Decision Tree

Decision Tree: This is an interesting technique used for analysis of a decision.

(i) A decision tree is a sophisticated mathematical tool that enables a decision-maker to consider various alterative courses of action and sect the best alternative.
(ii) It is a graphical representation of the alternative course of action, their outcome and the risk associated with each alternative course of action.

In this technique, the decision maker traces the optimum path through the tree diagram. In this diagram, the base, known as the ‘decision point’ is represented by a square. Two or more chance events follow from the decision point. A chance event is represented buy a circle and constitutes a branch of the decision tree. Every chance events produce two or more possible outcomes leading to subsequent decision points. The effectiveness of this decision-making technique depends on the assumptions and possibility estimates made by decision makers.

Decision Tree

Output rise


Additional Machines

Output falls



Output rise

Double Shift

Output falls



Programmed Decisions

Decisions that deal with simple, common, frequently occurring problems and demand well-established and understood solutions are called Programmed Decisions. PDs are mostly made by lower-level managers because the problems they deal with are recurring and well structured as it concerns with day-to-day work. PDs consume less time and are consistent and inexpensive in nature and having low risk. These are also called as Tactical decision. The decisions are programmed to the extent that they are repetitive and routine and a definite approach has already been worked out for handling them. The decision that a store manager takes when a customer wants to return a product he has purchased at a retail store is an example of a programmed decision.

Unstructured Problems Top Non-programmed
Level decisions
Managers
Middle
Level Managers
Structured Lower Level Managers Programmed
Problems decisions

Non-programmed decisions

These are also called as Strategic Decisions. Decisions developed to deal with unusual or exceptional problems are known as non-programmed decisions. Since non-programmed decisions involve situations that are unstructured, it is impractical to have predetermined decision rules for them. Important decisions such as mergers, acquisitions, takeovers, organization design, new facilities, new products and labor contracts are non-programmed by nature. Managers face a lot of uncertainty in making non-programmed decisions, as they have to choose a course of action without knowing what the consequences of its implementation will be. It contains lot of risk. The skill of making a non-programmed decision is most essential for top-level managers. Hence, the top management is taught to analyze problems systematically and to make logical decisions through management development programs.