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Documente Profesional
Documente Cultură
Objectives
Relation to Planning
Types of Decisions
Discussion on Modeling
Types of Decision Making
Decision Making Under Certainty: Linear Programming
Decision Making Under Risk: expected value, decision
trees, queuing theory, and simulation
Decision Making Under Uncertainty: Game Theory
DECISION MAKING
Relation to Planning
Decision Making: Process of making a conscious choice between
2 or more alternatives producing most desirable consequences
(benefits) relative to unwanted consequences (costs).
Decision Making is essential part of Planning
Planning: Decision in advance what to do, how to do, when to
do and who is to do it.
Required also in
Designing and Staffing and Organization
Developing Methods of Motivating Subordinates
Identifying Corrective Actions on Control Process
DECISION MAKING
Models?
DECISION MAKING
Simplest Model
net income = revenue expenses -taxes
DECISION MAKING
5 Steps of Modeling
Real World
1. Formulate Problem
(Define objectives, variables and constraints)
2. Construct a Model (simple but
realistic representation of system)
3. Test the Models Ability
4. Derive a Solution from Model
DECISION MAKING
DECISION MAKING
Alternative N1
N2 Nj Nn
P1
P2 Pj Pn
A1
A2
Ai
.
Am
Outcome
DECISION MAKING
DECISION MAKING
DECISION MAKING
DECISION MAKING
Linear Programming
A desired benefit (profit) expressed as a mathematical
function of several variables. Solution is to find
independent variables giving the maximum benefit
subject to certain limits (to constraints).
DECISION MAKING
Linear Programming
Maximize P=10x+14y
DECISION MAKING
Units of product y
Maximize P=10x+14y
0
0
7
=
P
0
2
6
0
=
5
P
3
=
P P=700
60
50
40
30
20
10
Isoprofit line
10
20 30 40 50 60 70 80
Units of product x
DECISION MAKING
Units of product y
CONSTRAINTS
Product X requires 3 hours of machining and 1 hour assembly per unit
Product Y requires 2 hours of machining and 2 hours of assembly per unit
Constraints expressed mathematically
1. 3x+2y 120 (hours machining time)
2. x + 2y 80 (hours assembly time)
Constraint 1
3x+2y 120
Maximum Profit point
Constraint 2
within constraints
x + 2y 80
60
50
40
30
20
10
P=10x+14y
=20*10+30*14
=620
10
20 30 40 50 60 70 80
Units of product x
P=620
DECISION MAKING
Material Usage
Profit
Wood
Metal
Plastic
Red
10
15
115
Blue
20
16
10
90
Maximize profit
Steps:
Determine decision variables: They are red and blue desks.
Determine objective function: P=115.X1+90.X2
Determine constraint functions and plot them: 10 x1 20 x 2 200
4 x1 16 x 2 128
15 x1 10 x 2 220
x1 0
x2 0
DECISION MAKING
ISOPROFIT LINE
15x1 + 10 x2 = 220
10x1 + 20 x2 = 200
Optimum
XX2 2
P=115.X1+90.X2
P=115.12+90.4
P=1740 Maximum Profit
4x1 + 16 x2 = 128
Feasible
Region
Optimum X1
12
X1
DECISION MAKING
COMPUTER SOLUTION
In reality, we have more than 2 variables (dimensions) not like machining and
assembling only.
Computer solution called Simplex method has been developed to be used with
many variables.
For example, an AT&T model of current and future telephone demand has got
42000 variables taking 4 to 7 computer hours for single run.
For example, one model of the domestic long-distance network has 800000
variables and would take weeks for one solution.
Narendra Karmarkar at AT&T Laboratories has developed a shortcut method *
based on projective geometry that is 50 to 100 times faster.
* The Startling Discovery Bell Labs Kept in Shadows, Business Week, September
21, 1987, pp.69, 72, 76
DECISION MAKING
HOMEWORK 1
You operate a small wooden toy company making two products: alphabet blocks
and wooden trucks. Your profit is $30 per box of blocks and $40 per box of trucks.
Producing a box of blocks requires one hour of woodworking and two hours of
painting; producing a box of trucks takes three hours of woodworking but only one
hour of painting. You employ three woodworkers and two painters, each working
40 hours a week. How many boxes of blocks (B) and trucks (T) should you make
each week to maximize profit? Solve graphically (using millimetric paper) as a
linear program and confirm analytically.
