Ops Mgmt 5

Front 1

Decision theory

Back 1

represents a general approach to decision making. It is suitable for a wide range of operations management decisions. Among them are capacity planning, product and service design, equipment selection, and location planning.

Front 2

Payoff table

Back 2

Table showing the expected payoffs for each alternative in every possible state of nature.

Front 3

Decision process steps

Back 3

1. Identify the problem
2. Specify objectives and criteria for a solution
3. Develop suitable alternatives
4. Analyze and compare alternatives
5. SElect the best alternative
6. Implement the solution
7. Monitor to see that desired result is achieved.

Front 4

What do managers tend to do to harm the decision process?

Back 4

In many cases, they fail to appreciate the importance of each step of the decision making process. They may skip a step or not devote enough effort to completing it before jumping to the next. The managers ego can be a factor. Other managers demonstrate an inability to make a decision: they stall.

Front 5

Bounded rationality

Back 5

The limitation on decision making caused by costs, human abilities, time, technology, and availability of information.

Front 6

suboptimization

Back 6

The result of different departments each attempting to reach a solution that is optimum for that department

Front 7

certainty

Back 7

environment in which relevant parameters have known values.

Front 8

Risk

Back 8

Environment in which certain future events have probable outcomes

Front 9

uncertainty

Back 9

Environment in which it is impossible to assess the liklihood of various future events.

Front 10

Maximin

Back 10

Choose the alternative with the best of the worst payoffs.

Front 11

maximax

Back 11

Choose the alternative with the best possible payoff

Front 12

Laplace

Back 12

Choose the alternative with the best average payoff of any of the alternatives

Front 13

Minimax regret

Back 13

Choose the alternative that has the least of the worst regrets.

Front 14

Regret (opportunity cost)

Back 14

The difference between a given payoff and the best payoff for a state of nature.

Front 15

Expected monetary value criterion

Back 15

The best expected value among the alternatives

Front 16

Decision tree

Back 16

A schematic representation of the available alternatives and their possible consequences

Front 17

Physical construction of decision tree

Back 17

A decision tree is composed of a number of nodes that have branches. Square nodes indicate decision points, and circular nodes indicate chance events. Read the tree from left to right. After the tree has been drawn it is analyzed from right to left, that is starting with the last decision that must be made. For each decision choose the alternative with the greatest expected monetary value.

Front 18

Expected Value of perfect information

Back 18

The difference between the expected payoff with perfect information and the expected payoff under risk.

Front 19

Sensitivity analysis

Back 19

Determining the range of probability for which an alternative has the best expected payoff.