Management Lecture 09 Tools for Decision Making and Planning

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Management Lecture 09 Tools for Decision Making and Planning Powered By Docstoc
					Principles of Management

          Tools for
    Decision Making and
           Behavioural Tools
• 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
• Intuition
               Quantitative Tools
•   Payoff Matrix
•   Decision Tree
•   Simulation and Modelling
•   Other Tools:
    –   Linear Programming
    –   Game Theory
    –   Queuing Theory
    –   Forecasting
    –   Decision Support Systems
    –   Artificial Intelligence Based Systems
            Payoff Matrix
• 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
  ‘expected value’.
            Decision Trees
• 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
  conflicting interests.
• 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,
  complex decisions.
            Tools for Planning
• Forecasts
  – Quantitative
     • Time Series Method
     • Causal Models
  – Qualitative
     • Technological
     • Jury of Executive Opinion
     • Sales Force Composite
• Break Even Analysis
• Project Planning Tools
  – Gantt Charts
  – PERT/ CPM Charts

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