ENGINEERING MANAGEMENT-I Unit-2

UNIT - 2

Decision Making
Decision –Making

A manager's duties mostly involve making decisions of one kind or another. Everyday
hundreds of decisions are made in a company consciously and unconsciously. According to
Peter F. Drucker, "Whatever a manager does, he does through making decisions." Decision-
making is connected with formulating plans, establishing objectives, laying down policies
and so on. According to Rustom S. Davar, "Decision-making can be· defined as the selection
based on some criteria of one's behaviour alternative from two or more possible alternatives.
To decide means to cut off or in practical content to come to a conclusion".
According to Manley H. Jones, "the decision is a solutionselected after examining
several alternatives chosen because the decider foresees that the course of action he selects
will do more than the other to further his goals and will be accompanied by the fewest
possible objections and consequences". Thus, a decision essentially involves choosing a
particular course of action, after considering the possible alternatives. It may be expressed in
words or it may implied from behaviour.

IMPORTANCE OF DECISION-MAKING

Decision-making permeates through all managerial functions, and management and

decision-making are inseparable. Managers use the tool of decision-making for discharging
their duties. Whatever a manager does, he can do It by taking some decision-the selection of
suitable course of action from a number of alternatives .
According to Melvin T. Copeland, "Administration essentially is a decision-making
process and authority is responsible for making decisions and for ascertaining that the
decisions made are carried out". In business, whether the enterprise is large or small, changes
in condition occur, shifts in personnel take Place and unforeseen contingencies arise.
Moreover, Just to get the wheels started and to keep them turning, decisions must be made.
"The business executive", observed John McDonald, "is by profession a decision-maker.
Uncertainty is his opponent, overcoming it is his mission. Whether the outcome is a
consequence of Jockor of wisdom, the moment of decision is without doubt the most creative
event in the life of the executive".
All management functions such as planning, organisation, direction and control are
settled by managers with the tool of decision-making. Decision making is important in
planning, for in planning, the manager has to decide many things such as what to produce,
what to sell, where, when, how and so on. In an organisation, decision-making relates to the
structure, nature of organization, division of work and so on. .
Decision-making is also an important tool in the management functions of direction
and control. In direction, decisions relate to determining the course of action, deciding the
type of motivation, deciding the orders and instructions to be given etc., whereas in control,
the decisions relate to deciding of standards, control points, procedures etc.
Decision-making is necessary in a business concern because there many alternative
courses of action to most business situations. For instance, for establishing a business, the
entrepreneur may select one of the forms of organisation such as a sole trading concern or a

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partnership or a joint-stock company. For raising money, he may issue shares or debentures
or borrow from financial institutions. Similarly, for selling his finished products, he may sell
through a retailer or through middlemen or through his own retail shops. Thus, decision-
making is vital to all management activities.

STEPS IN DECISION·MAKING

Decision-making consists of the following steps in the- order of their sequence (see Fig.).
\
1. Making the Diagnosis.
The first step in decision-making is finding out what really is the problem. If the problem is
not correctly diagnosed, efforts made to solve it will be of no use. For example, if the sales
decline, the management may think that the problem is one of increasing cost. But the real
problem may be inadequate sales planning or decrease in quality or inadequate publicity.
Hence, the efforts made by the management to reduce cost may not help in increasing sales.
Joseph L. Massie has rightly said that "a good decision is dependent upon the recognition of
the right problem ". A correct diagnosis of the problem is of utmost importance because a
disease can be cured only if it is properly diagnosed.
2. Analysing the Problem.
After ascertaining the correct problem, it should be thoroughly analysed and information and
data relating to it should be collected. This will help the management to get a clear idea of the
problem. There may be innumerable factors involved in any problem, but to minimise the
expense of time and effort, analysis should be directed towards pertinent and closely
connected factors for the purpose of collecting information and data. Further, out of the data
and information collected, the management should separate facts from beliefs and opinions
and it should depend mainly on facts for making decisions.'

