The objective of the course is to provide an insight in to the skills necessary for collecting and analysis of information with a view to arriving at optimal decisions in various functional areas management.

 

1.       Decision making : concepts of decision making with reference to authority and responsibility, Need for decision making, process of decision making, Types of decisions with reference to levels of organizations.

2.       Behavioral aspects in decision making : Broad frame work for decisions, open and closed models of decision making systems approach to decision making. Utility of decision support systems.

3.       Systematic problem analysis and decision making

4.       Criteria for decision making under conditions of risk and uncertainty, Applications of Bay’s theorem in decision making.

5.       Sequential decision making - Decision tree analysis.

6.       Theory of Utility : Comparison of the concepts of monetary value and utility, used of utility function in decision making .

7.       game theory : competitive strategies, game theory concepts, zero and non zero sum games, evaluation of two person zero sum games by different methods. Application of game theory concepts to management collective bargaining & other negotiating  situations.

8.       Markov’s analysis Brand switching - Loyalty  - Determination of market share & market share in equilibrium condition.

9.       Simulation : application  of simulation to management problems with emphasis on problem solving

10.    exercises in decision skills through case analysis covering various functional areas of management.

 

Note : the question paper for this course will contain a case to be analyzed by the students which will carry a minimum of 10 marks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Every thing is not good simply because it is old nor every they should not be condemned because it is new. The fool is led by the judgment of others. But the wise resort to the one or the other offer proper enquiry and examination. ( Mahakavi Kalidasa )

 

 

 

 

 

 

Decision Making

Some basic ideas

the decision process is described as a series of steps starting with information output and analysis and culminating in resolution, namely a selection from  several available alternatives. Various aspects of rationality in decision making are reviewed and the concept of personalistic versus imperonalistic choice is discussed. It is suggested that with time management control trends to involve an increasing number of formal procedures and thereby to became more impersonalistic in character.

 

Most books of management do not contain a precise and specific definition of “Decision”

 

Fishburn rights - solving the decision model consists of finding a strategy for action, the expected relative value of which is atleast a great as the expected relative value of any other strategy in a specified test. The prescription criterion of a strategy will be maximization of the decision makers total expected relative value.

 

Ofstad - says  - to say that a person has made a decision may mean (1) he as started a series of behavioral reactions in favor of something, or it may mean (2) that he has made up his mind to do a certain action, which he has, no doubts that he ought to do. But perhaps the mostcommon use of the term is this - to make decision mean (3) to make a judgment regarding what one ought to do in a certain situation after having deliberated on some alternative courses of action.

 

Quoting from Churchman, the manager is the man who decides among the alternative choices. He must decide which choice, he believes, will leas to a certain desired objective or set of objectives “ accordingly we say that the decision maker has several choices of alternatives, and the choice involves a comparison of the different alternatives and the evaluation of their outcomes.

 

The basic elements of a decision problem cab be formalized mathematically as shown below :

 

A is the set of action space which consists of all the possible actions           available to the decision maker.

 

A set       called the parameter space consisting of all possible states of nature       are and only of which will occur. This true state of nature that is likely to occur is not known to the decision maker at the time he has to choose an action.

 

   Is a function called the loss function which has domain         ( the set of all ordered pains                                    ) the pains    (     ) are called the consequences of talking action a when      is the true state of nature.

 

 

 

 

Consider a Random variable X whose possible realizations are           the sample space and whose distribution has probability density function belonging to the family.

 

Consider the set d called the decision space to consist of all mappings  d   from X to A.

 

The close mathematical statements can be interpreted as follows : at the time the decision maker chooses his actions, he is not aware of the true state of nature and also not aware of the actual consequence of his action. If he chooses       the actual consequences  (     ) is not known since       is unknown. The decision maker however knows the loss that would result from each of the possible consequences (  )                    on his choosing           and the consequence turning  and to be        . the consequence of “Loss” may thought out to gain in which case the numerical value attached to       would be negative we can also adopt a utility function as unexpected consequence.

