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Self Assessment Questions
- In _________, it is necessary for the manager to enumerate all the stages to the decision-making situation and provide the necessary support through rules and a formula for each one of them.
- In a __________, the programmed-decision-making system works efficiently.
- The method of ____________ can be adopted, if the decision-making situation can be described as a chain of decisions.
- When all the alternatives and their outcomes are not known with certainty, the decision is made with the help of ____________
- The concept of _____________ relates to the money value considered by the decision-maker. 10.4 Decision Analysis by Analytical Modelling Based on the methods discussed, a decision is made but such decision needs to be analysed for conditions and assumptions considered in the decision model. The process is executed through analytical modelling of problem and solution. The model is analysed in four ways. · What if analysis • Goal Seeking Analysis · Sensitivity analysis • Goal Achieving analysis What if analysis Decisions are made using a model of the problem for developing various solution alternatives and testing them for best choice. The model is built with some variables and relationship between variables. In reality, the considered values of variables or relationship in the model may not hold good and therefore solution needs to be tested for an outcome, if the considered values of variables or relationship change. This method of analysis is called ‘what if analysis.’ For example, in decision-making problem about determining inventory control parameters (EOQ, Safety Stock, Maximum Stock, Minimum Stock, Reorder level) lead time is assumed fairly con- stant and stable for a planning period. Based on this, the inventory parameters are calculated. Inventory manager wants to know how the cost of holding inventory will be affected if lead time is reduced by one week or increased by one week. The model with changed lead time would compute the cost of holding inventory under new conditions. Such type of analysis can be done for purchase price change, demand forecast variations and so on. Such analysis helps a manager to take more learned decisions. ‘What if analysis’ creates confidence in decision-making model by painting a picture of outcomes under different conditions? Sensitivity Analysis
In what if analysis you test the effect on solution by changing the value of number of variables simultaneously or changing the relations between them. But in sensitivity analysis , a special case of what if analysis, only one variable is changed and rest are kept unchanged. In our problem of inventory, sensitivity analysis can be used to assess the cost of holding inventory, if cost of item increases by 20 per cent in sensitivity analysis, you are testing how sensitive is the cost of holding inventory to the change in cost of item. Sensitivity analysis helps to understand the significance of variable in decision-making and improves the quality of decision- making. Goal Achieving Analysis In goal seeking analysis, you analyse the problem in exactly reverse way as that of what if analysis or sensitivity analysis. In goal seeking analysis, goal is fixed and you go down to analyse the vari- ables and values, which would help to seek that goal. We work backward from the goal. For example, in our inventory problem you would fix a goal of achieving the cost of holding inventory of an item at the level of Rs. 10,00,000/-. Goal seeking analysis will help you to arrive at values of parameters to attain the inventory level of Rs. 10, 00,000/-. Goal Seeking Analysis: In a goal seeking analysis, you do not fix the goal but you try to achieve a goal of an optimum value arrived at after satisfying all the constraints operating in the problem. In optimisation analysis, you come to know which the critical constraints are, and which are limiting the value of goal. The decision-maker can use this analysis to work on constraints and resources and find ways to improve upon solution to seek highest goal. 10.5 Behavioural Concepts in Decision-making The manager, being a human being, behaves in a peculiar way in a given situation. The response of one manager may not be the same as that of the two other managers, as they differ on the behavioural platform. Even though tools, methods and procedures are evolved, the decision is many a times influenced by personal factors such as behaviour. The managers differ in their approach towards decision-making in the organisation, and, therefore, they can be classified into two categories, viz., the achievement-oriented, i.e., looking for excellence and the task-oriented, i.e., looking for the completion of the task somehow. The achievement-oriented manager will always opt for the best and, therefore, will be enterprising in every aspect of the decision-making. He will endeavour to develop all the possible alternatives. He would be scientific, and therefore, more rational. He would weigh all the pros and cons properly and then conclude. The manager’s personal values will definitely influence ultimately. Some of the managers show a nature of risk avoidance. Their behaviour shows a distinct pattern indicating a conservative ap- proach to decision-making – a path of low risk or no risk. Further, even though decision-making
Organisational behaviour will, therefore, be towards minimizing the risk in decision-making. The trend will be for risk avoidance with available information support. The organisation will vote for a decision which has 90 per cent chance of earning Rs 1 million as against a decision which has 10 per cent chance of earning Rs 10 million. The organisational behaviour in decision-making tends to avoid risk and minimize cost post decision implementation. The methods for dealing with uncertainty are given in Table 10.4. Table 10.4: Methods of Dealing with Uncertainty Method Explanation Example Decide for a limited short period, and make a provision to correct the decision. If the environment is reviewed at short intervals, the uncertainty impact can be reduced providing a chance to correct the previous decision. Purchasing of smaller quantity more frequently. Adopting the policy of enhancement in place replacement by new plants and equipment. Negotiated decision- making with limited liability. To reduce the impact of the risk, the uncertainty is converted to certainty by making decisions binding, though the negotiated contracts. International price agreements, supply assurances and sharing the risks. Organisational Learning The organizational decision-making improves with learning by acquiring an additional knowledge and experience, the training and development, the experience of implementation and so on. Learning provides strength to review the goals and the objectives, and allows to set them more correctly. It also helps to revise and improve the decision rules. The improvements are carried out by adopting the policy of modernisation, rationalisation and the application of the management science. The process brings with small changes in the existing policy and guidelines. Then it slowly comes to the changes in the strategic decision and planning. Further, it revamps the decision rules and also provides a systems approach to decision-making. As the time progresses, the organisation may have a new set of goals and objectives. It may go through a process of rationalisation of goals and objectives across the company. The organisation may take a fresh look at the alternatives, outcomes, implementation strategies, methods, procedures and systems. Adopting such methods, the organisation builds skills and capabilities in the management. It creates the infrastructure to make all the decisions rational, which can be implemented effectively and efficiently, to achieve the objectives. 10.7 MIS and Decision-making
