Scribd
Upload
54 views28 pages

Business Decision-Making Strategies

Business decision-making involves complex processes that require creativity, imagination, foresight, and an understanding of human behavior. Decisions aim to solve problems but can create new issues over the long run. There is no single right or wrong decision - an outcome may be bad but the decision itself still rational given the information at the time. Decision-making can occur under certainty, risk, or uncertainty and different techniques are used depending on the environment such as maximizing expectations under risk or maximizing the minimum payoff under uncertainty.

Uploaded by

aarti Hinge
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Topics covered

  • Sequential Decisions,
  • Investment Decisions,
  • Rationality,
  • Product Manufacturing,
  • Probability,
  • Creative Decision-Making,
  • Outcome Analysis,
  • Management Filters,
  • Certainty,
  • Decision Characteristics
54 views28 pages

Business Decision-Making Strategies

Business decision-making involves complex processes that require creativity, imagination, foresight, and an understanding of human behavior. Decisions aim to solve problems but can create new issues over the long run. There is no single right or wrong decision - an outcome may be bad but the decision itself still rational given the information at the time. Decision-making can occur under certainty, risk, or uncertainty and different techniques are used depending on the environment such as maximizing expectations under risk or maximizing the minimum payoff under uncertainty.

Uploaded by

aarti Hinge
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Topics covered

  • Sequential Decisions,
  • Investment Decisions,
  • Rationality,
  • Product Manufacturing,
  • Probability,
  • Creative Decision-Making,
  • Outcome Analysis,
  • Management Filters,
  • Certainty,
  • Decision Characteristics

MHA 306 (RS)

Business Decision-Making
Characteristics

• Sequential

• Complex - risks & trade-offs

• Personal influence

• Business environment

MHA 306 (RS)


Business Decision-Making
Characteristics

• Creativity

• Imagination

• Foresight

• Understanding of human behaviour

MHA 306 (RS)


Business Decision-Making
Characteristics

Decisions - Solve one problem,


but create others in the long run

MHA 306 (RS)


Decision Quality

• No “Right” or “Wrong” decisions

• Rationality in decision-making

• Different views of a situation

• Outcome bad - decision may still be


rational (a “good” decision)
MHA 306 (RS)
Dimensions of Rationality

• Satisfaction of human interest

• Feasibility of attaining objective

• Consistency
Gross Bertram

MHA 306 (RS)


Types of Rationality

• Objective

• Subjective

• Conscious

• Organizational
Herbert Simon
• Personal

MHA 306 (RS)


Decision Process
Intelligence Problem discovery
• What is the problem?
MIS

Solution discovery
Design • Analyze possible solutions
DSS

Choice Choose best solution


DSS

MIS Implementation
MHA 306 (RS)
Decision-Making Systems

• Closed system - known environment


– Known set of alternatives
– Rule/method for evaluation
– Choice based on a clear objective
– Quantitative techniques

• Open system

MHA 306 (RS)


Classification of Decisions

• Structured / Unstructured / Semi-


structured

• Decision-making under:
– Certainty
– Risk
– Uncertainty

MHA 306 (RS)


Law of Requisite Variety
Efficient Structured Decisions

• All alternatives/choices in each state

• Rules to handle the situation

• Method to generate the choice

MHA 306 (RS)


Selection of Decision Alternatives

• Optimisation Techniques (OR)

• Pay-off Matrix

• Decision Tree analysis

MHA 306 (RS)


Real-World Decisions
Problem areas

• Problem definition

• Information Quality

• Management “Filters”

• Organizational inertia

MHA 306 (RS)


Decision Making: Some Examples

• Decide what product to manufacture

• Tie-up, acquisition or research

• Investments for portfolio management

• Restructuring of organisation

• In-house trg, outsourced or pre-trained

MHA 306 (RS)


The Decision Process

LIST ALL VIABLE ALTERNATIVES

IDENTIFY OUTCOMES

CONSTRUCT A PAY-OFF TABLE

SELECT DECISION CRITERION


MHA 306 (RS)
Key Elements of Decision

• Choices (actions, alternatives)

• States (uncertain elements)

• Outcome
– Payoff: Reward attached to each outcome

• Probability

MHA 306 (RS)


Decision-Making Environment

Certainty No doubt about future

Uncertainty Insufficient knowledge

Risk Probabilities to SON

MHA 306 (RS)


Decision under Uncertainty

Maximin Criterion

• Consider worst possible outcome


• Choose highest of minimum payoffs
• Maximum of Minimum payoffs

MHA 306 (RS)


Example Maximin Criterion

Product Recession Normal Boom


Growth
1 -10 -5 20
2 -15 0 15
3 -7 -1 25
4 -3 2 17

MHA 306 (RS)


Example Maximin Criterion

Product Recession Normal Boom Min


Growth Payoff
1 -10 -5 20 -10
2 -15 0 15 -15
3 -7 -1 25 -7
4 -3 2 17 -3

MHA 306 (RS)


Example Maximin Criterion

Location Rain Dry Min Payoff


Indoor 10,00,000 10,00,000 10,00,000

Outdoor 0 100,00,000 0

MHA 306 (RS)


Decision under Uncertainty

Minimax Criterion

• Minimize the maximum regret


• “Regret” ≡ Difference between optimal
and actual payoff

MHA 306 (RS)


Example Minimax Criterion

Product Recession Normal Boom


Growth
1 -10 7 -5 20
2 -15 12 0 15
3 -7 4 -1 25
4 -3 0 2 17

MHA 306 (RS)


Example Minimax Criterion
Table of “Regrets”
Product Recession Normal Boom Max
Growth Regret
1 7 7 5 7
2 12 2 10 12
3 4 3 0 4
4 0 0 8 8

MHA 306 (RS)


Example Minimax Criterion

Location Rain Dry


Indoor 10,00,000 10,00,000
0

Outdoor 0 100,00,000
10,00,000

MHA 306 (RS)


Example Minimax Criterion

Location Rain Dry Max Regret


Indoor 0 90,00,000 90,00,000

Outdoor 10,00,000 0 10,00,000

MHA 306 (RS)


Decision under Risk

• Probability of each state

• Maximize the Expectation

MHA 306 (RS)


Decision Tree

• Probability of each state

• Maximize the Expectation

MHA 306 (RS)

You might also like