Chapter 2
DECISION-MAKING
Prepared by:
me
Eric B. Bernardo
INTRODUCTION
Managers of all kinds and types, including the
engineer manager, are primarily tasked to provide
leadership in the quest for the attainment of the
organization’s objectives. Many times, he will be
confronted by situations where he will have to choose
from among various options.
DECISION-MAKING
Decision Making as a Management Responsibility
What is Decision Making?
The Decision Making Process
Approaches in Solving Problems
Quantitative Models for Decision Making
DECISION-MAKING AS A MANAGEMENT
RESPONSIBILITY
Decisions must be made at various levels in the
workplace. They are also made at various stages in the
management process. It is understandable for managers to
make to make wrong decisions at times. The wise manager
will correct them as soon as they are identified. The bigger
issue is the manager who cannot or do not want to make
decisions. Delaney concludes that this type of managers are
dangerous and “should be removed from their position as
soon as possible.”
WHAT IS DECISION-MAKING?
“It is the process of identifying
and choosing alternative courses of
action in a manner appropriate to
the demands of the situation.”
WHAT IS DECISION-MAKING?
Decisions are made at various
management levels(i.e., top, middle, and
lower levels) and at various management
functions (i.e., planning, organizing,
directing and controlling). Decision-making
according to Nickels and others, “is the
heart of all the management functions.”
THE DECISION-MAKING PROCESS
Rational decision-making, according to David H.
Holt, is a process involving the following steps:
1. diagnose problem
2. analyze environment
3. articulate problem or opportunity
4. develop viable alternatives
5. evaluate alternatives
6. make a choice
7. implement decision
8. evaluate and adapt decision results
DIAGNOSE PROBLEM
If a manager wants to make an intelligent
decision, his first move must be to identify the
problem. If the manager fails in this aspect , it is
almost impossible to succeed in the subsequent
steps. An expert once said “identification of the
problems is tantamount to having the problem half
solved.”
ANALYZE THE ENVIRONMENT
The objective of environmental analysis is the
identification of constraints, which may be spelled out as
either internal or external limitations. When decisions
are to be made, the internal and external limitations must
be considered.
ANALYZE THE ENVIRONMENT
Example of internal limitations are as follows:
1. Limited funds available for the purchase of
equipment.
2. limited training on the part of employees.
3. Ill- designed facilities
ANALYZE THE ENVIRONMENT
Example of external limitations are as follows:
1. Patents are controlled by other organizations.
2. A very limited market for the company’s products and
services exists.
3. Strict enforcement of local zoning regulations.
ANALYZE THE ENVIRONMENT
Components of the environment. The environment
consist of two major concerns:
1. internal environment- refers to organizational
activities within a firm that surrounds decision making.
2. external environment- refers to the variables that are
outside the organization and not typically within the
short-run control of top management.
THE ENGINEERING FIRM AND THE INTERNAL
ENVIRONMENT IN DECISION-MAKING
THE ENGINEERING FIRM
INTERNAL ENVIRONMENT
Organizational Aspects EXTERNAL
like org. structure, policies, procedure ENVIRONMENT
rules, ability of management, etc.
Marketing Aspects
like product strategy, promotion
strategy, etc. DECISION
Personal Aspects
like recruitment practices, incentive
systems, etc.
Production Aspects EXTERNAL
like plant facility layout, inventory ENVIRONMENT
control, etc.
Financial Aspects
like liquidity, profitably, etc.
THE ENGINEERING FIRM AND THE INTERNAL
ENVIRONMENT IN DECISION-MAKING
Government
Labor Unions
Engineers
Clients ENGINEERING Suppliers
FIRM
Competitors Banks
Public
DEVELOP VIABLE ALTERNATIVES
Often times, problems may be solved by any of the solutions
offered. The best among the alternative solutions may be considered
by management. This is made possible by using a procedure with the
following steps:
1. Prepare a list of alternative
solutions.
2. Determine the viability of each
solutions.
3. Revise the list by striking out
those which are not viable.
EVALUATE ALTERNATIVES
How the alternatives will be evaluated will depend
on the nature of the problem, the objectives of the firm,
and the nature of alternatives presented. Souder suggests
that “each alternative must be analyzed and evaluated in
terms of its value, cost, and risk characteristics.”
MAKE A CHOICE
Choice making refers to the process of selecting
among alternatives representing potential solutions to a
problem. At this point, Webber advices that “…particular
efforts should be made to identify all significant
consequences of each choice.”