 

To help modify or reduce this uncertainty about       the decision maker acquires information in the form of an observation of a random variable X whose probability distribution involves     . knowing that X=x and knowing the function           the decision maker can extract information about    which can guide him in the choice of a.  The decisional choice thus involves choosing an           on the basis of having the observation         for which the   is equivalent to choosing a decision function        and once chosen        specifies the action to be taken for all possible X=x.  The possibility of observing a random variable x with the         provides the decision maker with same limited information about the state of nature. This choice of a decision can thus be seen as a strategy for playing the game.

 

In the course of such choice, we have to use several parameter values or estimates and at each state our         has to be tested for maximizing the value of the long function which plays are important role in the decision theory.

 

The following diagram helps us in the understanding and perceiving the dimension of the decision problem

 

 

 

 

 

 

 

 

 

 

 

 

 

thus the dimension of the problem space are degrees of uncertainty, time dependence, and complexity. Degree of uncertainty ranges from the deterministic situations where all the variable are known, to the highly probabilistic situations, where little information is available about any problem variables, the time dependence can range from static to dynamic. Complexity is measured in terms of the number of variables each corner of the problem space corresponds to certain mathematical models ranging from the application of elementary calculus aged about 300 years upto the most modern and latest linear optimization techniques aged about 30 years, spread over from corner, though come 7, such corner 8 of the diagram is the most caplex corner involving uncertainty dynamism and complexity to some degree or other. This  indicates that these three elements are indispensable for a meaningful analysis of the problem problems like business            acquisitions electrical power systems Markov processors etc.

 

What is said about could not be summarized in the form of a flow chart indicating the decision process

 

information inptut

 

analysis

 

performance measures

 

model

 

strategies

 

prediction of outcomes

 

choice criteria

 

decision

 

In the above figure the decision progress in depicted as a chain of sequential activities for the sake of simplicity. But in some cases each step in the decision process has its inputs, the outcome of activities in the proceeding steps and in turn its provides and input to the next step.  The figure no 2 given below describes in schematic form the decision process with feedback.

 

Information

 

Analysis

 

Performance measures

 

Model

 

 

Model building is very singular to proposing a hypothesis consisting of several interrelationships between variables in the system., it shares the cause and effect. It is designed to provide a predictive tool. The decision maker can proceed to manipulate the variables under his control is order achieve same desired objective. In the course of this process, every hypothesis has to be tested, san          and experimented. During the process, questions may arise as to the validity of the information the adequacy of the analysis the meaning of performance measures the need for collecting fresh evidence to test the model etc. This recurring procedure permeates throughout the decision process.

 

Information input

 

the decision process starts with information input. The processing of information preceding  this input in quite distent from the subsequent analysis that makes the actual decision process. The activities involving in the data pr information processing are quite distinct and consist of (1) data and information storage. (2) data handling and (3) presentation of information.

 

With this information duly processed and supplied as input to the decision maker,    does he use its and have does he analyze it the decision maker has to at first check the data for consistency and than tries to analyze the given information in a certain manner that permits him and his associated to comprehend the full input of the information. This is called the data handling and data sorting.

 

The decision marker also dis        the inconsistable and less significant data. He makes all calculates and manipulates the data to enable him to present the results in a form most convenient and useful for the model  (       )

 

 

All these activities like, data checking, elimination of inconsistent data, arrangement of data, discrimination between significant data and data less significant calculating  the new sets of data, and finally summarizing the results are also part of the decision process. This activities are presents even          the decision process and also          during the course of the decision process.

Decision making assistance

these actions which are present before the predecision making process. Go in the name of assistance to decision making.

 

Effective decision making assistance consists of mostly helpline. Decision makes understand then decisional requirements and develop the insight necessary for action. Such assistance must recognize and breakthrough the ignorance at the source of decision making. It is said that a good decision does not guarantee a good outcome. It man generate a bad outcome. But a good decision taken by the decision maker after undergoing the          decision making process results in self confidence and creates hob satisfaction, through the outcome is bad.

