Decision theory
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The document discusses decision theory and decision making. It defines decision making as identifying and evaluating choices to select the best alternative. It describes different types of decisions, conditions for decision making, processes, tools like decision trees, and styles. It also discusses group decision making, techniques to improve it like brainstorming, and theories like classical and behavioral decision theory.
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Decision theory
- 1. Decision Theory Presented by: Bina Gupta Presented to: Shiva Shrestha 1 BIM Department,HSM 11/10/2014
- 2. Contents Definition Types of decisions Decision making conditions Decision Making Process Decision Tree Decision Styles Decision Theories Group Decision Making Improving Decision Making 2 11/10/2014
- 3. Decision Making Decision making is a process of identifying and evaluating choices. Decision making is the process of choosing the best alternative from the number of available alternative. 3 11/10/2014
- 4. Decision Making Decision making is very important in human life: In personal life, Which profession to choose What to have for dinner Whether to do home work or watch movie Whom to marry. In Business environment, How much to charge for a product. Where and how much to invest . Which candidate to hire for a job. Which advertising media to adopt 4 11/10/2014
- 5. Types of Decision Making Types by frequency Programmed decisions decision making that relate to the day to day running of an organization predetermined rules and procedures structured type and recurs with some frequency Decision making is done by low level management 5 11/10/2014
- 6. Types of Decision Making Non-programmed decisions decisions making with unusual and exceptional problems. Poorly structured Decision making is done by top level management 6 11/10/2014
- 7. Types of Decision Making Types by nature Operating decisions Similar to programmed decision Day to day decision Aim at maximizing the efficiency and probability of the organization’s current operations. Decision making is done by low level management team 7 11/10/2014
- 8. Types of Decision Making Strategic decisions Focuses on the issues external to the organization. Concerned with goals and objectives of the organization, selection of product- market mix etc. Decision making is done by top level management Administrative decisions Link between operational and strategic decision deal with the issues such as rules, procedures, reward system etc. Decision making is done by middle level management 8 11/10/2014
- 9. Decision Making Conditions/Environment Conditions of certainty Problems and alternatives are well known Outcomes are predetermined Conditions of uncertainty Problems are known but alternatives are unknown Not enough knowledge about solutions Conditions of risk Risk is involved in each actions of decision making Outcomes are associated with risk 9 11/10/2014
- 10. Decision Making Process 10 11/10/2014
- 11. Decision tree A decision tree is a graphic representation of the strategy-outcome combinations available to the decision maker. A decision tree consists of nodes, branches, probability estimates, and payoffs. There are two types of nodes: decision nodes and chance nodes. A decision node is usually represented by a square and indicates places where a decision-maker must make a decision. 11 11/10/2014
- 12. Decision tree The chance node is represented by a circle and indicates a point, at which the decision-maker will discover the response to his decision, i.e. different possible outcomes occurred from a chosen course of action. 12 11/10/2014
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- 14. Decision Styles There are four decision making styles: Directive Analytical Conceptual Behavioral 14 11/10/2014
- 15. Decision Styles Directive: The group leader solves the problem, using the information he possesses. He/she does not consult with anyone else nor seek information in any form. This style assumes that the leader has sufficient information to examine all the relevant options and make an effective decision, but that is rarely the case. 15 11/10/2014
- 16. Decision Styles Analytical: When the leader does not possess sufficient information to make an effective decision, they will need to obtain information or skill from others. They may not tell them what the problem is; normally, they simply asks for information. The leader then evaluates the information and makes the decision. 16 11/10/2014
- 17. Decision Styles Conceptual: The leader explains the situation to the group or individuals whom he provides with relevant information, and together they generate and evaluate many possible solutions. This style tends to be have a long-term perspective and, as a result, will be more creative and expansive in their approach entailing a higher level of risk for the long-term benefit of the organization. 17 11/10/2014
- 18. Decision Styles Behavioral: The leader explains the situation to the group or individuals and provides the relevant information. Together they attempt to reconcile differences and negotiate a solution that is acceptable to all parties. 18 11/10/2014
- 19. Decision Theories Classical Decision theory: Classical view assumes that decision making is based on rational process and always follows the sequence of steps for decision making. 19 11/10/2014
- 20. Decision Theories Behavioral Theory of Decision Making: Developed By Herbert Simon Based on administrative model i.e. how decisions are made 20 11/10/2014
- 21. Decision Theories The two main component of this theory are: i. Bounded Rationality: Decision maker is limited in their Rationality because of different factors such as: Attitude Ability Education Benefits Skills Habits 21 11/10/2014
- 22. Decision Theories ii. Satisfying: Decision Maker tries to satisfy organization objectives with his best efforts Satisfactory solution is obtained 22 11/10/2014
- 23. Group Decision Making Process of choosing best alternative from the available alternatives Alternative is chosen through group discussion Each member actively involved in decision making Better and effective decision can be made 23 11/10/2014
- 24. Group Decision Making Group formation: 24 11/10/2014
- 25. Group Decision Making Advantages Synergy: Ideas obtained from many minds Sharing of information Qualitative decision Overcome difficult problems Build leadership skill Disadvantages: Time consuming Misunderstanding because of poor communications 25 11/10/2014
- 26. Improving the Decision Making Some of the techniques employed to make the group decision making process more effective and decision making more efficient are: Brainstorming Nominal Group Technique (NGT) Delphi Technique Electronic Meeting 26 11/10/2014
- 27. Improving the Decision Making Brainstorming: Ideas are generated for specific problem through group creativity Group of people consist from five to ten It emphasizes on the generation of large number of ideas This technique is used in advertising and some other fields 27 11/10/2014
- 28. Improving the Decision Making Nominal Group Technique (NGT): The nominal group technique restricts discussion or interpersonal communications during the decision making process The group meets face-to-face Each member presents one idea to the group Discussion and ranking is done High ranked idea is used for decision making 28 11/10/2014
- 29. Improving the Decision Making Delphi Techniques: A Delphi technique is the modification of NGT Each individual member independently writes down comments, suggestions and solution All the comments are sent to a central location, where they are compiled Finally decisions are made in written form through consensus 29 11/10/2014
- 30. Improving the Decision Making Electronic Meeting Electronic Meeting is one of the techniques that combine the NGT with sophisticated computer technology. Each member communicate by writing comments by using computer terminals 30 11/10/2014
- 31. ANY QUESTIONS 31 11/10/2014
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