Chapter05S - SUPPLEMENT TO CHAPTER 5 DECISION THEORY...

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SUPPLEMENT TO CHAPTER 5 DECISION THEORY Teaching Notes This chapter supplement lays the foundation for much of the remainder of the text, which is oriented towards problem solving and decision-making. The chapter supplement begins with a discussion of the use of models in decision-making. I feel it is necessary to remind students when covering later chapters of the advantages and limitations of models. For example, it is not unusual for a student to question the validity of a model’s assumptions (e.g., EOQ), or to suggest that such and such a model is not realistic. Of course, some of the models presented in operations simply serve as points of departure, or as an easy way to introduce more complex models. Even so, the models in this text are commonly used in practice. However, they are not always used correctly, and that is where assumptions and limitations come into play; managers must weigh the advantages and limitations of various models as part of the decision-making process. Hence, this supplement’s theme of models, with special emphasis on both advantages and disadvantages, needs to be carried through much of the remainder of the course. The remainder of the supplement is devoted to decision theory. The presentation is standard except for the addition of material on sensitivity analysis. Decision theory can be omitted if it does not suit your purposes, without loss of continuity. The presentation should emphasize that decision trees are developed for multi-phase decision-making where several interrelated decisions and states of nature are considered. The decisions are dependent on each other and the states of nature. The nature of interdependence and the sequence of decisions must be specified by the decision-maker. The decision tree analysis forces the decision-maker to study the states of nature (conditions) carefully because probabilities must be assigned to each state of nature. The decision tree analysis provides the decision-maker with: a. structure for complex multi-phase decisions. b. a direct way of handling uncertain events. c. reasonably objective method of evaluating the relative value of each decision alternative. Answers to Discussion and Review Questions 1. The chief role of the operations manager is that of decision-maker. 2. Decision-making consists of the following steps: (1) Specify objectives and criteria for making a decision. (2) Develop alternatives. (3) Analyze and compare alternatives. (4) Select the best alternative. (5) Implement the chosen alternative. (6) Monitor the results. 3. Bounded rationality is a term that refers to the limits imposed on decision-making because of costs, human abilities, time, technology, and availability of information. 4. Suboptimization occurs as a result of different departments, each attempting to reach a solution that is optimum for that department but may not be optimum for the organization as a whole.
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