Technique To Aid Decision Making
Quantitative tools are the use of mathematical and other scientific means for finding an optimum solution to the problem. Many decisions in the management are taken by quantitative means. These tools assist the manager to analyze problem,s and develop alternative solutions. The following are the common technique to aid decision making or quantitative tools for decision making:
1. Linear Programming
Linear programming is a mathematical tool used for the optimum combination of scarce resources and activities to achieve objectives. Under this tool, mathematical equations are employed to describe the system in the form of the linear relationship between variables. It is extremely useful for maximizing profit and minimizing cost. This model is used in a variety of situations in which numerous activities compete for limited resources.
2. Simulation
Simulation represents a model to solve real-life problems. Under this technique, related variables and their inter-relationship are put into a system to find out the outcomes. This technique is more useful in varying complex situations characterized by diverse constraints and opportunities. It is descriptive rather than a perspective technique. This technique is used in the decision making of a large organization that requires more resources.
3. Payoff Matrix
A payoff matrix is a mathematical tool for decision making. It provides a method of computing outcomes of variable alternatives available to the manager. In the payoff matrix, the probability of different alternatives and their expected values are taken into consideration. probability ranges from zero(0) to one(1). Most of the probabilities that managers use are based on subjective judgment, intuition, and historical data. The decision-maker weighs the expected value of all available alternatives and the highest expected value should be selected.
4. Decision Tree
A decision tree is a graphical tool in which managers can study alternatives solutions available. It is like a payoff matrix because alternatives are evaluated by calculating the expected value. However, it is most appropriate when a number of decisions are to be made in sequence. The following procedure is followed by to solve problems through the decision tree model:
i. Identify the problem by developing a decision tree.
ii. Assign a probability for the outcome of each course of action
iii. Determine the financial result of each outcome.
iv. calculation the net expected value of each outcome
5. Queuing Model
The queuing model is used to analyze the cost of the waiting line. This model is used to optimize the waiting lines in the organizations so that better service can be provided to the customers. There is the possibility of loose of time, unused labor and excessive cost caused by waiting lines. The main objective of the queuing model is to achieve an optimal balance between the cost of increasing service and the amount of time during which individuals, machines or materials must wait for service.
6. Game Theory
Game theory is applied in a competitive environment. It was originally developed to predict the effect of one company’s decision on competitors. This theory intends to predict how competitors will react with various activities that an organization undertakes such as a change in price, promotion, the introduction of new products, etc. Its primary objectives are to develop a rational procedure for selecting a strategy.
7. Accounting Tool
In financial decisions, process accounting tools play important roles. The manager needs to collect, analyze and interpret financial information and data. It is essential to evaluate the financial strength and weakness of the organization before taking a decision. These financial tools consist of break-even analysis, ratio analysis, standard costing, funds flow, and cash flow analysis, budgeting, etc.
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