DECISION MAKING
DECISION MAKING
Ei=
j=1
DECISION MAKING Decision Making Under Risk Calculate Expected Values (Ei)
Alternatives
ties
Insure house
Ei=
j=1
(pjOij)
P1 =0.999
$-200
Not Fire
Fire
in your house in your house
P2=0.001
$-200
$-100,000
E1=$-200
E2=0.999*0+0.001*(-100,000)
E2=$-100
DECISION MAKING Decision Making Under Risk Calculate Expected Values (Ei)
Alternative
N1:Dry Hole
P1=0.6
N2 :Small Well
P2=0.3
N3:Big Well
P3=0.1
Expected
Value
A1:Dont Drill
$0
$0
$0
$0
A2:Drill Alone
$-500,000
$300,000
$9,300,000
$720,000
A3:Farm Out
$0
$125,000
$1,250,000
$162,000
E1=0.6*0+0.3*0+ 0.1*0
E2=0.6*(-500,000)+0.3*(300,000)+ 0.1*(9,300,000)
E3=0.6*0+0.3*(125,000)+ 0.1*(1,250,000)
A2 is the solution if you are willing to risk $500,000
$720,000
DECISION MAKING Decision Making Under Risk Calculate Expected Values (Ei)
Decision Trees
Decision
node Ai
In
Chance
node Nj
re
u
s
Do
n
t I
ns
u
No Fire:
(-200)
(0.999)
Fire:
(-200)
(0.001)
(0)
(0.999)
No Fire:
re
Outcome
Probability Expected Value
x
(Oij)
(Pj)
=
Ei
Fire:
(-100,000)
(0.001)
(-199.8)
+
= $-200
(-0.2)
(0)
+
=$-100
(-100)
Servers
Class of People
Or
Objects
Arrivals
?
Time between
arrivals
?
Service time
required for
each arrival
Servers
Arrivals
Served
Servers
Arrivals
Arrivals
Arrivals
Arrivals
Queue
Identify optimum number
of servers needed to reduce
overall cost.
Servers
Arrivals
Arrivals
Arrivals
Served
Approximated by
Probability Distribution
?
Time between
arrivals
?
Service time
required for
each arrival
Activity
Arrivals
Airport
Personnel Office
College
Court System
Hospital
Supermarket
Toll bridge
Toolroom
Landing
Job Interviews
Registration
Trials
Medical Service
Checkout
Taking tolls
Tool issue
Airplanes
Applicants
Students
Cases
Patients
Customers
Vehicles
Machinists
Servers
Runway
Interviewers
Registrars
Judges
Rooms/Doctors
Checkout clerks
Toll takers
Toolroom clerks
Simulation
Simulation
In case real-world system is too complex to express in simple equations.
Risk as Variance
Cash Flow
$3000
$3500
$4000
$4500
$5000
Probability
0.10
0.25
0.30
0.25
0.10
Cash Flow
$2000
$3000
$4000
$5000
$6000
Risk as Variance
(x)=$548
(y)=$1140
Since project y has greater variability
It is more risky.
Risk as Variance
Probability
X=Y
$2000
$4000
Cash Flow
Y
$6000
DECISION MAKING
DECISION MAKING
Coefficient of optimism
Alternative
(Maximax) (Maximin)
Maximum
Optimist
A2:Drill Alone
$9,300,000 *
A3:Farm Out
$1,250,000
Hurwicz
(=0.2)
Equally
Likely
$-500,000
$1,450,000*
$3,033,333*
$0*
$250,000
Minimum
Pessimist
[0.2(9,300,3000)+(1-0.2)(-500,000)]
E2=-500,000+300,000+9,300,000
3
[0.2(1,250,3000)+(1-0.2)(0)]
E3=0+125,000+1,250,000
3
$458,333
DECISION MAKING
Alternative
N1:Dry Hole
N2 :Small Well
N3:Big Well
Maximum
Regret
A1:Dont Drill
$0
$300,000
$9,300,000
$9,300,000
A2:Drill Alone
$500,000
$500,000
A3:Farm Out
$0
$175,000
$8,050,000
$8,050,000
A2 is the solution.
We choose the minimum among maximum regrets.
DECISION MAKING
Try to Catch
Strategies of your competitor.
DECISION MAKING
DECISION MAKING
DECISION MAKING
DECISION MAKING
Payroll
System
Tax
Data
Personnel
Data
Personnel
Data
Traditional Approach
Projects
Data
DECISION MAKING
Payroll
System
Tax
Data
Personnel
Data
Database Approach
Projects
Data
DECISION MAKING
DECISION MAKING
DECISION MAKING
DECISION MAKING
DECISION
MAKING
Understanding
Relational Databases
Software Development
Life Cycle
(Waterfall Model)
This type of Software
Development Life Cycle is
called Waterfall Model. Since
it is difficult to swim up to the
waterfall stream, it is costly to
go back to the previous stages
in life cycle.
Therefore, it is essential to
finish a good data model
before starting database
design.
Business Requirements
STRATEGY
ANALYSIS
DESIGN
BUILD
DOCUMENTATION
TRANSITION
PRODUCTION
Operational System
DECISION MAKING
DECISION MAKING
Number of
Decisions
Cost of Making
Poor Decisions
Least
Intermediate
Most
Highest
Intermediate
Lowest
Information
Needs
Strategic
Implementation
Operational
DECISION MAKING
Implementation