Decision-Making Management

A Tutorial and Applications

Alberto Pliego Marugan,Fausto Pedro Garcia Marquez

• Publisher: Academic Press
• Year: 2017
• ISBN:
  9780128115411
• Topic: Business
• Subtopic: Decision Making
• Index: Business

Decision-Making Management: A Tutorial and Applications provides practical guidance for researchers seeking to optimizing business-critical decisions employing Logical Decision Trees thus saving time and money. The book focuses on decision-making and resource allocation across and between the manufacturing, product design and logistical functions. It demonstrates key results for each sector with diverse real-world case studies drawn primarily from EU projects. Theory is accompanied by relevant analysis techniques, with a progressional approach building from simple theory to complex and dynamic decisions with multiple data points, including big data and lot of data. Binary Decision Diagrams are presented as the operating approach for evaluating large Logical Decision Trees, helping readers identify Boolean equations for quantitative analysis of multifaceted problem sets. Computational techniques, dynamic analysis, probabilistic methods, and mathematical optimization techniques are expertly blended to support analysis of multi-criteria decision-making problems with defined constraints and requirements. The final objective is to optimize dynamic decisions with original approaches employing useful tools, including Big Data analysis. Extensive annexes provide useful supplementary information for readers to follow methods contained in the book.

• Explores the use of logical decision trees to solve business problems
• Uses mathematical optimization techniques to resolve 'big data' or other multi-criteria problems
• Provides annexes showcasing application in manufacturing, product design and logistics
• Shows case examples in telecommunications, renewable energy and aerospace
• Supplies introduction by Benjamin Lev, Editor-in-Chief of Omega, the highest-ranked journal in management science (JCR)

Chapter 1

Introduction

Abstract

Decision making is defined and contextualized from its beginnings to contemporary days. Different types of decisions are described and classified for any business. The importance of the management and control activities for the current businesses is highlighted. Finally, a brief introduction to Logical Decision Tress is shown as a preface of the Chapter 2. The main concepts are set to facilitate the comprehension of this book.

Keywords

Decision making; Types of decisions; Planning and control

1.1 Background

Aristocracies were originally the main model of governance almost throughout our history. During this time, the important decisions were made by the ruling family. The problem of making decisions by an appropriate use of the intellect, art, scientific knowledge, wisdom, prudence, and understanding, was addressed in the fourth century B.C by Aristotle.¹ There are some modern studies asserting the idea that Jesus Christ was a paradigmatic decision maker.² Thereby, some biblical events, such as the selection of the twelve disciples or the establishment of a hierarchy by Moses, have been considered as managerial choices.³

Industrial revolution, as some political revolutions in America and France, caused a shift from aristocracy to bureaucracy. Most relevant decisions were made by people with power whereas uneducated workers were complying with orders and with a great effort to use rationality in DM (DM) processes, but without any technical knowledge about DM. Daniel Bernoulli in 1738 introduced the “Decision Theory.” In the situations treated by decision theorist, choices are made in a nonrandom way. Two centuries later, Frank Ramsey conducted further studies about decision theory through subjective probability.³ Condorcet, in 1793, developed the theory of voting on collective DM based on the following principle: an alternative that defeats every other by a simple majority is the socially optimal choice.⁴

Almost half a century later, Charles Babbage, considered as the father of computation, developed a complex machine called the analytical engine. It will set the transition from mechanized arithmetic to the computational based on information systems, being the basis of modern decision support systems.⁵ In 1911, Frederick Taylor, one of the “fathers of the management science”⁶ delivered the idea that there is “one way best” to do a job.⁷

By the middle of 20th century, several approaches on “classic decision theory” were carried out, being one of the most important the “bounded rationality,” by Simon.⁸ It is based on the idea that the available information, cognitive limitation of the mind, and the time finite, limit the rationality of individuals to DM. Some important researchers in this field were: Barnard imported the term DM from administrative activities to managerial and economic activities⁹; Wald published “Statistical Decision Functions,” based on decision models that were built by ranking alternatives depending on their worst outcomes¹⁰; Zadeh introduced a new approach about how to treat with uncertainty¹¹; Savage provides a statistical model for decision and a coherent framework for DM¹²; Neumann and Morgenstern established the essential axioms to build a utility function,¹³ conceived a ground-breaking mathematical theory of games of strategy. Theory of games not only would revolutionize economics, but also form the entirely new field of science named “game theory,” used to analyze real-word phenomena.

In 1960, Warren Bennis predicted the bureaucracies were dying due to obsolete procedures on DM.³ Stable industrial environments paved the way to greater employee involvement in organizational DM processes. This and the inexorable sophistication of information systems referenced the way to a new era on DM processes. James Clawson identified it as a change from bureaucracies to a form of organization in which the basis of power is information. This new form of organization was named “infocracy.”¹⁴ Decision Support System (DSS) began to appear in the 1960s as a result of the technology progress, together with the necessity of devices to help managers in DM processes.⁵ DSS was used to examine investment plans and then, it has been used for fixing prices, publicity, logistic, etc. until today.

1.2 Introduction to the Decision Making

DM is a selection method. It is daily used in a personal and professional context. There are a large number of times where DM is carried out. Decisions can require weeks, even months in order to reach the correct alternative.

In a DM scenario, it is commonly known that there is an event that is (not) desired, which entail a path among the different alternatives that let to reach the objective.¹⁵ In any case, the optimal situation is desired, i.e., the one which will provide the best results.¹⁶ With this purpose, it is essential to select different criteria that allow for discerning the scenarios to choose the best.¹⁷

DM can be defined also as: “the research of identifying and choosing alternatives based on the decision-maker’s weighs/values and preferences. All be possible alternatives must be identified for making a decision. Then the best alternative is chosen regarding to the goals, constraints, etc.”¹⁸

Forrester defines the DM as the transformation process from data to proceedings.¹⁹ The data collection is a strategy for DM, and consequential proceedings are possible to be carried out. Feedback is obtained with the proceedings, which helps to keep improving the problem and giving more data to the system. It suggests that DM requires a continuous communication process, where the data obtained leads to an improvement of the available information.

DM must be carried out when a certain problem occurs. It would be desired to be able to discern whether there is a real problem in a business. Ref. 20 proposed to solve if a mismatch is found by focusing on finding the difference between the real and the ideal, or desired, scenario. The main role of the DM is to reduce the difference.²¹

Decision may be defined as: “a thorough selection of proceedings among available alternatives, aiming a desired result, knowing the resources are limited.”²²

There are several alternatives to classify the decisions made in a business.²³ According to the needs developed in this b...