University of Caloocan City Management Science – M2

College of Business and Accountancy

CAE 004 -Management Science
Decision-making
Decision-making is an important process for any business. Opportunities fall through and plans can be jeopardized by bad decisions. By
following a good decision-making process, businesses can make the best decisions based on relevant information.

Making decisions is not always easy; it is a process that requires careful planning and deep thought. However, this process is also
necessary since it allows people to make good decisions and do the right thing for themselves and their company. Making a decision is
not always easy, especially when faced with many options and having to choose between them. But the 5 steps of decision-making can
help one understand how to make good decisions more easily.

The steps of the decision-making process include the following tasks:

1. Defining the Problem
The first step in the decision-making process is to clearly articulate the problem that needs to be addressed. This involves:
Identifying the Issue: Understand what the problem is and why it needs to be solved. This could involve asking questions like, "What is
happening?" and "What are the implications of this issue?"
Clarifying Objectives: Define what a successful outcome looks like. This ensures that everyone involved understands the goal of the
decision-making process.
2. Collecting Information
Once the problem is defined, gather relevant information to inform your decision. This includes:
Internal Data: Review historical data and previous experiences within the organization related to the issue.
External Sources: Research market trends, industry standards, and consult experts or studies that may provide insights into similar
situations.
Organizing Information: Ensure that the information collected is organized and accessible for analysis, avoiding information overload.
3. Identifying Alternatives
With sufficient information at hand, brainstorm potential solutions to address the problem. This step involves:
Generating Options: Encourage creativity and collaboration among team members to come up with various alternatives.
Listing Viable Solutions: Narrow down the list to include only realistic and feasible options that can effectively address the problem.
4. Weighing the Alternatives
Evaluate each alternative by assessing its pros and cons. This includes:
Analyzing Impact: Consider how each alternative will affect stakeholders and the organization as a whole.
Risk Assessment: Identify potential risks associated with each option, including short-term and long-term implications.
Using Decision-Making Tools: Consider using methods like SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) or cost-
benefit analysis to facilitate comparison.
5. Selecting the Best Possible Option
After weighing the alternatives, choose the most suitable option based on your evaluation. This step includes:
Decision Criteria: Use predefined criteria (e.g., cost-effectiveness, feasibility, alignment with organizational goals) to guide your choice.
Consensus Building: If working in a team, ensure that there is agreement on the selected option to foster commitment during
implementation.
6. Planning and Implementing
Once a decision is made, create a detailed plan for implementation:
Action Plan Development: Outline specific steps required to implement the chosen solution, including timelines and responsibilities.
Resource Allocation: Determine what resources (financial, human, technological) are needed for successful execution.
Communication Strategy: Clearly communicate the plan to all stakeholders involved to ensure alignment and support.
7. Reviewing and Evaluating the Outcome
After implementation, assess the effectiveness of your decision:
Monitoring Results: Track outcomes against predefined success metrics to determine if the decision achieved its objectives.
Feedback Collection: Gather feedback from stakeholders about the process and results to identify areas for improvement.
Learning from Experience: Document lessons learned throughout the process for future reference and continuous improvement in
decision-making practices.
University of Caloocan City Management Science – M2
College of Business and Accountancy
CAE 004 -Management Science

Management Science Tools

Management Science employs various tools and models to facilitate decision-making and problem-solving in organizations. Below are
detailed explanations of key tools, along with examples for each:
1. Allocation Model
Allocation models are used to determine the optimal distribution of resources among competing activities or projects to maximize
overall effectiveness or profit.
Example: A manufacturing company needs to allocate its limited budget across various departments (R&D, marketing, production). By
using an allocation model, the company can analyze which department will yield the highest return on investment and distribute funds
accordingly.
2. Inventory Model
Inventory models help manage stock levels, ensuring that a company maintains sufficient inventory to meet customer demand without
overstocking.
Example: A retail store uses an inventory model to determine how much stock to order for each product. The model considers factors
such as lead time, demand variability, and holding costs to minimize total inventory costs while avoiding stockouts.
3. Queuing Model
Queuing models analyze waiting lines or queues to optimize service efficiency and minimize wait times.
A bank uses a queuing model to assess customer service operations. By analyzing arrival rates and service times, the bank can
determine the optimal number of tellers needed during peak hours to reduce customer wait times.
4. Competitive Model
Competitive models evaluate strategic interactions among competitors, often using game theory to predict outcomes based on
different strategies.
Example: Two competing firms in the telecommunications industry might use a competitive model to decide whether to lower prices
or enhance service offerings. The model helps each firm anticipate the other's actions and adjust their strategies accordingly.
5. Network Model
Network models represent complex relationships and processes within a system, often used in project management and logistics.
Example: The Critical Path Method (CPM) is a network model used in project management to identify the longest sequence of
dependent tasks. A construction company uses CPM to schedule project activities efficiently, ensuring timely completion.
6. Dynamic Programming Model
Dynamic programming is used for solving problems by breaking them down into simpler subproblems, particularly useful in
optimization scenarios where decisions are interdependent.
Example: A logistics company uses dynamic programming to optimize delivery routes over multiple days. By considering previous days'
routes and delivery times, the company can develop an efficient schedule that minimizes costs and maximizes service levels.
7. Markov Analysis
Markov analysis is used for predicting future states of a system based on its current state, assuming that future states depend only on
the current state (memoryless property).
Example: An insurance company utilizes Markov analysis to predict customer retention rates. By analyzing customer behavior
transitions (e.g., from active policyholder to lapsed), the company can forecast future revenues and plan marketing strategies
accordingly.
8. Decision Analysis Model
Decision analysis models help evaluate complex decisions under uncertainty by considering various alternatives and their potential
outcomes.
A pharmaceutical company faces a decision about whether to invest in developing a new drug. Using a decision analysis model, they
evaluate potential outcomes (success rates, costs, market size) and make informed choices based on expected value calculations.
9. Forecasting
Forecasting involves predicting future trends based on historical data and statistical methods, essential for planning and resource
allocation.