Business Decision Models Dersi 1. Ünite Sorularla Öğrenelim

What is decision making?

Decision making is one of the most important roles of managers. In order for the organization to achieve its goals, managers need to use resources such as human, material and money effectively and fulfill management functions such as planning, organizing, staffing, directing and controlling.

What is the concept of decision making?

The concept of decision making is to choose the most appropriate one among the available alternatives, in other words to make the best choice. It is more complicated so it requires an analytic and systematic approach.

What is a good decision?

A good decision is a decision based on logic, which takes into account all possible alternatives, and examines all available information about the future. However managers often have to make decisions before they can be sure which events will occur in the future. Therefore, because of the uncertainty of future events, a good decision may result in an undesirable outcome.

Please list the reasons that make decisions easy or difficult.

Some decisions are easy to make while some are more difficult. There might be many reasons. Some of these reasons are information, uncertainty, scarce source, psychological factors, number of alternatives and cost of making errors.

How does information affect decision making?

All relevant information needed to make a good decision is available and we can use this information effectively in the decision making process. On the other hand, although this information is available, we cannot be able to use this information effectively or we may not have the appropriate technology to use this information.

How does uncertainty affect decision making?

Many decisions are made under uncertainty situations. For example, a company that wants to offer a new product to the market should plan the size of the manufacturing facility that needs to be built to produce this product. However, it does not know what the demand for this new product and the startup cost of developing it will be. In such cases of uncertainty, two different ways are followed to make a good decisions. One of them is the simulation which different combinations of possible demands and startup costs will be tried on the computer. Thus, this simulation can give us a better idea of the possible values of the profit obtained. The other method is to use mathematical and statistical methods to calculate the expected value of the profit without simulation.

How does scarce source affect decision making?

Even if there is no uncertainty or we have all the relevant information, some decisions are quite complex. When the resources needed for production are scarce, the decisions are complicated.

How does psychological factor affect decision making?

It is often difficult to make a decision because of psychological factors such as fear, power and anxiety. The quality of decisions may be influenced by the way we acquire information, our attitude to risk taking, or the quality of our reasoning ability.

How does number of alternatives affect decision making?

The number of available alternatives today is higher than ever before. As a result of the changes in information and communication technologies, it is very easy to reach the information in a short time, generate more alternatives and access to the internet. Choosing from these lots of alternatives is quite difficult.

How does cost of making errors affect decision making?

Because of the complexity of operations, business processes and automation the cost of making errors can be very high. One of the main objectives of managers is to reduce costs, while the high cost is an undesirable situation in organizations. In such a case, it is quite complex and difficult to decide.

Please list the common characteristics of decision making.

There are some common characteristics of decision making. These are “decision maker”, “objective”, “alternatives (strategies/actions)”, “events (states of nature)”, “outcomes (pay-off)” and “payoff table / pay off matrices”.

What is decision maker (DM)?

Decision maker (DM) is the person who chooses the appropriate alternatives and is responsible for the results of this choice.

What are decision making problems objectives?

Decision making problems have two objectives; maximization and minimization. E.g. selecting the alternative that makes the maximum profit or the number of customers; selecting the alternatives that makes the minimum cost or transportation time.

What is pay-off matrix?

The outcomes of all alternatives and events are indicated by a matrix called “pay-off matrix”. When m indicate alternatives and n indicate events, m x n size matrix is obtained.

Please list the steps of the decision making process.

The steps of the decision making process are define decision problem, establish objectives, list all possible decision alternatives, identify the possible outcomes for each decision alternative, identify the pay-off matrix for each combination of alternatives and events, select the most appropriate decision making method and apply this method and determine the best alternative and make your decision.

Please describe the define decision problem step of decision making process.

The first step in the decision-making process is to define the problem. Perhaps this is the most important and most difficult part of the process. At this step, it is very important to describe the problem statement clearly and concisely. Problem statement gives direction and meaning to all other steps of decision making. It is known that one of the main reasons why managers cannot provide good service to their organizations is the poor problem definitions. Defining a decision problem includes a good understanding of management assumptions, organizational boundaries and the desired conditions for the problem. In order to identify the problem, all information about it should be collected, factors and causes associated with the problem should be determined.

Please describe the establish objectives step of decision making process.

Sometimes it can be difficult to quantify the problem. In such cases it may be necessary to develop specific and measurable objectives for the problem. For example, a problem is defined as inadequate health care delivery in a hospital. We need a numerical and concrete objective to analyze and solve this problem. Therefore, the objective of this problem may be to increase the number of hospital beds or to reduce the average number of days of stay in hospital.

Please describe the list all possible decision alternatives step of decision making process.

At this step, all decision alternatives for the potential solution of the problem are listed by decision maker. What is important here is that the decision maker adds all possible alternatives to the list. If an important decision alternative is forgotten to be added to the list, wrong decisions can be made.

Please describe the identify the possible outcomes for each decision alternatives step of decision making process.

In this step, all possible future outcomes for each decision alternative are determined. As in the third step, often a common mistake is to forget some of the possible outcomes. Some of decision makers are optimistic and some are pessimistic. Optimistic ones may tend to ignore the outcomes that they think will not happen. However, what needs to be done here is to make a logical decision considering all the possibilities.

Please describe the identify the pay-off matrix for each combination of alternatives and events step of decision making process.

In this step, the matrix for each alternative and event combination is generated and the outcomes are written to the matrix. In this way, when a specific alternative is selected, it is possible to know which outcome to be taken for each event. This will make it easier for the decision maker to make a correct choice.

Please describe the select the most appropriate decision making method and apply this method step of decision making process.

There are many methods to solve a decision problem. It is important to choose the most appropriate one of these methods. The selection of appropriate method and tool depends on the nature of the decision problem and the preference of decision-makers. The decision maker’s expertise and experience will help choosing the appropriate method.

Please describe the determine the best alternative and make your decision step of decision making process.

In this last step, according to the outcomes of the events, the most appropriate alternative is selected. It is considered as the decision that gives the best solution according to the determined objective. Then, the decision-making process ends.

What is decision making under certainty?

When the decision maker knows everything about the problem and outcomes of the events, the decision making environment is called “decision making under certainty”.

What is decision making under uncertainty?

When the decision maker has no information about the probabilities of occurrence and outcomes of the events, the decision making environment is called “decision making under uncertainty”.

What is decision making under risk?

When the decision have information about the probabilities of occurrence of the events, the decision making environment is called “decision making under risk”.