Scribd
Upload
7 views

2 2 Decision Making (Revised) v1.2

Uploaded by

Abhay Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
7 views

2 2 Decision Making (Revised) v1.2

Uploaded by

Abhay Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 60

Functions of Technology

Management

Decision Making
M anaging Engineering and Technology

Managem ent Functions Managing Technology Personal Technology

Planning R esearch Tim e Managem ent

D esign Ethics
D ecision Making
Production C areer
O rganizing
Q uality
Leading
Marketing
C ontrolling
Project Managem ent
Relation to Planning
Managerial decision making is the process of
making a conscious choice between two or more
rational alternatives in order to select the one that
will produce the most desirable consequences.
Decision making is an essential part of planning as
planning is “deciding in advance what to do, how
to do it, when to do it, and who is to do it.”
Types of Decisions
Routine Decisions – delegation/rules based
◦ Payroll processing
◦ Reordering standard inventory
◦ Paying suppliers
Non-Routine Decisions
◦ Unstructured situations
◦ Usually more at higher level of management
◦ Based on statistical decision making
◦ Based on subjective decisions
Engineers often find themselves unable to rise in management unless
they can develop the “tolerance for ambiguity” that is needed to tackle
unstructured problems.
Objective versus Bounded Rationality
Objective Rationality
◦ Viewing all behavior alternatives
◦ All consequences of choosing an alternative
◦ Values assigned for singling out the alternative
Bounded Rationality
◦ Take only known factors
◦ Time and resource constraint
◦ Choose action that is satisfactory or “good enough”
◦ Solution that “satisfices” rather than the best one
Management Science Characteristics
Management science has been defined as having the
following “primary distinguishing characteristics”:
1. A systems view of the problem – a viewpoint is taken
that includes all of the significant interrelated variables
contained in the problem.
2. The team approach – personnel with heterogeneous
backgrounds and training work together on specific
problems.
3. An emphasis on the use of formal mathematical models
and statistical and quantitative techniques.
Models and Analysis
 A model is an abstraction or simplification of reality,
designed to include only the essential features that
determine the behavior of a real system.
 A simple equation (model) to represent the financial
operations of a company:
Management science uses a five-step process that begins in the real
world, moves into the model world to solve the problem, then returns
to the real world for implementation.
Tools for Decision Making
Categories of Decision Making
 Decision Making under Certainty
◦ Only one state of nature exists.
◦ Linear Programming
 Decision Making under Risk

◦ Probabilities for states of natures are known.


◦ Expected value, Decision trees, Queuing theory, and
Simulation
 Decision Making under Uncertainty

◦ Probabilities for states of natures are unknown.


◦ Game theory
Pay-off Table
State of Nature/Probability

N1 N2 … Nj … Nn

Alternative P1 P2 … Pj … Pn

A1 O11 O12 O1j O1n

A2 O21 O22 O2j O2n

… … … … … … …

Ai Ai1 Ai2 Aij Ain

… … … … … … …

Am Am1 Am2 Amj Aim


Decision Making under Certainty
◦ Linear programming
 Graphical solution
 Simplex method
 Computer software
◦ Non-linear programming
◦ Engineering Economic Analysis
Steps in solving Linear Programming
1. State the problem
2. Identify decision variables
3. Objective function
4. Constraints
Solve:
A small petroleum company owns two refineries. Refinery 1 costs $20,000 per day
to operate, and it can produce 400 barrels of high-grade oil, 300 barrels of
medium-grade oil, and 200 barrels of low-grade oil each day. Refinery 2 is newer
and more modern. It costs $25,000 per day to operate, and it can produce 300
barrels of high-grade oil, 400 barrels of medium-grade oil, and 500 barrels of low-
grade oil each day. The company has orders totaling 25,000 barrels of high-grade
oil, 27,000 barrels of medium-grade oil, and 30,000 barrels of low-grade oil.
How many days should it run each refinery to minimize its costs and still refine
enough oil to meet its orders?
Engineering Economic Analysis
◦ Time Value of Money
◦ Minimum Acceptable Rate of Return
◦ Decision Criteria
 Net Present Worth
 Equivalent Annual Worth
 Internal Rate of Return
 Benefit / Cost Ratio
Decision Making under Risk
◦ Expected Value / Decision Trees
◦ Queuing (Waiting-Line Theory)
◦ Simulation
Payoff Table for Decision Making under Risk
Expected Value
 Given the future states of nature and their probabilities,
the solution in decision making under risk is the
alternative Ai that provides the highest expected value Ei
Expected value of Alternative A1
E(A1)=(-$200) * 0.999+(-$200)*0.001
= - $199.8 – $ 0.2
= -$200
Expected value of Alternative A2
E (A2) =0 * 0.999 – 100,000* 0.001= -$100
Decision trees provide another technique used in
finding expected value.
◦ provide a very visible solution procedure, especially
when a sequence of decisions, chance nodes, new
decisions, and new chance nodes exist.
Queuing Theory

 The essence of the typical queuing problem is identifying the


optimum number of servers needed to reduce overall cost.
 Mathematical expressions for mean queue length and delay as
a function of mean arrival and service rates have been
developed for a number of probability distributions (in
particular, exponential and Poisson) of arrival and of service
times.
Risk as Variance

Risk = Variability of Outcome


Measurement of variability: variance or standard deviation
Simulation
◦ In case real-world system is too complex to express in
simple equations, construct a model that simulates
operation of a real system by mathematically describing
behavior of individual interrelated parts.
◦ For instance, time between arrivals and services can be
represented by probability distributions.
◦ Develop a computer program for one cycle of operation,
and Run it for many cycles.
Simulation modeling seeks to:
◦ Describe the behavior of a system
◦ Use the model to predict future behavior, i.e. the effects that
will be produced by changes in the system or in its method of
operation.
Decision Making under Uncertainty
Uncertainty occurs when there exist several (i.e.,
more than one) future states of nature Nj, but the
probabilities pj of each of these states occurring are
not know.
In such situations the decision maker can choose
among several possible approaches for making the
decision.
Decision Making Approaches under Uncertainty
Maximax
Maximin
Minimax
Example:
Computer-Based Information Systems
IntegratedDatabases
Management Information/Decision Support
Systems
Expert Systems
Integrated Databases
Management Information/Decision Support Systems
• Transaction Processing Systems (TPS)
– Automate handling of data about business activities
(transactions)
• Management Information Systems (MIS)
– Converts raw data from transaction processing system into
meaningful form
• Decision Support Systems (DSS)
– Designed to help decision makers
– Provides interactive environment for decision making
• Expert Systems (ES)
– Replicates decision making process
– Knowledge representation describes the way an expert would
approach the problem
Expert Systems
Implementation

You might also like