Decision making models

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The essence of business is to satisfy the human needs by the producing or services. People starting production have to decide how to spend the money, what and how to invest to get the maximum income and return on investment and at the same time satisfy customer needs. Each of these decisions is the act of choosing between alternatives. Each selection is accompanied by the cost of revenue loss from alternative decisions. Alternative cost for some good, is this good which was lost as a result of decision. Benham 1948, s. 16). Decision is a conscious act of choice made after careful consideration and rejection of other alternatives. These decisions may relate to management, health care, religion, etc. Economic decisions can be divided into private (taken by individuals) and commercial (taken by a person or executive board in charge of enterprise policy) (F. Benham 1948, s.16).

Decision-making is a prerequisite for solving the most important problems in the enterprise. "In any case, sensible analysis of variants of the decision requires a rigorous comparison of benefits and costs (often, though not always monetary) of alternative ways of conduct". Analysis of the relevant decisions taken by the manager is called "management economics". It is a branch of economics very poorly known in Poland and very developed in the United States and slightly less in the countries of the European Union.

Decision-making process

Process of decision making can be broken down into six basic steps (W. F. Samuelson 1998, s.21):

  • Step 1-defining the problem,
  • Step 2-identifying objective
  • Step 3-explore variants of choice
  • Stage 4-predict the consequences,
  • Stage 5-selecting the optimal variant
  • Stage 6-improvement based on the sensitivity analysis.