Principles of Management
Decision Making and
• Decision Timing
– Sometimes the best decision is to postpone making a
decision until the situation begins to deteriorate
– Comparison of pros and cons of “Action” and
“Inaction” is required
• Realistic Decision Constraints
– Managers need to recognise constraints such as
physical limitations, government regulations, and
standards of quality or time
• Critical Thinking Skills
• Experience and Expertise
• Payoff Matrix
• Decision Tree
• Simulation and Modelling
• Other Tools:
– Linear Programming
– Game Theory
– Queuing Theory
– Decision Support Systems
– Artificial Intelligence Based Systems
• A tool that compares probable outcomes
of two or more alternatives, which can
differ depending on various future
• Also known as a Decision Matrix.
Steps of creating a Payoff Matrix
• The manager first identifies the possible alternatives and
the possible future conditions (states of nature) and then
arranges them in a matrix.
• Next the Manager considers the probability or likelihood
for each of the possible future conditions. The probability
can be between 0 – 1. Within the matrix, the probabilities
of various states must add up to 1.
• Next the value of each alternative’s outcome, called
‘payoff’ is calculated.
• All the payoffs for a particular alternative are multiplied
by the respective probabilities, thus, arriving at the
• An analytical tool that graphically portrays
the logical series of actions and decisions
in a problem situation.
• Options are represented as nodes
(branches) and actions/decisions are
represented as leaves.
Other Tools and Techniques
• Simulation Modelling – Mathematical description of a situation that
expresses the relationship between the elements of the problem. It
can be used to predict the outcomes of various courses of action.
• Linear Programming – Mathematical approach that seeks to
maximise or minimise a dependent variable that is a function of
several independent variables.
• Game Theory – used to analyse competitive situations involving
• Queuing Theory – a practical tool for studying the balance between
waiting time and changes in service or production capacity.
• Forecasting – helps in lowering the uncertainty and predicting the
future events and trends that can affect organizational decisions and
• Decision Support Systems – help in analysing nonprogrammed,
Tools for Planning
• Time Series Method
• Causal Models
• Jury of Executive Opinion
• Sales Force Composite
• Break Even Analysis
• Project Planning Tools
– Gantt Charts
– PERT/ CPM Charts