3. Developing alternative solutions or courses of action.

The next step is to develop alternative solutions or courses of action. The management after
evaluating the various alternatives can make the decision and the evaluation of alternatives
help the management in taking the best decision. For instance, if the management wants to
fill up a vacancy, it should consider various alternatives such as whether to promote from
within, or recruit from outside or to appoint a relative of the previous employee. Similarly,
the methods of selling its products may involve various alternatives such as whether to sell
directly, or through middlemen or a combination of both, viz., direct selling and through

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middlemen. Thus, for every problem there are alternatives and they should be evaluated
before taking a final decision.
4. Selecting the best solution.
The next step is to select the best solution out of the several alternatives developed. For this
purpose, the management has to consider the merits and demerits of each alternative solution
and costs and sacrifices involved in each. Some criteria for selecting the best solution are the
economy of effort; degree of risk, time required for implementation, practicability of the
solution, availability of resources, consonance with the goals of the enterprise. etc. Generally,
sound knowledge and practical experience of the executive will help him to select the best
solution.
5. Converting the decision into effective action.
After selecting the best solution or decision, the management takes steps to translate the
decision into action with the co-operation of the employees. lit order to avoid opposition from
the employees in implementing the decision, it is desirable that the employees should be
associated with the decision-making process.
6. Follow up the decision.
Sometimes, it is possible that a decision taken by a manager may not be a correct one. Hence,
the manager while translating the decision into action, should introduce a system of follow
up. This helps in safeguarding against incorrect decision and also in modifying or altering the
decision without loss of time.

DECISION UNDER CERTAINTY:

LINEAR PROGRAMMING

Linear programming deals with the optimization (maximization or minimization) of a

function of variables known as objective junction, subject to a set of linear equations and/or
inequalities known as constraints. The objective function may be profit, cost, production
capacity or any other measure of effectiveness, which is to be obtained in the best possible or
optimal manner. The constraints may be imposed by different resources such as' market
demand, production process and equipment, storage capacity, raw material availability, etc.
By linearity is meant a mathematical expression in which the expressions among the
variables are linear e.g., the expression a1x1+ a2x2 + a3x3 + ... + anxn is linear. Higher powers
of the variables or their products do not appear in the expressions for the objective function as
well as the constraints (they do not have expressions like x13, x23/2, x1x2, a1x1 + a2 log x2, etc.).
The variables obey the properties of proportionality (e.g., if a product requires 3 hours of
machining time, 5 units of it will require 15 hours) and additivity (e.g., amount of a resource
required for a certain number of products is equal to the sum of the resource required for
each).
It was in 1947 that George Dantzig and his associates found out a technique for
solving military planning problems while they were working on a project for U.S. Air Force.
This technique consisted of representing the various activities of an organization as a linear
programming (L.P.) model and arriving at the optimal programme by minimizing a linear
objective function. Afterwards, Dantzig suggested this approach for solving business and
industrial problems. He also developed the most powerful mathematical tool known as
"simplex method" to solve linear programming problems.

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REQUIREMENTS FOR A LINEAR PROGRAMMING PROBLEM

All organizations, big or small, have at their disposal, men, machines, money and
materials, the supply of which may be limited. If the supply of these resources were
unlimited, the need for management tools like linear programming would not arise at all.
Supply of resources being limited, the management must find the best allocation of its
resources in order to maximize the profit or minimize the loss or utilize the production
capacity to the maximum extent. However, this involves a number of problems which can be
overcome by quantitative methods, particularly the linear programming.
Generally speaking, linear programming can be used for optimization problems if the
following conditions are satisfied:
1. There must be a well-defined objective function (profit, cost or quantities produced)
which is to be either maximized or minimized and which can be expressed as a linear
function of decision variables.
2. There must be constraints on the amount or extent of attainment of the objective and
these constraints must be capable of being expressed as linear equations or
inequalities in terms of variables.
3. There must be alternative courses of action. For example, a given product may be
processed by two different machines and problem may be as to how much of the
product to allocate to which machine.
4. Another necessary requirement is that decision variables should be interrelated and
nonnegative. The non-negativity condition shows that linear programming deals with
real life situations for which negative quantities are generally illogical.
5. As stated earlier, the resources must be in limited supply. For example, if a firm starts
producing greater number of a particular product, it must make smaller number of
other products as the total production capacity is limited.

