Decision Making

Quantitative Techniques of Decision Making


Decision making is one of the most fundamental functions of management professionals. Every manager has to take decisions pertaining to his field of work. Hence, it is an all-pervasive function of basic management. The process of decision making contains various methods. Quantitative techniques of decision making help make these methods simpler and more efficient.

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Decision Making

Almost every function of a typical manager requires him to make decisions on a routine basis. These decisions generally depend on the nature and scope of his work, authority, and powers.

A decision is basically a judgment of a course of action that aims to achieve specific results. Decisions form the basic foundation for every task a person achieves.

A manager often has to choose from a range of alternatives for every task he has to complete. Choosing the right one is important because every decision has consequences.

Hence, we can say that decision-making involves selecting a course of action from several alternatives. This is a very important function that managers have to carry out routinely.

Quantitative Techniques

Quantitative Techniques

There are several techniques that a manager can employ while making decisions. For example, quantitative techniques enable managers to take decisions objectively and efficiently.

Learn more about Decision Making in Groups here in detail

These techniques rely on a scientific and statistical approach to make good decisions. The following are six such important quantitative techniques of decision making:

1. Linear programming

This technique basically helps in maximizing an objective under limited resources. The objective can be either optimization of a utility or minimization of a disutility. In other words, it helps in utilizing a resource or constraint to its maximum potential.

Managers generally use this technique only under conditions involving certainty. Hence, it might not be very useful when circumstances are uncertain or unpredictable.

2. Probability decision theory

This technique lies in the premise that we can only predict the probability of an outcome. In other words, we cannot always accurately predict the exact outcome of any course of action.

Managers use this approach to first determine the probabilities of an outcome using available information. They can even rely on their subjective judgment for this purpose. Next, they use this data of probabilities to make their decisions. They often use ‘decision trees’ or pay-off matrices for this purpose.

3. Game theory

Sometimes, managers use certain quantitative techniques only while taking decisions pertaining to their business rivals. The game theory approach is one such technique.

This technique basically simulates rivalries or conflicts between businesses as a game. The aim of managers under this technique is to find ways of gaining at the expense of their rivals. In order to do this, they can use 2-person, 3-person or n-person games.

4. Queuing theory

Every business often suffers waiting for periods or queues pertaining to personnel, equipment, resources or services.

For example, sometimes a manufacturing company might gather a stock of unsold goods due to irregular demands. This theory basically aims to solve such problems.

The aim of this theory is to minimize such waiting periods and also reduce investments on such expenses.

For example, departmental stores often have to find a balance between unsold stock and purchasing fresh goods. Managers in such examples can employ the queuing theory to minimize their expenses.

5. Simulation

As the name suggests, the simulation technique observes various outcomes under hypothetical or artificial settings. Managers try to understand how their decisions will work out under diverse circumstances.

Accordingly, they finalize on the decision that is likely to be the most beneficial to them. Understanding outcomes under such simulated environments instead of natural settings reduces risks drastically.

6. Network techniques

Complex activities often require concentrated efforts by personnel in order to avoid wastage of time, energy and money. This technique aims to solve this by creating strong network structures for work.

There are two very important quantitative techniques under this approach. These include the Critical Path Method and the Programme Evaluation & Review Technique. These techniques are effective because they segregate work efficiently under networks. They even drastically reduce time and money.

Solved Example Quantitative Techniques

Question: Determine which quantitative techniques do the following characteristics relate to.

(1) This technique reduces waiting periods and the expenses they involve.

(2) The aim of this technique is to basically reduce wastage of time, energy and money in complex activities.

(3) This technique relies on probabilities instead of exact and accurate outcomes.

(4) Managers generally use this technique in situations of business rivalries or conflicts.

Answers:     (1) Queuing theory     (2) Network technique     (3) Probability decision theory     (4) Game theory

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