Techniques of Decision Making

1. Marginal Analysis

• Purpose: Evaluate the additional output resulting from adding one more unit of input.
• Usefulness: Helps in comparing alternatives and optimizing resource allocation.
• Example: Adding one more machine or worker and measuring the resulting output increase.

2. Financial Analysis

• Purpose: Estimate the profitability of investments and analyze cash flows.
• Techniques: Calculating payback periods, discounting cash inflows and outflows to determine present value.
• Usefulness: Assesses investment alternatives based on financial returns.

3. Break-Even Analysis

• Purpose: Determine the sales level needed to cover all fixed and variable costs.
• Usefulness: Identifies the break-even point where total revenue equals total cost, aiding in pricing and production decisions.

4. Ratio Analysis

• Purpose: Interpret financial statements by comparing costs and revenue.
• Techniques: Financial ratios to assess strengths, weaknesses, and financial conditions.
• Usefulness: Evaluates historical performance and current financial health.

5. Operations Research Techniques

• Purpose: Apply quantitative methods to solve decision-making problems.
• Techniques: Includes various methods like linear programming and waiting-line methods.

6. Linear Programming

• Purpose: Optimize allocation of limited resources to achieve specific objectives.
• Applications: Product mix decisions, inventory management, resource allocation.
• Usefulness: Ensures efficient resource use in competitive activities.

7. Waiting-Line Method

• Purpose: Balance service provision and waiting times using mathematical techniques.
• Usefulness: Optimizes customer service and minimizes costs associated with idle facilities.
• Example: Managing queues in a service environment to reduce customer wait times.

8. Game Theory

• Purpose: Develop rational strategies in competitive situations.
• Techniques: Minimax (minimize maximum loss) and maximin (maximize minimum gain) strategies.
• Usefulness: Helps competitors select the best strategies considering opponents’ actions.

9. Simulation

• Purpose: Model real systems to solve complex problems and evaluate alternatives.
• Techniques: Using computers to simulate and analyze different scenarios.
• Applications: Price strategies, distribution strategies, resource allocation.
• Usefulness: Provides insights for decision-making in complex situations.

10. Decision Tree

• Purpose: Analyze decisions by graphically representing alternative actions and outcomes.
• Technique: Decision points (squares) and chance events (circles) form a tree diagram.
• Usefulness: Helps trace optimal paths and evaluate risks associated with different actions.