IMPLEMENT DECISION
Implementation refers to carrying out the decision so
that the objectives sought will be achieved. To make
implementation effective, a plan must be devised.
At this stage, the resources must be made available
so that the decision may be properly implemented. Those
who will be involved in the implementation, according
to Aldag and Sterns, must “understand and accept the
solution.”
IMPLEMENT DECISION
It is, therefore, important for the manager to use
control and feedback mechanisms to ensure results
and to provide information for the future decisions.
Feedback refers to the process which require
checking at each stage of the process to assure that the
that alternatives generated, the criteria used in
evaluation, and the solution selected for implementation
are in keeping with the goals and objectives originally
specified.
Control refers to actions made to ensure that
activities performed match the desired activities or goal,
that has not been set.
In the last stage of the decision-making process,
the engineer manager will find out whether or not
the desired results is achieved. If the desired result
is achieved, one may assume that the decision
made was good. If it was not achieved , Ferrell and
Hirt suggest that the further analysis is necessary.
FEEDBACK AS A CONTROL MECHANISM IN THE
DECISION-MAKING-PROCESS
Step 1 Diagnose problem
2 AnalyzeAproblem
Articulate problem
3 or opportunity
Develop viable
4 alternatives
5 Evaluate alternatives
6 Make a choice
7 Implement decision
Determine steps
8 Results not achieved whether error
Evaluate results
was made
Results achieved Adapt decision results
APPROACHES IN SOLVING PROBLEMS
In the decision-making, the engineer manager is
faced with problems which may either be simple or
complex. To provide him with some guide, he must be
familiar with the following approaches:
1. qualitative evaluation
2. quantitative evaluation
Qualitative Evaluation
This refer to the evaluation of alternatives using
intuition and subjective judgment. Stevenson states that
managers tend to use the qualitative approach when:
1. the problem is fairy simple
2. the problem is familiar
3. the cost involved are not great
4. immediate decisions are needed
Quantitative Evaluation
This refers to the evaluation of alternatives using any
technique in a group classified as rational and analytical.
QUANTITATIVE MODELS FOR
DECISION-MAKING
The types of quantitative techniques which may be useful in
decision-making are as follows:
1. inventory models
2. queuing theory
3. network models
4. forecasting
5. regression analysis
6. simulation
7. linear programming
8. sampling theory
9. statistical decision theory
INVENTORY MODEL
1. Economic order quantity model – used to calculate the
number of items that should be ordered at one time to
minimize the total yearly cost of placing orders and carrying
the items in the inventory.
2. Production order quantity model – this is an economic order
technique applied to production orders.
3. Back order inventory model – inventory model used for
planned shortages.
4. Quantity discount model – an inventory model used to
minimize the total cost when quantity discounts are offered
by suppliers.
QUEUING THEORY
The queuing theory is one that describes how to
determine the number of service units that will minimize
both costumer waiting time and cost of service.
NETWORK MODELS
The two most prominent network models are:
1. The Program Evaluation Review Technique (PERT) – a
technique which enables engineer managers to
schedule, monitor, and control large and complex
projects by employing three time estimates for each
activity.
2. The Critical Path Method(CPM) – this is a network
technique using only one time factor per activity that
enables engineer managers to schedule, monitor, and
control large and complexprojects.
FORECASTING
It may be defined as “the collection of past
and current information to make predictions
about the future.”
REGRESSION ANALYSIS
It is a forecasting method that examines the
association between two or more variables. It uses data
from previous periods to predict future events.
Regression analysis may be simple or multiple
depending on the number of independent variables
present.
SIMULATION
It is a model constructed to represent reality, on
which conclusions about real-life problems can be used.
It is highly sophisticated tool by means of which the
decision maker develops a mathematical model of the
system under consideration.
It does not guarantee an optimum solution, but it can
evaluate the alternatives fed into the process by the
decision-maker.
LINEAR PROGRAMMING
It is used to produce an optimum solution within the
bounds imposed by constraints upon the decision. It is
very useful as a decision-making tool when supply and
demand limitations at plants, warehouse, or market areas
are constraints upon the system.
SAMPLING THEORY
It is the quantitative technique where samples of
populations statistically determined to be used for a
number of processes, such as quality control and
marketing research.
When data gathering is expensive, sampling provides
an alternative. Sampling, in effect, saves time and
money.
STATISTICAL DECISION-THEORY
Refers to the “rational way to conceptualize, analyze,
and solve problems in situations involving limited, or
partial information about the decision environment.”
THE END
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