 

Good decision

 

good outcome                                                      Bad outcome

 

Bad decision

 

But a bad decision, they its ends up in a good outcome. Its must be         due to the lucky star of this decision maker. At this stage, we wish to define and explain certain factors which permade and permeate thought the decision and process. Any informative procession system designed specifically to address the information needs of the decision maker is called the Decisional support system . which helps the decision maker to take a good decision.

Rationality

 

The decision process has to be properly weighed or analyzed through all its reunification’s subject  to the rational behavior of the decision maker. This rational behavior of the decision maker can be identified by the decision maker’s choice between alternatives strictly in accendance with certain specified criterion . This means that the final decision taken is taken in conformity of what is expected out of the decision process as a consequational results. Without the least deviation from that expectation. If its deviates them it would be irrational. This rationality may also           to which is called the monitoring of the decision of the decision maker.

 

Sometimes its so happens that the decision of the decision maker may not conform to the official criterion     and have its is regarded as irrational. But if the decision of the design maker conforms to some other alternative process and  criterion  which stands to reason and logic. Its may still he regarded rational. Though its may not conform to the official procedure and certain. On the otherhand if the decision maker chooses among the alternatives based on his imagination his behavior could be easily branded as irrational.

 

 

Choice criterion :

 

                we can identify from distinct situation where the decision makers parts to the predetermination of the choice criterion or where he is not a party to such predetermination of the choice criterion. If a makes resolution conforming to the official choice criterion predetermined by the organization, the decision maker is consider to be perfectly rational though he personally disapproves that resolution. Such resolution officially rational but personally irrational. On the otherhand if the resolution of the decision maker conforms to his personal criterion and does not conform to the official criterion, the resolution personally rational but officially considered as irrational. This leads to a conflict between the decision maker and the organisation. In this context we have to                    that the decision model building and the determination of the choice criterion or the two          stages where the degree of initiative and freedom allowed to the decision makers reflects and permeates into the resolution making its either formal, informal or personalistic or impersonalistic.

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

there are situations where decisions and actions are taken in a random fashion in the absence of any decisional coice directives, an individual emerges and tries to regularised these actions and mould them into a systematic and consistants apttern. If this procecure is not formally approved by the organisation, it may be characterised as personalistic nad informal. If this procedure is formally approved and adopted by the organisation it tends to be independent of the individual and its becomes impersonlistic and formal.

 

Maximization of Utility :

 

                a decision maker putting in judgement of a rsolution between alternatives has to show his rational behaviour which is sometikes and more generally identified with maximisation of the utility according to Von  Neumann and Morgesterin. There is an implication that rationality if regarded as function of hte method used to arrive at the optimum solution which produces maximum utility to the organisation. However many authors say that rationality is a relative, concept because what is utility to one individual may be disutility to another individual. In a personalistic type of  control the goals, the utilities the criterion of chooice between alternatives and the final result of the decision process may be different for different individuals.

 

Freedom of choice

 

this means this ability of and individual to make a choice from a set of available alternatives. Probably it includes the exixtence of free will in relation to certain ethical criteria. It is reflection of the mental perception of the decision maker. However freedom of choice is amatter of degrees and individual variations. In the decision process, the personalistic control does involve free choice whereas impersonalistic control does not exhibit the existence of free will and free choice and the part ofthe decision maker.

 

Decision , situation , and Control

 

A decision situtation refers to the context which the decision relates. It may me genuine or unique. The decision situation involves anumber of constrains which may be hard and                   or some may be soft,  and flexible. A situation in which a decision is made may also involve the decision maker’s circumstance, his prefances and perceptions, his attitudes etc, relating to the decision. For example while buying a car decision maker may place higher value on safety rather then fuel consumption as he may used the car on rough roads --- such are the elements decision situations.

 

Decision Domain

 

Decision domain is the area of the space containing the various types of actions alternatives like the business, medical military and defence, and these major areas on domains may be subdivided in to sub areas or such domains, or ever sub-sub-domains. Which is considered as the boundry action space relating to the problem   before the decision maker.

