

5. Fundamentals of decision making Regardless of the complexity of a decision technique used to analyze it, all decision makers are faced with “alternatives” & “state of nature”. The following notation will be used in this module: Terms: a. Alternative: A course of action or strategy that may be chosen by a decision maker ( e.g. not carrying an umbrella tomorrow )

6. Fundamentals of decision making b . State of nature: A situation over which the decision maker has little or no control (e.g. tomorrow’s weather) Umbrella No Umbrella Dry Dry Raining Raining Alternative State of nature

7. Types of Decision Making Environments There are three types of decision making environments, such as Decision making under uncertainty Decision making under risk Decision making under certainty

8. Decision making under uncertainty When there is complete uncertainty as to which state of nature in a decision environment may occur. Three Decision Methods:- Maximax :- A criterion that finds an alternative that maximize the maximum outcome.

9. Decision making under uncertainty Maximin :- A criterion that finds an alternative that maximize the minimum outcome. Equally likely:- A criterion that assigns equal probability to each state of nature.

10. Decision making under risk Decision making under risk, a more common occurrence, relies on probabilities. Several possible states of nature may occur, each with an assumed probability. Expected monetary value:- The expected payout or value of a variable that has different possible states of nature, each with an associated probability.

11. Decision making under certainty Suppose ABC operation manager has been approached by a marketing research firm that proposes to help him make the decision about whether to build the plant to produce storage sheds. The marketing researchers claim that their technical analysis will tell ABC with certainty whether the market is favorable for the proposed product

12. Decision making under certainty In other word, it will change ABC’s environment from one of decision making under risk to one of decision making under certainty.

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