FORMULATION OF LINEAR PROGRAMMING PROBLEMS

First, the given problem must be presented in linear programming form. This requires
defining the variables of the problem, establishing inter-relationships between them and
formulating the objective function and constraints. A model, which approximates as closely
as possible to the given problem, is then to be developed. If some constraints happen to be
nonlinear, they are approximated to appropriate linear functions to fit the linear programming
format. In case it is not possible, other techniques may be used to formulate and then solve
the model.

Example: A firm produces three products. These products are processed on three different
machines. The time required to manufacture one unit of each of the three-products and the
daily capacity of the three machines are given in the table below.
Time per unit (Minutes) Machine Capacity
Machine
Product 1 Product 2 Product 3 (Minutes / day)
M1 2 3 2 440
M2 4 - 3 470
M3 2 5 - 430

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It is required to determine the daily number of units to be manufactured for each product.
The profit per unit for product 1, 2 and 3 is Rs. 4, Rs. 3 and Rs. 6 respectively. It is assumed
that all the amounts produced are consumed in the market. Formulate the mathematical (L.P.)
model that will maximize the daily profit.
Solution:
Step 1:
From the study of the situation find the key-decision to be made. It this connection, looking
for variables helps considerably. In the given situation key decision is to decide the extent of
products 1, 2 and 3, as the extents are permitted to vary.
Step 2:
Assume symbols for variable quantities noticed in step 1. Let the extents (amounts) of
products, 1, 2 and 3 manufactured daily be xl, x2 and x3 units respectively.

GRAPHICAL METHOD OF SOLUTION

Once a problem is formulated as mathematical model, the next step is to solve the problem to
get the optimal solution. A linear programming problem with only two variables presents a
simple case, for which the solution can be derived using a graphical or geometrical method.
Though, in actual practice such small problems are rarely encountered, the graphical method
provides a pictorial representation of the solution process and a great deal of insight into the
basic concepts used in solving large L.P. problems. This method consists of the following
steps:
1. Represent the given problem in mathematical form i.e., formulate the mathematical model
for the given problem.
2. Draw the xl and x2-axes. The non-negativity restrictions xl ≥ 0 and x2 ≥ 0 imply that the
values of the variables xl and x2 can lie only in the first quadrant. This eliminates a number of
infeasible alternatives that lie in 2nd, 3rd and 4th quadrants.
3. Plot each of the constraint on the graph. The constraints, whether equations or inequalities
are plotted as equations. For each constraint, assign any arbitrary value to one variable and
get the value of the other variable. Similarly, assign another arbitrary value to the other
variable and find the value of the first variable. Plot these two points and connect them by a
straight line. Thus each constraint is plotted as line in the first quadrant.
4. Identify the feasible region (or solution space) that satisfies all the constraints
simultaneously. For ≥ type constraint, the area on or above the constraint line i.e., away from
the origin and for ≤ type constraint, the area on or below the constraint line i. e., towards
origin will be considered. The area common to all the constraints is called feasible region and
is shown shaded. Any point on or within the shaded region represents a feasible solution to
the given problem. Though a number of infeasible points are eliminated, the feasible region
still contains a large number of feasible points.
5. Use iso-profit (cost) function line approach. For this, plot the objective function by
assuming Z = O. This will be a line passing through the origin. As the value ofZ is increased
from zero, the line starts moving to the right, parallel to itself. Draw lines parallel to this line
till the line is farthest way from the origin (for a maximization problem). For a minimization
problem, the line will be nearest to the origin. The point of the feasible region through which
this line passes will be the optimal point. It is possible that this line may coincide with one of

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the edges of the feasible region. In that case, every point on that edge will give the same
maximum/minimum value of the objective function and will be the optimal point.
Alternatively use extreme point enumeration approach. For this, find the co-ordinates
of each extreme point (or comer point or vertex) of the feasible region. Find the value of the
objective function at each extreme point. The point at which objective function is
maximum/minimum is the optimal point and its co-ordinates give the optimal solution.