In a way the decision domain represents the area of life to which the decision theory is applied. If may we the medical field, or it may be defence or the war field, or commercial marker situation. Of late the decision theory is being applied to social process too. Decision analysis, a logical procedure for balancing the many uncertain complex, and dynamic factors that charactise a decision, offers promise of new and valuable precedure for social decisions. The decision analyst creates an extra personal explicit model of the decision under consideration. Information on possible alternatives, uncertainities relationiships or preferences can come from different groups and still be represented within the same model. Imaging the society with decentralised decision making where distinct bodies are responsible for creating social alternatives assessing the problities of various outcomes for each alternative and setting the preferences of the society. Once the alternatives information and preferances were established, society would make decision make using only the principle of logic. On the other adversory proceedings encourage people to advocate extremes rather than a careful balance of several considerations.

 

Good decision making is just commensence. The difficulty is that we don not know what exactly the commansense is. The exact content of commensence is not visible nor understood until and unless we pass through the decision making process. Thus a good decision is the social causequence of “what youcan do”  “what you know” and “what you want” which you can do are the alternatives available to you. Finding alternatives is the most creative part of the decision process. “What you know” means the knowledgte of relationships and the magnitude, information you bring to the decision process. “What you want” refers sto the preferences you have for the various consequences of the decision extending in to the future.

 

Decision alternatives “what you can do”

Decision alternatives are the different startegic course of actions lying within the bounded action space, persumably are of these actions alternatives is expected to give the maximum utility to the decision maker subject to his sate of preference. These starteic actions are evaluated as to their consequences or out comes to help the decision maker exercise his choice.

 

The decision maker’s preferences impose a complete transitive ordereing on th eoutcomes pertinent to his deision. As per the orderability axion the decision maker can consistantly and completely rank all possible outcomed expected to arise from the resolution. This requires the decision maker to develop a well defined set of outcomes to consider.

 

Knowledge “What You Know”

 

Knowledge of information that has a bearing on the decision problem generally in th form of date (collected sorted and presented) this takes the form of decision making support system. Which assist the decision making process. This knowledge related to the decision problem, decision domain and the context, the environment enveloping the whole area of the action space, decision variables, parameters to be considered, the natural consequences and outcomes. This is in a way decision making with the help of perfect information.

 

Sometimes we do encounter certain unforseen decision problems where we cannot have fill information. Nor even partial information. In other words decision making process may be clouded with ingnorance. This ignorance can be categorised as frames.

 

Contionationel ingorance : it is the ingorance relating to the final answer which we are not able to compute though we are able to perceive the same in principle. Appropriete model and solution mehtod are available but cannot comput answer, very large LPP is is an example.

 

Watsonian Ignorance : this regers to a situation where we have a complete model of the problem but lack an effective solution method.

 

Gordian ignorance : we do not have a complete model of th problem at havd. Hence the problem in snoe easily solvable. Regardness of the availability of an effective solution method, th sloution is not attainable due to trediainoal and sentimental difficulties.

 

Ptolomic ignorance :

 

                Ptolomic ingorance denotes a situation where, despite having a model of the problem at had and perbaps also a solution mothod, the model is highly, inadequate for the problem at hand and developing an actual solution is at best                                             awkward.

 

Magical ingonrand : it isa situation where the decision problem model contains an essential element for which we have no effective formalisation.

 

Dark Ignorance : is a situation where we have no model of a given situation. We are completely dark about the subject matter. It is utter ingnorance we aware of the issues but we have no model sutable for the situation.

 

Fundameltal Ignorance : is a situation where we not even aware of a given situation, let alone the model of wuch an unknown situation. This is deepest level of ingorance which is fundamental in character.

 

In view of the                       situations of ignorance the decision maker must obtain full and effective knowledge in order to get over the difficulties arrising out of ignorance and further to enable him to resove the problem situation. This knowledge may ralate to the domain preference, probalistic values data user and process - all relating to the problem situation and have bearing on the decision process.

 

“What you want” - Prefenences are just the expression of the choices of the decision by the decision maker. The decision maker twice to choose, out of the various outcomes, that particular set of outcomes aought to be that result of the decision or decisive action taken by the decision maker.

