Often in management an individual or group of individuals come across a situation where there are tow or more possible alternative courses of action. In selecting particular action they must always keep in mind their goal. It is essential for setting objectives, basic corporate policy, where there are planning for future, or other major plans or proposals that will have an important long run effect on the future business activity. It also includes in depth study of organizational structure, encouraging the personnel and positive approach towards innovations. Thus decision making may be defined as a process which results in the selection from a set of alternative courses of action, that a courses of action which is considered to meet the objective of decision problem more satisfactorily than others as judged by the decision maker.
Decision theory provides a method for rational decision making when the consequences are not fully deterministic. Decision maker has to apply various methods to decision problems. The decision theory identifies the best course of action for certain activity. Decision theory provides best platform for better understanding of the decision situation and for evaluating alternatives when the criteria are not defined. If decision is to be made using one of the decision rule then selection of an alternate course of action is a direct effect of decision theory.
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