It is necessary to understand the concepts of decision-making as they are relevant to the design of the MIS. The Simon Model provides a conceptual design of the MIS and decision-making, wherein the designer has to design the system in such a way that the problem is identified in precise terms. In the design phase of the model, the designer is to ensure that the system provides models for decision-making. These models should provide for the generation of decision alternatives, test them and pave way for the selection of one of them. In a choice phase, the designer must help to select the criteria to select one alternative amongst the many. The concept of programmed decision-making is the finest tool available to the MIS designer, whereby he can transfer decision-making from a decision-maker to the MIS and still retain the responsibility and accountability with the decision-maker or the manager. The concept of decision- making systems such as the closed and the open systems helps the designer in providing a design flexibility. The closed systems are deterministic and rule based; therefore, the design needs to have limited flexibility, while in an open system, the design should be flexible to cope up with the changes required from time to time. The methods of decision-making can be used directly in the MIS provided the method to be applied has been decided. A number of decision-making problems call for optimisation, and OR models are available which can be made a part of the system. The optimisation models are static and dynamic, and both can be used in the MIS. The concepts of the organisational and behavioural aspects of decision-making provide an insight to the designer to handle the organisational culture and the constraints in the MIS. The concepts of the rationality of a business decision, the risk averseness of the managers and the tendency to avoid an uncertainty, makes the designer conscious about the human limitations, and prompts him to provide a support in the MIS to handle these limitations. The decision-making concepts are significant in MIS design. The significance arises out of the complexity of decision-making, the human factors in decision-making, the organisational and behavioural aspects and the uncertain environments. Self Assessment Questions
- ___________creates confidence in decision-making model by painting a picture of outcomes under different conditions.
- In______________, one analyses the problem in exactly reverse way as that of ‘what if analysis’ or sensitivity analysis.
- In a goal seeking analysis, one does not _____________ but tries to achieve a goal of an optimum value arrived at after satisfying all the constraints operating in the problem.
- In _____________ one comes to know which are critical constraints and which are limiting the value of goal.
- How does Simon Herbert differentiate among the types of rationality?
- Describe Herbert Simon’s model of a decision- making process.
- Explain the types of Decision-making Systems.
- Distinguish between ‘closed decision-making system’ and ‘open decision-making system’.
- What is ‘What if analysis’?
- Why do two people disagree on the choice of a decision? Is it then better to resort to programmable decision-making?
- Why is more time spent in problem analysis and problem definition as compared to the time spent on decision analysis? 10.10 Answers Answers to Self Assessment Questions
- Programmed decision-making
- Closed-decision-making situation
- Decision tree
- Payoff analysis
- Utility
- What if analysis
- Goal seeking analysis
- Fix the goal
- Optimisation analysis
- Different goals Answers to Terminal Questions
- Refer to 10.
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- Refer to 10. Copyright © 2009 SMU Powered by Sikkim Manipal University .
MB0047-Unit-11-MIS – Support Models and
Knowledge Management
Unit-11-MIS – Support Models and Knowledge Management Structure: 11.1 Introduction Objectives 11.2 Philosophy of Modelling 11.3 DSS: Deterministic Systems DSS Models Forecasting: Time Series Analysis and Exponential Smoothing 11.4 Market Research Methods 11.5 Ratio Analysis for Financial Assessment 11.6 Management Science Models Budgeting Models
The Decision Support System helps in making a decision and also in its performance evaluation. These systems can be used to validate the decision by performing sensitivity analysis on various parameters of the problem. In this unit, you will learn about the concepts and philosophy of DSS, the types of DSS and their relevancy in the design of MIS. You will also learn various DSS models. You will also learn about the factors contributing to the knowledge building process. Learning Objectives After studying this unit, you will be able to: · Explain the concept and philosophy of Decision Support Systems. · Explain various types of DSS. · Describe Operations Research Models. · Explain the concept of Knowledge and Knowledge Management. · Explain the benefits of Decision Support Systems for an organisation. 11.2 Philosophy of Modelling In decision-making, we know that there are two types of decisions –Programmable and Non- programmable. The programmable decision, because of its rule base structure, can be computerized, as inputs, processing methodology, analysis and choice of decision-making are pre- determined. Decision Support Systems can be built around the rule in case of programmable decision situation. While in non-programmable decisions, the rules are not fixed or pre-determined, and requires every time the user to go through the decision-making cycle as indicated in the Herbert Simon Model. The Decision Support System refers to a class of system which support in the process of decision- making but does not always give a decision itself. The nature of the decision is such that the decision-makers need a variety of information, when same or similar types of decisions are to be made. These needs are such that wider additional demands on information would be made, the moment a piece of information is received. The calls on the information are continuously made till the decision-maker is fully satisfied. The reason for changing the demands is also because the methods of decision-making undergo a change from time to time. The quantum and the scope of information also changes depending upon the risk in decision-making. The higher the risk, more information may be sought. 11.3 DSS: Deterministic Systems