 

The decision maker has his preferences. Preference of value. It is usual to asign save monetory value to each possible outcome. Because in business decision, the profit motive is predominantly significant. The need for monitory value as a precedent for monetoty allocation applies even if the outcome involves the loss of limb of life. In social problems, monetory valuies may have to be assigned to the various outcomes. The decision makers has to expenxes time preference. Which is usually deskcribed as gred impatience trade off. It is the problem of selecting between the     outcomes of the future outcomes like the investement of capital goods or consumer goods.

 

The decision maker has to express his risk preference. This is the most challenging job forthe decision maker. Generally the decision makers are averse to risk but the risk is acceepted only if the expected outcome is substancially very large. This risk preferance attaches importance to the concept of probability.

 

Finally we have to consider the preferance relativng to utility function of the decision maker. The decision maker must be will ing to provide transitive rank ordering of the monetory value of the various outcomes. The utility function has two important properties. First the utility of any decision is the expected utility of its money values. Second the decision maker prefers one decision to another decision these means that the tuility of the outcomes of the prefered decision are greater or maximum.

 

However there is one important case wher the risk preference need not be measured atall. It is th case where choice between two alternatives is very clear to a rational man regardless of his preference. Such a situation stochastic dominance. If a particular outcome stochastically dominates all others, then it will be prefered by the individual decision maker regardless if his attitude towards risk. There is no need to use utility function.

 

Decision makers often have to choose between monetory values that are not only uncertain but distributed overtime. In such cases, risk preference and time preference must be jointly encoded. This joint time - risk preference concept admits purposedful solutions to many problems. This comcept reduces any time sheam of values to a presents values using the time preference measure (disconting factor0 and then applying the utility function to fin out which of the present values is most desirable probability distribution of  the time stream of values over an uncertain period is genrally considered.

 

Decision analysis has emerged from theory to practice to form a discipline for balancing the many factors that bear upon a decision. The special features of theis discipline ar the treatment of, uncertainity through subjective probability and of attitutde towards risk through utility theory. Fixing the structural relationship occupies the pivotal position. The process can be visualised through a graphical presentation. These features are combined with other preference measures to produce a useful conceeptional model for analysing the decisions. The decision analysis cycle with its three pharses deterministic, preoblistic and informational determines the importance of the variables involved in the deterministic probabilistic and economic environments.

 

The ability to assign an economic value to the complete or partial elimination of uncertinity through experimentation is a particularly important charestaistic of this decision process. Recent applications in business and government indicate the increased. Logical scope afforded by the decision analysios. This offers new opportuniteis of rationality to those who wnat it. The various aspects of rationality in decision making are involved in the concept of personalistic versus impersonalistic choice. This suggest that with the progress of time, managements control systems tend to involve an increasing number of formal procedures and thereby trnd to become more inpersonalistic in character.

 

Social decision analysis :

 In a diverse free society mechanisums which are logical, efficient and timely are difficult to be adapted. The diverse factors of the society argue over alternatives rather than over their values or probabilities. Adverse proceedings encourage people to advocate extremes rather than a care ful balance of several considerations.

 

Decision analysis, a logical procedure for balancing the many uncertain complex, and dynamic factors that characterised a decision, offers promise of a new and valuable proceedure for social decisions. Information on possible alternatives, uncertainities relationships or preferences flows fram different groups andstill be represented within the same decision mode.

 

The decision analysis creates an extrapersonal explicity model of the decision under consideration with all the implication thereof clearly apparent to all concerned. In a free society where decisiion making is decenteralized where distent bodies are responsible for creating social alternatives, assessing the probabilities of the various outcomes for each alternatives and setting the preferences of the society. Once the alternatives, information and preferences are established, society would make the decision using the principles of logic.

 

Most social decision are made as a result of legislative process. The legislatora primarily trained as lawyers pursue than work through hearings intended to clasify the nature of th decision. However these hearing generally become adversary processess because the proponents of  various alternatives are motivated mainly by the desire to see their favourate alternative selected rather than by a desire to illuminate the issue. Possibilities are confused with outcomes. Bad outcomes are extensively discussd by opporents with the puopose of making than probabitily appear higher.

