PRESCRIPTIVE & DESCRIPTIVE MODEL

OF

DECISION MAKING

Prescriptive Models

A prescriptive or normative model of decision making is one who automatically selects the best option.
Developed by: Operational researchers, economists and management scientists.

Example: cost/profit/volume analysis, statistical decision theory, investment appraisal techniques etc

Descriptive Model

Developed by: behavioral scientists. To explain actual behavior in decision making. Decision makers simplify the factors involved and, because of practical difficulties, are prepared to accept a satisfactory solution rather than attempt to find the theoretical optimum.

Overview

Descriptive: What people actually do, or have done. Prescriptive: What people should and can do.
Normative: What people should do (in theory).

Model of Decision Making

The Rational Model

Assume Perfect Knowledge of all factors surrounding the decision. It suits to operational and tactical level of management where the factors are more clear cut and there is less uncertainty. More structured and the formal MIS.

Characteristics of Rational Decision

Making
Single clear objective Objective can be stated in numeric or financial terms

All outcome and alternatives are known

Alternative are expressed in term of objective

Alternative are ranked

Best is chosen

Decision Tree

Often decision are not take in separation but as a part of sequence. In such circumstances the analysis can usefully be presented in form of decision tree. Decision Tree are a pictorial way of showing a sequence of inter-related decision and outcomes. Decision Points are represented by Square nodes.

Cont

Example

Cont

The Decision nodes are points where a choice exists between alternatives and a managerial decision is made based on estimation and calculation of the return expected.
The outcome nodes are points where the events depend on probabilities.

Satisficing or Bounded Rationality

It is a descriptive and behavioral model of decision making which takes account of limitation of knowledge and behavior. Decision makers are not fully aware of all the alternatives available nor is there always single, clear cut objective.

They make only a limited search to discover a few satisfactory alternatives and finally make a decision which satisfies their aspirations, hence the term satisficing.

Cont

Bounded rationality means that decision making is rational but within the imperfection of information and the decision makers availability to perceive alternatives and outcomes.
Decision making is based on judgment and rules of thumb.

The Formal MIS is used for only background information to create alternative rather than mechanical decision rules and procedures.

Consensus Decision Making

The agreement of individuals and groups in position of power is necessary for the effective implementation of decision. Used in Government and many large firm. Discussion and argument is exists throughout the organization until there is agreement. It include more people so that there is more chances of the real problem being identified.

Reviewing the Decision Making Process

Example

Identification of a problem: My sales Reps need new computers! Identification of Decision Criteria: Memory and Storage, Display Quality, Bettry Life, Warranty, Carrying weight Allocation of weights to criteria: Memory and Storage-10, Display Quality-8, Better Life -6,Warranty -4, Carrying weight-3 Development of alternatives: Toshiba, HP, Soni Vaio, Qosmio, Gateway, Apple iBook, Lenovo, Dell Analyzing of alternatives: Toshiba, HP, Soni Vaio, Qosmio, Gateway, Apple iBook, Lenovo, Dell Selection of alternatives: Toshiba, HP, Soni Vaio, Qosmio, Gateway, Apple iBook, Lenovo, Dell Implementation of alternatives: Toshiba! Evaluation of decision alternatives

Decision Making and MIS Support

MANAGEMENT LEVEL DECISION TYPES INFORMATION SYSTEM SUPPORT

Strategic Management

Executive Information Systems

Tactical Management

Transaction Processing Automatic

Expert System Decision Support Systems

Operational Management

Decision-making OR and Accounting Models