What are the Quantitative Techniques of Decision Making?
Quantitative Techniques of Decision Making are:
(i) Linear programming: It is the technique for optimisation of an objective function under given resources and constraints. The objective function is either maximisation of some utility or minimisation of some disutility. The technique is useful under conditions of certainty.
(ii) Probability decision theory : The basic premise of this theory is that the behaviour of the future is probabilistic and not deterministic. Various probabilities are assigned to the ‘state of nature’ on the basis of available information or subjective judgement and the likely outcomes of the alternative courses of action are evaluated accordingly before a particular alternative is selected. Pay-off Matrices and ‘Decision Trees’ are constructed to represent the variables.
(iii) Game theory : It is a useful aid to the decision maker under conditions of competitive rivalry or conflict. The adversaries in the conflict are supposed to be involved in a game of gaining at the total or partial expense of each other. There are ‘two-person’, ‘three-person’ and ‘n- person’ games as also zero-sum and non-zero sum games.
(iv) Queuing theory : The technique is designed to find solutions to waiting line problems for personnel, equipment or services under conditions of irregular demand. The objective is to find optimum volume of facilities to minimise the waiting period, on the one hand, and the investment associated with building up and maintaining the facilities, on the other. Public transport systems, hospitals, and big departmental stores are some of the possible users of this technique.
(v) Simulation : It is a technique for observing the behaviour of a system under several alternative conditions in an artificial setting. When the conditions of the environment are very complex and when it is not possible to find the one best way of doing things, it provides the manager a way out. The likely behaviour of events and variables is observed and evaluated in a simulated setting. It is possible to experiment with various possibilities or alternatives in a simulated setting rather than in a natural setting.
(vi) Network techniques : There are two powerful network techniques—Critical Path Method (CPM) and Programme Evaluation and Review Technique (PERT) which are useful for project planning and control. Complex projects involve considerable cost and time. The objective is to minimise both by working out a ‘critical path’ where managerial attention is to be concentrated. A diagrammatic net-work of activities required for completion of a project is prepared in detail to assess their inter- relation, to segregate sequential activities from simultaneous ones and to estimate the probable time and cost of their completion.