MBA aspirants must be updated with General Awareness on current topics. General awareness topics with analytically drawn conclusions will benefit you in Essay writing / GD & PI. Today, you will read General Awareness Topic:
Decision Making Techniques for best Managers
The study of decision making is an amalgamation of a number of disciplines, including sociology, mathematics, economics, political science, and psychology.
Decisions taken by managers should be accurate, scientific in nature, and available for verification and accuracy. At present, experts have identified several techniques of decision making, including operations research, linear programming, and game theory.
Operations research is essentially the application of scientific methods to complex problems related to the direction and management of men, machines, money and other resources in the industry.
Operations research enables managers to make objective decisions using qualitative tools such as value stream maps and fishbone diagrams.
Managers use the operations research technique to solve problems related to production scheduling, sales policies, plant expansion and inventory control. In this technique, a manager has to define the problem first. Next, he is required to identify decision variables and collect the necessary data.
Then, he applies statistical analysis and mathematical modeling to solve the issue at hand. This decision making technique was originally developed by the US Department of Defense during World War II.
Since then, this technique has helped thousands of multinational corporations worldwide to boost performance, reduce risk and make better decisions.
Zara, a Spanish clothing and accessories retailer with international reach, implemented the operations research technique to its global distribution system and managed to raise profits by more than Rs 14,060 million (US$ 233 million).
Managers can also use the linear programming technique for making decisions. In linear programming, a company comes up with possible solutions to optimize limited resources to achieve the desired objective.
A mathematical technique is used to understand the relationship between variables. Then, the limits of variation are determined. Linear programming adopts analytical approach in decision making instead of the intuitive approach.
Linear programming is used in problems that involve portfolio selection, product mix and distribution. A manager has to develop a series of tables, each describing the solution at a corner point of the feasible solution space, starting with the origin.
Each solution is progressively better than the previous one and the process is continued till the optimal solution is realized.
Game theory combines mathematics and economics to study situations in which players choose different actions to maximize their returns. Game theory analyses the choices of optimal behavior when the benefits and costs of each option are not fixed; in fact, it is dependent on the choices of other individuals.
Many companies are turning to game theory in order to make strategic decisions. Microsoft, Chevron and BAE Systems have acknowledged the value of game theory in making complicated and high-risk decisions. When solving problems using game theory, these companies gather and assemble relevant information.
Then, they understand the objectives of stakeholders and players, incentives and likely behaviors. Managers feed this information into an algorithm and perform mathematical modeling. The output suggests possible moves by each player, which will ultimately help organizations to make the most strategic decision.
Every day, managers are faced with the challenging task of decision making, which requires them to respond to threats and opportunities in the business arena by analyzing options and making decisions about goals and possible course of action.
There are a number of decision making techniques that managers can use to derive possible solutions. Based on the nature of the problem and the amount of information available to the manager at a particular time, he is required to choose the best possible technique that will address his problem successfully.