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  1. 1. Decision Theory Submitted by: Laxmi Dotel BIM 7th semester 1/4/2015Decision theory
  2. 2. Contents 1. Model of Decision Making 2. Decision Tree 3. Decision Styles 4. Decision Theories 5. Group Decision Making 6. Improving Decision Making 1/4/2015Decision theory
  3. 3. Model Of Decision Making 1. Classical model 2. Implicit favorite model 3. Intuitive model 1/4/2015 1 Decision theory
  4. 4. Classical model  obtain complete and perfect information  eliminate uncertainty and risk  evaluate everything rationally and logically  Decision maker follow following model 1. Investigate the situation 2. Develop Alternatives 3. Evaluate Alternative and select the best one 4. Implement and monitor 1/4/2015 2 Decision theory
  5. 5. Implicit favorite model  Deals with complex and non routine decisions.  In this approach, the manager first choose an alternative solution to the problem and highlights its strength, and compare with other  This approach can be observed in the purchase of various favorite items in which a customer gives arguments in favor of his choice on the basis of norms such as price, quality, appearance, easily availability, after-sales service etc. to reject other items of same utility 1/4/2015 3 Decision theory
  6. 6. Intuitive model 1/4/2015Decision theory 4  Uses intuitive tools for decision making like experiences, ideas, feelings.  Applicable only when decision maker are have strong intuitive abilities
  7. 7. Decision Tree  Decision tree is a representation in graphic form of a number of possible future events that may affect a decision.  decision tree consist of nodes, branches, probability estimates and payoffs. 1/4/2015 5 Decision theory Decision node Chance node Event 1 Event 2 Event 3
  8. 8. Decision Styles 1/4/2015 6 Decision theory
  9. 9. Directive: Managers using directive style have low tolerance for ambiguity and are rational in their way of thinking. They are efficient and logical. They make fast decisions with minimal information and assessing few alternatives.. Analytical: Managers with an analytic style have high tolerance for ambiguity than do directive type and are rational in their way of thinking. They need more information and consider more alternatives.  long time for decision 1/4/20157Decision theory
  10. 10. Conceptual: Managers with conceptual style have high tolerance for ambiguity and an intuitive way of thinking. They tend to be very broad to their outlook and consider many alternatives. They are at finding creative solutions to problems. Behavioral: Managers with behavioral style have low tolerance for ambiguity and an intuitive way of thinking. They work well with others. They are receptive to suggestions from others. Short term decision 1/4/20158Decision theory
  11. 11. Decision Theories 1.Classical decision theory(economic man model):  Classical view assumes that decision making is based on rational process and always follows the sequence of steps for decision making.  It describes how decisions should be made rather than how decisions are actually made.  Assumptions: -Problem is clear and unambiguous. -All alternatives and consequences are known. -No time or cost constraints exists. 1/4/2015 9 Decision theory
  12. 12. 2.Behavioral theory(administrative Man model): • Developed By Herbert Simon •Based on administrative model i.e. how decisions are made 1/4/201510Decision theory
  13. 13. • 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 ii. Satisfying: •Decision maker become rational but within the limits of managers' ability and availability of information. • Managers make decisions based on alternatives that are satisfactory. The examples of satisfying decisions are fair price, reasonable profit, adequate market share, proper quality products etc. 1/4/201511Decision theory
  14. 14. Group Group is a collection of two or more people who work with one another regularly to achieve common goal. 1/4/2015 12 Decision theory
  15. 15. Group Decision Making  Group decision making is process of choosing the best alternative from the number of available alternatives through the discussion and analysis by the group of people. • Advantages: • Provides more information, ideas and solutions. (Diversity of experiences and perspectives.) •shared responsibility •builds team feelings • Generates more alternatives 1/4/2015 13 Decision theory
  16. 16. Disadvantages:  Time consuming  Domination of the powerful persons  Ambiguous(unclear) responsibility  conflict 1/4/201514Decision theory
  17. 17. Improving individual decision making  Some people follow rational decision making model whereas some follow non routine model.  Individual look for solution that satisfy rather than biasness, prejudices in decision process.  Consideration while making decision: i. Analyze the situation ii. Be aware of biases iii. Don’t assume your decision style is appropriate for every job iv. Try to enhance creativity v. Change personal negative habits vi. Calculate risk and return 1/4/2015 15 Decision theory
  18. 18. Improving group decision making -Brainstorming -Nominal Group Technique (NGT) -Delphi Technique - Electronic Meeting 1/4/2015 16 Decision theory
  19. 19. Brainstorming  This method uses a group of people usually from five to ten.  Ideas are generated for specific problem through group creativity.  Evaluation and ranking of ideas is not allowed in this method.  This technique is used in advertising and some other fields. 1/4/2015 17 Decision theory
  20. 20. Nominal Group Techniques  It is the structure technique used to generate the creative and innovative ideas.  That idea will be accepted which holds the highest rank.  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 1/4/2015 18 Decision theory
  21. 21. 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 1/4/2015 19 Decision theory
  22. 22. Electronic Meeting  Electronic Meeting is one of the techniques that combine the NGT with sophisticated computer technology.  up to 5o people sit around a table that is empty except for a series of computer terminals.  The issues are presented to the participants who type their response on to their computer screens.  The individual comments as well as aggregate votes are displayed on a projection screen in the room. 1/4/2015 20 Decision theory
  23. 23. References 1/4/2015Decision theory • http://en.wikipedia.org/wiki/Decision-making • http://www.time-management-guide.com/decision-making-skills.html • http://www.decision-making-solutions.com/decision-making- theories.html
  24. 24. 1/4/2015Decision theory

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