Management Science
Management Science is concerned with developing and applying models and concepts that may prove useful in helping to illuminate management issues and solve managerial problems. The models used can often be represented mathematically, but sometimes computer-based, visual or verbal representations are used as well or instead. The range of problems and issues to which management science has contributed insights and solutions is vast. It includes scheduling airlines, both planes and crew, deciding the appropriate place to site new facilities such as a warehouse or factory, managing the flow of water from reservoirs, identifying possible future development paths for parts of the telecommunications industry, establishing the information needs and appropriate systems to supply them within the health service, and identifying and understanding the strategies adopted by companies for their information systems.
Their research in management science is concerned with developing novel methods and approaches to well-known problem areas, and also the use of established approaches to understand new areas of application. Teaching within the Department utilizes these latest ideas to convey the practical importance of Management Science to organizations.
The Role of Management Science in Decision Making
- Subduing Emotion - One of the roles of management science in decision making is to subdue human emotion. Human emotion can get in the way of decision making. For example, a person might be emotionally attached to a project that logically will not be profitable; management science tools can be used to identify the rational decision, which is to abandon the project.
- Evaluating Complex Situations - Often, a decision will involve a complex web of causes and effects. The human brain simply cannot handle so much data. Management science offers methods for arranging this data in a way that it can be interpreted easily.
- Overcoming Biases - Humans are naturally inclined to have biases. Often, people aren't even aware of these biases. Biases can be very simple, such as a subjective preference for the color yellow rather than the color blue. Management science removes human biases from the decision-making process.
Decision Making Process
Decision making can be hard. It is the cognitive process of selecting a course of action from among multiple alternatives. Almost any decision involves some conflicts or dissatisfaction. The difficult part is to pick one solution where the positive outcome can outweigh possible losses. Avoiding decisions often seems easier. Yet, making your own decisions and accepting the consequence is the only way to stay in control of your time, your success, and your life.
Decision under Certainty
We say that the decision is taken under certainty if each action is known to lead invariably to a specific outcome (prospect, alternative, etc.). When the decision maker knows with reasonable certainty about what the available alternatives are, and what conditions are associated with each alternative; then a state of certainty is said to exist. For example, Air India needs to buy ten jumbo jets. The decision is from whom to buy. Air India has two choices: McDonnell Douglas, and Airbus. Each of these companies is known for their quality products. Air India can choose from any of these alternatives. Here, for making the choice, there is less ambiguity and there is a relatively lower chance of making a bad decision.
Decision under Risk
We say that the decision is taken under risk if each action leads to one of a set of possible specific outcomes, each outcome occurring with a known probability. In some situations, a manager is able to estimate the level of probability at which certain variables could occur. The ability to estimate may be due to experience, incomplete but reliable information or, in some cases, an accurate report. When estimates are made, a degree of risk is involved. However, some amount of information about the situation is available. The situation requires estimating the probability that one or more known variables might influence the decision being made.
Decision under Uncertainty
We say that the decision is taken under uncertainty if either action has as its consequence a set of possible specific outcomes, but the probabilities of these outcomes are completely unknown or are not even meaningful. A condition of uncertainty exists when a manager is faced with reaching a decision with no historical data concerning the variables and/or unknowns and their probability of occurrence. For instance, the decision to introduce Kellogg corn flakes in India was made under uncertainty.
Modern Approach to Decision Making Under Uncertainty
Modern approach to decision making under uncertainty helps in improving the quality of decision making. For making such decisions, there are three approaches: risk analysis, decision trees and preference theory.
- Risk analysis: Risk analysis involves knowledge of the size and the nature of the risk involved, in choosing a particular course of action. Before the launch of its Versa model, Maruti, conducted risk analysis in the areas of capital investment, cost of production and pricing.
- Decision trees: A graphical representation of alternative courses of action with the possible outcomes comprises a decision tree. It depicts the various decision points, chances, events and probabilities involved in various decision- courses that might be undertaken.
- Preference or utility theory: This theory is based on the notion that individuals' attitudes towards risk will vary. Some individuals are willing to take risk (gamble), whereas others are not willing to take risk or take only low risk (risk averters). Managers play both these roles, when they are uncertain about the outcome.
Three Models of Decision Making
In every one of the following models the decision maker knows the (prior) probabilities of the natural states. However, the models differ in the degree to which the decision maker knows the actual state or capable of predicting it with some probability of success.
- Model 1: Decision Making under Perfect Information - The decision maker has a Perfect Information of the (actual) Natural State, prior to choosing the action.
- Model 2: Decision Making with Sampling (External) Information. The decision maker has no Perfect Information on the Natural State, but possesses External Information that Forecasts the Natural State, prior to choosing the action. This external information is also commonly referred to as sampling information, because it is often based on statistical sampling. For example, by sampling the earth one may predict if there is oil in the ground or not, prior to deciding whether to dig for oil or not. The external (sampling) information provides prediction of the natural state.
- Model 3: No Perfect Information and No Sampling (External) Information. The decision maker has neither Perfect Information nor even External (Sampling) Information on the Natural State. The decision maker has no choice but to choose his act without external information and then face the natural state with its consequences.
Types of Managerial Decisions
- A decision is a choice made from available alternatives.
- Managers often are referred to as decision makers
- Decision-making is the process of identifying problems and opportunities and selecting a course of action to deal with a specific problem or take advantage of an opportunity.
- Managerial decision-making differs from personal decision making in the systematic, specialized attention that managers give to decision-making.
- Decision-making is not easy. It must be done amid ever-changing factors, unclear information, and conflicting points of view.
- Good decision-making is a vital part of good management, because decisions determine how the organization solves its problems, allocates resources, and accomplishes its goals.
- Although many of their important decisions are strategic, managers also make decisions about every other aspect of an organization, including structure, control systems, responses to the environment, and human resources.
- Plans and strategies are arrived at through decision making; the better the decision making, the better the strategic planning.
- Managers scout for problems and opportunities, make decisions for solving or taking advantage of them, and monitor the consequences to see whether additional decisions are required.
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