Modern Techniques for Programmed Decisions
A programmed decision is used to solve routine, repetitive but complex problems. These techniques are also called as Quantitative Techniques. The managers working at lower-level of management make these decisions.
Various Approaches or Techniques for making programmed decisions are:-
Figure 1. Programmed Decision Making Techniques.
1. Linear Programming
Linear Programming is a quantitative technique. It is used to decide how to distribute the limited resources for achieving the objectives. Here, linear, means the relationship between variables, and programming means taking decisions systematically. Linear programming is used when two or more activities are competing for limited resources. For e.g. product mix decisions, inventory management decisions, etc. Linear programing is used for Agriculture, Industry, Contract biding and Evaluation of tenders.
2. Decision Tree
A decision tree is a diagram which shows all the possible alternatives of a decision. All this information can be seen at one glance. It is also easy to understand. A decision tree is like a horizontal tree. The base of the tree is called the Decision Point. From this point, the different alternatives and sub-alternatives are shown as branches and sub-branches. The manager must study all the alternatives very carefully and select the best alternative.
3. Game Theory
A game is a situation involving at least two people. Each persons decision is based on what he expects the other to do. Game theory is used for deciding about competitive pricing. For e.g. A company may increase the price of its product when it feels that the competitor may also increase the price. For e.g. Pepsi will increase its price if it feels that Coca Cola will also increase its price. Here, both decisions- makers adapt to each other's decisions.
Simulation technique is used to decide about complex problems. The effect of the decision is observed in a simulated situation and not in a real situation. For e.g. A company can find out the effectiveness of its new advertisement by first showing it to few people before telecasting it on TV.
5. Queueing Theory
This technique is used to find solutions to the waiting list problems in case of airline reservations, railway reservations, college admissions, etc. Queueing theory helps to find out the optimum number of service facilities required and the cost of these services. For e.g. A transport company may introduce more vehicles to carry the passengers in the waiting list. This will prevent the passengers from going to the competitor's company.
6. Network Techniques
Managers use network techniques like PERT (Program Evaluation Review Technique) and CPM (Critical Path Method) for complex projects, where many activities have to be completed. With the help of these techniques, complex projects can be completed as per the schedule. Network techniques save time and cost.
7. Probability Decision Theory
Probability Decision theory is based on the assumption that the future is uncertain. There is a chance that a certain event may or may not take place. Based on available data and subjective judgement of the manager, various probabilities are assigned (given) to alternative courses of action (decision). The likely / possible outcomes of different alternatives are evaluated, and the most likely alternative is selected.
8. Payoff Matrix
Payoff matrix is a statistical technique, which helps managers to choose the best alternative. A payoff is the return or reward for selecting the best alternative. The best alternative can be a combination of many alternatives or a single alternative. For e.g. A manager may decide to increase sales and profit by increasing advertising, improving quality of the product, reducing the price, etc. Each alternative or a combination of alternatives may provide an expected reward.