The Decision Making

Philosophic, scientific, logical, and decision making theories are applied within systems and organizations in order to reach the optimal result, However, those technics are effective, they do not always bring us to the solution, what they are significantly helpful for is giving us an overview on the problem and leading us to the probable efficient solutions.

When the conditions below occur, decision making is required,

1- The decision-maker is aware of a problem.

2- There is pressure of sorting the problem.

3- There are multiple appropriate choices.

4- There is uncertainty in the probable choices

The Basic Concepts of Decision-Making

Making a Decision: Life is full of choices. Some are easy, such as what to have for dinner (cheeseburger thank you), and others, more serious, like, for instance, choosing a career. Regardless of how important a decision is, good decision skills are useful in life,

Decision maker: The person or people who make a choice out of multiple options and take responsibility for consequences that will occur based on the decision

Choices/ Options: Different actions that the decision-maker will define

Event: It reflects the different situations of the environment in which the decision problem arises.

Result: The consequences that will occur based on the choice of decision-maker.

Categorizing Decision Cases:

Decision Problems are examined under three categories which is based on information the decision-maker has about how might the event occur.

1- Decisions making under certainty

In this scenario, the person in charge of making the decision knows for sure the consequence of each alternative, strategy or course of action to be taken. In these circumstances, it is possible to foresee (if not control) the facts and the results. Thanks to this information, the decision-making process will be relatively simple: the one that maximizes utility and responds better to the objectives set will be chosen.

2- Decisions making under uncertainty

In this case, each course of action has several possible consequences and the person in charge of making the decision does not know the probability of each of them. It is therefore a scenario poor in information, as opposed to the previous case. The decision is complicated because past experiences do not make it possible to predict the future and there are many uncontrollable variables.

3- Decisions making under Risk:

This scenario presents an intermediate situation between the two previous ones: each alternative, strategy or course of action has several possible consequences, but the person in charge of making the decision knows the probability of each of them. Although the choice will not be as easy as in the case of decisions under certainty, it will be possible to apply a decision-making model that facilitates it.

Decisions Making Under Uncertainties

When we happen to make critical decisions, we might come across uncertainties that will affect the decisions making process, Uncertain information cause increasing the cost of data, The information we have and the amount of information we have are the significant base of the decision making process. In order to examine a case of decisions making under uncertainties first we need to create a decision, then the decisions maker will make a choice among the options, After the decision-maker has made a choice, the event that may happen will reveal on the matrix, the decision-maker will come to the result.

In this chapter, we will be seeing Maximax(the best of the best outcomes ), Maximin (the best of the worst outcomes ), Minimax(the least regret ), Laplace Criterion, and Hurwicz Criterion.

Example 1.1

A book store needs to determine daily how many books need to be ordered, the cost of each book €20 and the selling price is €25. The Demand for the books is 6-10 in a day and the book store can not get the refund for the books that are not sold.

In this example, events are the demand of books let’s demonstrate the events group, S=(6,7,8,9,10)

As the demand is between 6 and 10 the book store needs to place the book order based on demand, As we can notice there is also a risk of ordering over than demand, not being able to cover the cost, and having loss.

The books store can only sell 6 or 10 books that mean the book store needs to order 6 or 10 books, the sales occur beyond the control of the decision-maker therefore alternatives are determined by themselves. If the demand is between 6 and 10 having an alternative of ordering 5 or 11 is insignificant.

If the book store purchases X number of books, it will have the cost of € 20*X

If Demand(D) >= Purchase(X), As The book store only can sell whatever amount of books they are holding, they will 25X-20X= 5X amount of fixed profit.

If Demand < Purchase

In this scenario the book store loses money due to it has not happened to sell enough to make profit, therefore we need to determine the equation of the loss that store would have in cases of having less Demand, the amount of purchase and sale the store makes are involving the equation of

I= the amount of books which have been purchased by the store

J= the amount of books which have been sold by the store (Demand )

The equation of the loss = (25*i)-(20*j)

5(5*i-4*j)