 

This requires legislators to create alternatives examine that implications and value the outcomes for the society. Supposing these functions are carried out bya a group, that group should be proberly trained to perform them with the help of properly structured decision models.

 

One body people would be responsible for the creation of alternatives for solving socities problems. Anybody can suggest alternatives to this body for consideration. The result of deliberatins. Would be set of certified alternatives accepted and approved for dealing with the social problems.

 

Another body would be respobsible for assessing the probabilities of various outcomes for each alternative. This requires the structural knowledge available on the alternatives and assesing probilities on uncertainities. Theis body is assisted by decisiion analysts and subject experts the result and the deliberations of the\is body is the certified probability distribution on the outcomes of any alternative.

 

The third body would be concerned with identifying the preferences of the society. This body is very much influenced by the desires of all citizens. Voting procedures could be developed for determining citizen preference. However the values of society would change slowely and every change would require majority support outcomes extending over many years woudl require a setting social time preference based strongly on inter generational considerations. Finally the work of this third body ends up with the certification of the preferences to be used in the evaluation of the outcomes.

 

Once the certified alternitives, information and preferences are established, society would make the decision using the principles of logic. If the resulting decision appears to be incorrect, it will be changed by a change in the certified inputs. It would he possible to have different certifying bodies for different areas of social dicision making.

 

Bibliography.

 

 

 

 

 

 

 

 

Chapter 2

Decision making in

 

Recent development in science and technology and business have channilesied and systematically monitored the challanges faced by the managements in general. Most managements separate from their owners, have to face the challenging Job of making decisions. Which is a contineous function of the management.

 

Every   Management  has got to make decisions, ofcourse according to the levels.

 The top management has to decide on the various planning issues and then policy matters.  T he 

middle  managers has to decide on the various problems relating to the organisation and implementation of their plans and policies.    The top management has to decide and the supervision management to get the

required results.

 

India today management, basically , the problem of allocation of resources,         their destinations, folr the resources, and the decisions have to be  taken for the determination of the ir  plans and policies.  DECISIONS  HAVE TO BE TAKEN IN THE AREA OF THE  PRODUCTION AS TO THEW  production to be produces, quantity to be produced.  Levelinventory to be manufactured etc.  Decidsions have to be taken in marketing as regards  brand loyalty, market share, pricing of the producection etc.,.   In finance, decisions have to be taken regarding the variouis investments opportunities within  and        the organisation.

 

OBJECTIVES OF DECISIONS;

 

As can be seen the various managerial decisions either by the top management in planning or policy determination, or in the areaa of production, marketying, finance etc. -- are all quantifiable problems.  Hence these problems require quantitative analysis relating to the  decision problem.  Which  again requires  proper measurement of the various                supposed to stem from the  various alternaztives, requiring  comparison.   All  this requiring a rational approach to the decision problem.

       

For some time  in the past, rationality has  been defined as the ability to select means to achieve goals or objectives.  This definition  of rationality led to the interpretation of  every thing in terms of the purpose its fulfilles.  But rationality cannpot  just be identified with purposeful selection of means to achieve the desired ends.  There are many human objectives which can be identified with same equilibriumstates, which if disturbed, will produce compensatgory reactions and finally sttels down with a near equilibrium states.  So everytime there is  a disturbanvce, a near equilibrium state would automatically be evolved and this process  lacks rationality.  Hencer we can not say that existanse   of rationality  does not generate the actual existance of  an underlying rational choice system.

 

It  is not  therefor sure that all business  decisions carried be rationally achieved because the selection of the mean is rational.  But if the mamagement understands the nature   of the system, it can then probably provide rational policy decisions to imp[rove the performance of the system.  Probably it may be necessary to examine thr objectives to recognise the rationaliuty existing in these objectives.

