DECISION-MAKING

Managers of all kinds and types, including the engineer manager, are primarily tasked to
provide leadershlp in the quest for the attalnmentofthe organization's objectives. If he is to
become effective, he must learn theintricacies of decision-making.
The engineer manager's decision-making skills will be very crucial to his success as a
professional.
Good decisions, on the other hand, will provide the right environment for continuous
growth and success of any organized effort.

DECISION-MAKING AS A MANAGEMENT RESPONSIBILITY

Decision-making is a responsjbility of the engineer manager. It is understandable for
managers 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 can not or do not want to
make decisions. Delaney concludes that this type of manager are dangerous and "should
be removed from their position as soon as possible."
The higher the management level is, the bigger and the more complicated decision-
making becomes.
An example may be provided as follows:

The production manager of a certain company has received a written request

from a section head regarding the purchase of an airconditioning unit. Almost
simultaneously, another request from another section was forwarded to him requiring
the purchase of a forklift. The production manager was informed by his superior that
he can only buy one of the two requested items due to budgetary constraints.

The production manager must now make a decision. His choice, however, must be
based on sound arguments for he will be held responsible, later on, if he had made the
wrong choice.

WHAT IS DECISION-MAKING?
Decision-making may be defined as "the process of identifying and choosing
alternative courses of action in a manner appropriate to the demands of the situation."
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

According to David H. Holt, rational decision-making 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 deciaion results

Diagnose Problem
If a manager wants to make an intelligent decision, his first move must be to
identify the problem. An expert once said"identification of the problem is tantamount
to having the problem half-solved."
What is a Problem?
A problem exists when there is a difference between an actual situation and a
desired situation.

Example:
The management of a constructioncompany entered into a contract with
another party for the construction of a 25-storey building on a certain site. The actual
situation of the firm is that it has not yet constructed the building and the desired
situation is the finished25-storey building.

The company, therefore, has a problem and that is, the construction of the 25-storey
building.

Analyze the Environment

The. environment where the organization is situated plays a very significant
role in the success or failute of such an organization. It is, therefore, very important
that an analysis of the environment be undertaken.

The objective of environmental analysis is the identification

of constraints, which may be spelled out as
either internal or external limitations. Example of intern
al limitations are as fo11ows:
1. Limited funds available for the purchase of
equipment.
2. Limited training on the part of employees.
3. Ill-designed facilities.
Examples of external limitations are as follows:
1. Patents are controlled by other organizations.
2. A very limited market for the company's products and service
 3. Strict enforcement of local zoning regulations.

An illustration of failure to analyze the environment is as follows:

The president of a new chemical manufact\Uing

company made a decision to looate his factory in a
place adjacent to a thickly populated area. Construction
of the building was made with precision and
was finished in a short period. When the clearance
for the commencement of operation was sought from
local authorities, this could not be given. It turned
out that the residents opposed tbe operation of the
firm and m11de sure that no clearance is given.
The president decided t<> relocate the factory but
not after much time and money has been lost. This
is a clear example of the cost associated with management
disregarding the environment when
decisions are made. In this ease, the president did·
not consider what the residents could do.
The president decided to relocate the factory but not after much time and money has
been lost. This is a clear example of the cost associated with management
disregarding the environment when decisions are made. In this ease, the president did·
not consider what the residents could do.

Components of the Environment.

The environment consists of two major concerns:

1. internal
2. external

Internal environment
refers to organizational activities within a firm that surrounds decision-making.~
Shown in Figure 2.1 are the important aspects of the internal environment.
External environment
refers to variables that are outside the organization and not typically within the
short·run control of top management.
Figure 2.2 shows the forces comprising the external environment of the firm.

Develop Viable Alternatives

Oftentimes, problems may be solved by any of the

solutions offered. The best among the alternative solutions must 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 Jist by striking out those which are not viable.

