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MB0047 : What are the different types of decision and decision making systems? Explain in detail.

Posted on: October 19, 2011

MB0047 : What are the different types of decision and decision making systems? Explain in detail.
Answer : Types of Decision-making Systems

The decision-making systems can be classified in a number of ways. There are two types of systems based on the manager’s knowledge about the environment. If the manager operates in a known environment then it is a closed decision-making system. The conditions of the closed decision-making system are:

  • The manager has a known set of decision alternatives and knows their outcomes fully in terms of value, if implemented.
  • The manager has a model, a method or a rule whereby the decision alternatives can be generated, tested, and ranked for selection.
  • The manager can choose one of them, based on some goal or objective criterion. Few examples are a product mix problem, an examination system to declare pass or fail, or an acceptance of the fixed deposits.

If the manager operates in an environment not known to him, then the decision-making system is termed as an open decision-making system. The conditions of this system in contrast closed decision-making system are:

The manager does not know all the decision alternatives.

  • The outcome of the decision is also not known fully. The knowledge of the outcome may be a probabilistic one.
  • No method, rule or model is available to study and finalise one decision among the set of decision alternatives.
  • It is difficult to decide an objective or a goal and, therefore, the manager resorts to that decision, where his aspirations or desires are met best.

Deciding on the possible product diversification lines, the pricing of a new product, and the plant location, are some decision-making situations which fall in the category of the open decision-making systems.

The MIS tries to convert every open system to a closed decision-making system by providing information support for the best decision. The MIS gives the information support, whereby the manager knows more and more about environment and the outcomes, he is able to generate the decision alternatives, test them and select one of them. A good MIS achieves this.

Types of Decisions

The types of decisions are based on the degree of knowledge about the outcomes or the events yet to take place. If the manager has full and precise knowledge of the event or outcome which is to occur, then the decision-making is not a problem. If the manager has full knowledge, then it is a situation of certainty. If he has partial knowledge or a probabilistic knowledge, then it is decision-making under risk. If the manager does not have any knowledge whatsoever, then it is decision-making under uncertainty.

A good MIS tries to convert a decision-making situation under uncertainty to the situation under risk and further to certainty. Decision-making in the Operations Management is a situation of cer­tainty. This is mainly because the manager in this field has fairly good knowledge about the events which are to take place, has full knowledge of environment, and has pre-determined decision alternatives for choice or for selection.

Decision-making at the middle management level is of the risk type. This is because of the difficulty in forecasting an event with hundred per cent accuracy and the limited scope of generating the decision alternatives.

At the top management level, it is a situation of total uncertainty on account of insufficient knowledge of the external environment and the difficulty in forecasting business growth on a long-term basis.

A good MIS design gives adequate support to all the three levels of management.

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