THE SIMPLEX METHOD (TECHNIQUE OR ALGORITHM)

The graphical method discussed cannot be applied when the number of variables
involved in the L.P. problem is more than three or rather two, since even with three variables
the graphical solution becomes tedious as it involves intersection of planes in three
dimensions. The simplex method, developed by Prof. George B. Dantzig, can be used to
solve any L.P. problem (for which the solution exists) involving any number of variables and
constraints (hundreds or even thousands).
The computational procedure in the simplex method is based on the fundamental
property that the optimal solution to an L.P. problem, if it exists, occurs only at one of the
corner points of the feasible region. The simplex method always starts with initial basic
feasible solution i. e. origin, which is one of the comer points of the feasible region. This
solution is then tested i. e., it is ascertained whether improvement in the value of the objective
function is possible by moving to the next comer point of the feasible region. If so, the
solution at this point is obtained. This search for better comer point is repeated, till after a
finite number of trials, the optimal solution, if it exists, is obtained. This technique will be
explained by considering a few 'examples.

DUALITY IN LINEAR PROG'RAMMING

For every L.P, problem (linear programme) there is a related unique L.P. problem
(another programme) involving the same data which also describes the original problemme).
The given original programme is called the primal programme (P). This programme
can be rewritten by transposing (reversing) the rows and columns of the algebraic statement
of the problem inverting the programme in this way results in dual programme (D). The
variables of the dual programme (problem) are known as dual variables or shadow prices of
the various resources. A solution to the dual programme may be found in a manner similar to
that used for the primal. The two programmes have very closely related properties so that
optimal solution of the dual problem complete information about the optimal 'solution of the
primal problem and vice versa.
Duality is an extremely important and interesting feature of linear programming. The
various useful aspects of this property are
1. If the primal problem contains a large number of rows (constraints) and a smaller
number of columns (variables), the computational procedure can be considerably
reduced by converting it into dual and then solving it. Hence it offers an advantage in
many applications.
2. It gives additional information as to how the optimal solution changes as a result of
the changes in the coefficients and the formulation of the problem. This forms the
basis of postoptimality or sensitivity analysis.

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3. Duality in linear programming has certain far reaching consequences of economic

nature. This can help managers answer questions about alternative courses of action
and their relative values.
4. Calculation of the dual checks the accuracy of the primal solution.
5. Duality in linear programming shows that each linear programme is equivalent to a
two person zero- sum game. This indicates that fairly close relationships exist
between linear programming and the theory of games:
6. Duality is not restricted to linear programming problems only but finds application in
economics, physics and other fields. In economics it is used in the formulation of
input and output systems. In physics it is used in the series circuit and parallel circuit
theory.
7. Economic interpretation of the dual helps the management in making future decisions.
8. Duality is used to solve L.P. problems (by the dual simplex method) in which the
initial solution is infeasible.
9. The solution of the dual problem can be used by the decision-maker for planning or
augmenting (increasing) the resources.

Dual Problem when Primal is in Canonical Form

The general linear programming problem in canonical form as discussed in above section.

maximize Z = c1x1 + c2x2 + c3x3 + ... + cnxn,

subject to a11 x1 + a12x2 + a13x3 +………… + a1nxn ≤ b1,
a21x1 + a22x2 + a23x3 +………..... + a2nxn ≤ b2,
……………………………………………………..
……………………………………………………..
amlxl + am2x2 + am3x3 + .............. + amnxn ≤ bm
where x1, x2, x3,………………, xn, all ≥ 0
If the above problem is referred to as primal, then its associated dual will be
minimize W = bly1 + b2y2 + b3y3 + ................... + bmym,
subject to a11y1 + a21y2 + a31y3 + ………….. + am1ym ≥ c1,
a12y1 + a22y2 + a32y3 + ………….. + am2ym ≥ c2,
…………………………………………………
…………………………………………………
a1n y1 + a2ny2 + a3ny3 + ………… + amnym ≥ cn,
where the dual variables y1, y2, y3, …………….., ym, all ≥ 0.
The above two equations are called symmetric primal dual pairs.
The above pairs of programmes can be written as
Priamal Dual
n m
Maximize Z = ∑cjxj Minimize W = ∑biyi
j=1 i=1