Example:
An engineering firm has a problem of increasing
its output by 30%. This is the result of a new
agreement between the firm and one of its clients

The list of solutions prepared by the engineering manager shows the following
alternative courses of action:

1. improve the capacity of the finn by hiring more

workers and build·:ng additional facilities;
2. secure the serviras of subcontractors;
3. buy the needed additional output from another firm
4. stop serving some of the company's customers;
5. delay servicing some clients.

The list was revised and only the first three were
deemed to be viable. The last two were deleted because
of adverse effects in the long-run profitability of the firm.

Evaluate Alternatives
After determining the viability of the alternatives
and a revised list has been made, an evaluation of the
remaining alternatives is necessa.ry. This is important
because the next step involves making a choice. Proper
evaluation makes choosing the right solution less difficult.

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 ofits value, cost, and risk characteristics.
The value of the alternatives refers to benefits that can be expected.
Example
A net profit of ~10 million per year if the alternative is chosen.

The cost of the alternative refers to

out-of-pocket costs(l100 million for construction of facilities),
opportunity costs (like the opportunity to earn interest of ~2 million per ye.ar if
money is invested elsewhere), and
follow-on costs (like ~3 million per year for maintenance of facilities constructed).

The risk characteristics refer to the likelihood of

achieving the goals of the alternatives. If the probability
of a n&t profit of ~10 million is only 10 percent, then the
decision-maker may opt to consider an alternative with
a 5 million profit but with an SO percent probability of
success.

Example of an evaluation of alternatives

An engineer manager is faced with a problem
of choosing between three applicants to fill up a lone
vacancy for a junior engineer. He will have to set up
certain criteria for evaluating the applicants. If the
evaluation is not done by a professional human
resources officer, then the engineer manager will be
forced to use a predetermined criteria.
A typical evaluation of job applicants will appear
as follows:

1. Make a Choice
After the alternatives have been evaluated, the
decision-maker must now be ready to make a choice. This
is the point where he must be convinced that all the
previous steps were ·correctly undertaken.
Choice-making refers to the process of selecting
among alternatives representing potential solutions to a
problem.• At this point, Webber advises that • ... particular
effort should be made to identify all significant conse·
quences of each choice.

To make the selection process easier, the alternatives

can be ranked from best to worst on the basis of some
factors like benefit, cost, or risk.

2. Implement Decision

After a decision bas been made, implementation follows. This is necessary, or

decision-making will be an exercise in futility.

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 r esources must be made available so that the decision may be
properly implemented. Those who will be involved in implementation, accord·
ing to Aldag and Stearns, must understand and accept
the solution.

3. Evaluate and Adapt Decision Res ults

In implementing the decision, the results expected may or may not happen. It is,
therefore, important for the manager to use control and feedback mechanisms to
ensure results and to provide information for future decisions.

Feedback
refers to the process which requires checking at each stage of the process to
assure that the 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 goals that have been set.

In this last stag.e of the decision-making process, the engmeer manager will find out
whether or not the desired result 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 further analysis is necessary.
Figure 2.3 presents an elaboration of this last step.

APPROACHES IN SOLVING PROBLEMS

1. qualitative evaluation, and

2. quantitative evaluation.

Qualitatiue Eualuation.
This term refers to evaluation
of alternatives using intuition and subjective judgment.
Stevenson states that managers tend to use the qualitative
approach when:

1. The problem is fairly simple.

2. The problem is familiar.
3. The costs involved are not great. Low cost.
4. Immediate decisions are needed.

Example:
A factory operates on three shifts with the
following schedule:
First shift - 6:00 A.M. to 2:00 P.M.
Second shift- 2:00 P.M. to 10:00 P.M.
Third shift - 10:00 P.M. to 6:00 A.M.

Each shift consists of200 workers manning 200

machines. On September 16, 1996, the operations
went smoothly until the factory manager, an indua·
triol engineer, was notified at 1:00 P.M. that five of
the workers assigned to the second shift could not
report for work because of i~uries sustained in a
traffic acodent while they were on their way to the
factory.
Because of time constraints, the manager made
on instant decision on who among the first shift workers would work overtime to man the
five machines.

Quantitative Evaluation
This term refers to the
evaluation of alternatives using any technique in a group
classified 118 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