1. Decision Making

2. Advanced Organizer

3. Chapter Objectives Explain the process of management science Be able to solve problems using three types of decision making tools

4. Relation to Planning Managerial decision making is the process of making a conscious choice between two or more rational alternatives

5. Types of Decisions Routine and Non-Routine Decisions Objective vs. Bounded Rationality Level of Certainty

6. Management Science Characteristics Systems view of the problem Team approach Emphasis on use of formal mathematical models and statistical and quantitative techniques

7. Models & Analysis Formulate the problem Construct a mathematical model Test the model’s ability Derive a solution from the model Apply model’s solution to real system

8. Categories of Decision Making Decision Making under Certainty (Only one state of nature exists.) Decision Making under Risk (Probabilities for states of natures are known.) Decision Making under Uncertainty (Probabilities for states of natures are unknown.)

9. Payoff Table N1N1 N2N2....NjNj NnNn Alt.(P 1 )(P 2 )....(P j )....(P n ) A1A1 O 11 O 12....O 1j....O 1n A2A2 O 21 O 22....O 2j....O 2n.... AiAi O i1 O i2....O ij....O in.... AmAm O m1 O m2....O mj....O mn

10. Tools for Decision Making under Certainty Linear programming Graphical solution Simplex method Computer software Non-linear programming Engineering Economic Analysis

11. Linear programming Graphical solution

12. Linear programming Simplex method BV Coefficient of RS Ratio PXYS1S1 S2S2 P 1-10-14000 S1S1 0321012060 S2S2 012018040 P 1 -3007560 S1S1 02014020 Y01/210 4080 P 1003/211/2620 X0101/2-1/220 Y001-1/43/430

13. Linear programming Computer Software Excel: Solver LINDO: www.lindo.comwww.lindo.com max 10x + 14 y subject to M) 3x + 2y <= 120 A) x + 2y <= 80 end

14. Engineering Economic Analysis Time Value of Money Minimum Acceptable Rate of Return Decision Criteria Net Present Worth Equivalent Annual Worth Internal Rate of Return Benefit / Cost Ratio

15. Expected value Decision trees Decision Node Chance Node http://www.mindtools.com/dectree.html Queuing theory Simulation Tools for Decision Making under Risk

17. Tools for Decision Making under Uncertainty Laplace criteria (Equally likely) Maximax criteria Maximin criteria Hurwicz criteria Minimax regret crteria

18. Laplace criteria (Equally likely) N1N1 N2N2....NjNj NnNn Max Alt.(P 1 )(P 2 )....(P j )....(P n ) A1A1 O 11 O 12....O 1j....O 1n EV 1 A2A2 O 21 O 22....O 2j....O 2n EV 2.... AiAi O i1 O i2....O ij....O in EV i.... AmAm O m1 O m2....O mj....O mn EV m

19. Maximax criteria N1N1 N2N2....NjNj NnNn Max. Alt.(P 1 )(P 2 )....(P j )....(P n ) A1A1 O 11 O 12....O 1j....O 1n MAX 1 A2A2 O 21 O 22....O 2j....O 2n MAX 2.... AiAi O i1 O i2....O ij....O in MAX i.... AmAm O m1 O m2....O mj....O mn MAX m

20. Maximin criteria N1N1 N2N2....NjNj NnNn Max. Alt.(P 1 )(P 2 )....(P j )....(P n ) A1A1 O 11 O 12....O 1j....O 1n MIN 1 A2A2 O 21 O 22....O 2j....O 2n MIN 2.... AiAi O i1 O i2....O ij....O in MIN i.... AmAm O m1 O m2....O mj....O mn MIN m

21. Hurwicz criteria N1N1 N2N2....NjNj NnNn  (1-  ) Index Alt.(P 1 )(P 2 )....(P j )....(P n ) A1A1 O 11 O 12....O 1j....O 1n MAX 1 MIN 1 I1I1 A2A2 O 21 O 22....O 2j....O 2n MAX 2 MIN 2 I2I2.... AiAi O i1 O i2....O ij....O in MAX i MIN i IiIi.... AmAm O m1 O m2....O mj....O mn MAX m MIN m ImIm

22. Minimax regret crteria N1N1 N2N2....NjNj NnNn Min. Alt.(P 1 )(P 2 )....(P j )....(P n ) A1A1 R 11 R 12....R 1j....R 1n MAX 1 A2A2 R 21 R 22....R 2j....R 2n MAX 2.... AiAi R i1 R i2....R ij....R in MAX i.... AmAm R m1 R m2....R mj....R mn MAX m First convert payoff table to regret table

23. Computer-Based Information Systems Decision Support Systems (DSS) A System under the control of 1 or more decision makers, that assists in the activity of decision making by providing an organized set of tools intended to impart structure to portions of the decision-making situation and to improve the ultimate effectiveness of the decision outcome.

24. DSS Components Data Management System Model Management System Knowledge Engine User Interface DSS User