 

Organisation objectyives coexist with the individual objectives,  thoughthey are not the same, they interact with each other at different levels of the organisation, and produce certain results which may not be rational for the organisation.  Thus in many cases, conflictg exists between  these two interested groups.  There is conflict between individual roles.  There is conflict between the group objecrtives.  There is conflict between the individual s role and group objectives.

 

When conflict exists between objectives, and if the are independent the management could to achieve all or either of the goals in an optimum manner. But if they are dependent, the problem of optiminsation because a problem of sub-optimimisation because it ends with a lower level of achievement of a particular goal subject to the permissible level offered by their  goals, and which the first goal is dependents.

 

Mostly, organisations like individuals have their objectives. Nobody can fixed up and develop and any sigle objectives and therby they work with multiple objectives which relate to different areas of activities. Peter drucker recongise eight such organisational objectives like market standing, innovations, productivity, physical and financial resources, profitability, performance and development, waker performance, and attitute, public responsibility. If the organisation trice to develop any particular objective to the exclusion of other, thr organisation will ultimetly face undesirable consequences. If therefore gives rise to the concept of sub-optimisation.

 

The various objectives of an organisation can not be measured an the same scale, and it is thereby very difficult to evaluate tem with reference to a single utility measure. It is not that ease to express all the organisational objectives in terms of money. Pareto suggested that thr organisation should, try to achieve a condition by which the can increase the utility of any objective with out decreasing the utility of any ofhter objective. (Paretian optimality). This paretian optimality arrises because there is no common standard and measure of value with respect to the various objectives.

 

Simon’s idea of bounded reationality holds for the organisations. Any organisational entity is a funcatiioning whole. It is necessary to assume that the action taken in to one area will not have any significatn effect in another area.  Every aspect of the problem cannot be precisely considered because of limitation of human rationality. The availability of information needed to solve a decision problem as itself a problem. The cost of collecting, sorting, analysing and synthesing information operates as an immediate constraint. Sometimes excess of information more stunning and baffling. Information in                          is as dangerous as information scarecity.  In many cases people try to settle for small pices of information and blend it with the personal information, belief, perception and judgement. In other words, organisations try to minimise to opportunity costs of the enterprise, within the rrame work of hte bounded, rationality which ultimately leads to organisation to acheve overall optimility.

 

Structure of decision :

 

Out of multiple objectives of an organisations, some objectives are fully achieved or partly achieved or not at all achieved. Thus the achievements is in degrees of difference. Which has to he determined and observed as a basis of further information.

 

While dealing with decision problem we can across various possible startegies available to us to enable us to achieve one are more objectives however how far we would achieve the objedtrive depends on the state of nature that is likely to exits. The selection of startegy and the likely occurance of a particular state of nature would result in a certain outcome for which we have to assign certain monitory values as a meassure of utility this is called pay off measure.

 

This pay of measure varies from person to person according individual character mentral perception and the information available to him and lastly his own past experience. There is no common pay of measure for  all managements and even within any one management group, among individual persons of the group the pay of measure based on the concept of utility is thus a subjective cone\cepot of these subjective utilities always deffer between person to person despite trhe indentical set of enteral circumstances and envirnonment,.

 

The manage belives that the various outcomes arrising from different states of nature in the selection of a specific startegy, are futrue probable events. The probabilty of these events in viewed by subjectimists and the objectrivists in different angles and the objectionists maintain that  these probabilities must relate to long-run frequencies of occurrence. Only the events repeated in the long run or governed by probabilities the subjectivist maintains that the probabilities measure the degrees of belief in the liklihood of occerence of a given outcome. Thus, for the subjectivist the probabilitist represents the subjective appraisal of the nature of the reality whereas for the objectivist the probability is an actually observable fact which might later constitute a basis for the establishment a rational degree of belief. Anyway the probabilities of the various outcomes are taken into consideration to calculate the values assignalbel to the various outcome and sum of all those assigned values of the various outcomes is called the expected value. This expected value concept is mathematical in its nature and is called mathematical exceptation.

 

Ranking

 

frequently the managemnts trives to rank the possible outcomes in the order of their utility to the manufacturer. The outcome with the most utility first or the outcome with the least utility last. Ranking implies dim