Subject to n Subject to m
∑aijxj ≤ bi, i=1,2,3,….m ∑aijyi ≥ cj, j = 1,2,3,……,n
j=1 i=1

Where xj ≥ 0, j=1,2,3,……….., n Where yi ≥ 0, i=1,2,3………, m

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From the above two programmes, the following points are clear:
1. If the primal contains n variables and m constraints, the dual will contain m variables
and n constraints.
2. The maximization problem in the primal becomes the minimization problem in the
dual and vice versa.
3. The maximization problem has (≤) constraints while the minimization problem has
(≥) constraints.
4. Constraints of ≤ type in the primal become ≥ type in the dual and vice versa.
5. The coefficient matrix of the constraints of the dual is the transpose of the primal.
6. A new set of variables appear in the dual.
7. The constants c1, c2, c3,……., cn in the objective function of the primal appear in the
constraints of the dual.
8. The constants b1, b2, b3,…….. bm in the constraints of the primal appear in the
objective function of the dual.
9. The variables in both problems are non-negative.

TRANSPORTATION MODEL

Assumptions in transportation model

1. Total quantity of the item available at different sources is equal to the total
requirement at different destinations.
2. Item can be transported conveniently from all sources to destinations.
3. The unit transportation cost of the item from all sources to destinations is certainly
and precisely known.
4. The transportation cost on a given route is directly proportional to the number of units
shipped on that route.

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5. The objective is to minimize the total transportation cost for the organisation as a
whole and not for individual supply and distribution centres.

Definition of the transportation model

Transportation models deal with problems concerning as to what happens to the effectiveness
function when we associate each of a number of origins (sources) with each of a possibly
different number of destinations (jobs). The total movement from each origin and the total
movement to each destination is given and it is desired to find how the associations be made
subject to the limitations on totals. In such problems, sources can be divided among the jobs
or jobs may be done with a combination of sources. The distinct feature of transportation
problems is that sources and jobs must be expressed in terms of only one kind of unit.
Suppose that there are m sources and n destinations. Let a, be the number of supply
units available at source i(i = 1,2, 3, ... , m) and let b, be the number of demand units required
at destination j(j= 1,2,3, ... , n). Let cij represent the unit transportation cost for transportating
the units from source i to destination j. The objective is to determine the number of units to
be transported from source i to destination j so that the total transportation cost is minimum.
In addition the supply limits at the sources and the demand requirements at the destinations
must be satisfied exactly.
Ifxij(xij ≥ 0) is the number of units shipped from source i to destination}, then the equivalent
linear programming model will be
Find xij (i = 1, 2, 3, ... , m ;j = 1,2,3, ... , n) in order to
minimize
m n
Z = ∑ ∑ cijxij,
i=l j=l

n
subject to ∑ xij = ai, i = 1,2,3,….., m
j=l

m
and, ∑ xij = bj, j = 1,2,3,…….., n
i=l

where xij ≥ 0.

Methods of solving transportation problem:

1. North-West Corner Rule or North-West Corner Method (NWCM)

2. Least Cost Method (LCM)
3. Vogel’s Approximation Method (VAM)

North-West Corner Rule or North-West Corner Method (NWCM)

This is one of the easiest methods to find initial basic feasible solution

Steps for NWCR / Procedure for NWCR

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1. Start with north-west corner square (upper most left hand square) of the transportation
matrix.
2. Compare the available supply in row & demand in the column and allocate units equal
to supply or demand whichever is less.
3. If the demand in the column is satisfied, move to the right square

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