Lesson 2: Decision-Making

Managers of all kinds and types, including the engineer manager, are primarily tasked to
provide leadership in the quest for the attainment of the organizations objectives. If he is to
become effective, he must learn the intricacies of decision-making. Many times, he will be
confronted by situations where he will have to choose from among various options. Whatever
his choice, it will have effects, immediate or otherwise, in the operations of this organization.
The engineer manager decision making skills will be very crucial to his success as a
professional. A major blunder in decision making may be sufficient to cause the destruction of
any organization. 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
Decisions must be made at various levels in the work place. They are also made at the
various stages in the management process. If certain resources must be used, someone must
take a decision authorizing certain persons to appropriate such resources.
Decision making is a responsibility of the engineer manager. It is understandable for the
managers to make wrong decision at times. The wise manager will correct them as soon as
they are identified. The bigger issue is the manager who cannot do or do not want to make
decisions. Delaney concludes that this type of managers are dangerous and should be remove
from their position as soon as possible.
Management must strive to choose a decision option as correctly as possible. Since they
have that power, they are responsible for what so ever outcome their decisions bring. The
higher the management level is, the bigger and the more complicated decision-making
becomes.
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
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 decisions
8. Evaluate and adapt decisions results
Diagnose Problem
If a manager wants to make an intelligent decisions, his first move must be to identify
the problem. If the manager fails in this aspects, it is almost impossible to succeed in the
subsequent steps. 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.
Analyze the Environment
The environment where the organization is situated plays a very significant role in the
success or failure of such an organization. It is therefore, very important that an analysis of the
environment be undertaken.
The objective of an environmental analysis is the identification of constraints, which
may be spelled out as either internal or external limitations. 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
Example of external limitations are as follows;
1. Patents are controlled by other organizations
2. A very limited markets for the company’s products and services exists.
3. Strict enforcement of local zoning regulations.
When decisions are to be made, the internal and external limitations must be
considered. It may be costly, later on, to alter a decision because of a constraint that has not
been previously identified.
Components of the Environment
The environment consists of two major concerns:
1. Internal and
2. External
The internal environment refers to organizational activities with in a firm that surrounds
decision making.
The external environment refers to variables that are outside the organization and not
typically with in the short run control of top management.
Developed 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 list of alternative solutions.
2. Determine the viability of each solutions.
3. Revised the list by striking out those which are not viable.
Evaluate Alternatives
After determining the viability of the alternatives and a revised list has been made, an
evaluation of the remaining alternatives is necessary. 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 suggest that each
alternative must be analyzed and evaluated in terms of its value, cost and risk characteristics.
The value of the alternatives refers to benefits that can be expected.
Make a Choice
After the alternative 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 efforts should
be made to identify all significant consequences of each choice.
To make the selection process easier, the alternatives can be rank from best to worst on
the basis of some factors like benefit, cost, or risk.
Implement Decision
After a decision has 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 resources must be made available so that the decision may be properly
implemented. Those who will be involved in implementation, according to Aldag and Stearms,
must understand and accept the solution.
Evaluate and Adapt Decisions Results
In implementing the decisions, the results expected may or may not happen. It is
therefore, important for the manager to use control and feedback mechanism to ensure
results and to provide information for future decisions.
Feedback refers to the process which requires checking at each stage of process to
assure that the alternatives generated, the criteria used in evaluation, and the solution
selected for the 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 stage of the decision-making process, the engineer 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.
APPROACHES IN SOLVING PROBLEMS
In 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. Qaulitative Evaluation
2. quantitative evaluation
 Qualitative Evaluation. 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.
Quantitative Evaluation. This term refers to the evaluation of alternatives using any technique
in a group classified as rational and analytical.
QUANTITATIVE MODELS FOR DECISIONMAKING
The types of quantitative techniques which may be useful in decision-making are as
follows:
1. inventory models
2. queuing theory
3. network model
4. forecasting
5. regression analysis
6. Simulation
7. linear programming
8. sampling theory
9. Statistical decision theory
Inventory Models
Inventory models consist of several types all designed to help the engineer manager
make decisions regarding inventory. They are as follows:
1. Economic order quantity model-this one is 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 inventory.
2. Production order quantity model economic order quantity technique applied to
production orders.
3. Back order inventory model this is an 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 customer waiting time and cost of service.
The queuing theory is applicable to companies where waiting lines are a common situation.
Examples are cars waiting for service at a car service center, ships and barges waiting at the
harbor for loading and unloading by dock- workers, programs to be run in a computer system
that processes jobs, etc.
Network Models
These are models where large complex tasks are broken into smaller segments that can
be managed independently.
 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 net- work technique using only one time
factor per activity that enables engineer managers to schedule, monitor, and control
large and complex projects.
Forecasting
There are instances when engineer managers make decisions that will have implications
in the future. A manufacturing firm, for example, must put up a capacity which is sufficient to
produce the demand requirements of customers within the next 12 months. As such, man-
power and facilities must be procured before the start of operations. To make decisions on
capacity more effective, the engineer manager must be provided with data on demand
requirements for the next 12 months. This type of information may be derived through
forecasting.
Forecasting may be defined as "the collection of past and current information to make
predictions about the future.

Regression Analysis
The regression model 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. When one independent variable is involved, it is called simple
regression; when two or more independent variables are involved, it is called multiple
regression.
Simulation
Simulation is a model constructed to represent reality, on which conclusions about real-
life problems can be used. It is a highly sophisticated tool by means of which the decision
maker develops a mathematical model of the system under consideration.
Simulation does not guarantee an optimum solution, but it can evaluate the alternatives
fed into the process by the decision-maker.
Linear Programming
Linear programming is a quantitative technique that is used to produce an optimum
solution within the bounds imposed by constraints upon the decision." Linear Programming
Linear programming 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
Sampling theory is a quantitative technique where samples of populations are
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
Decision theory refers to the "rational way to conceptualize, analyze, and solve
problems in situations involving limited, or partial information about the decision
environment.
A more elaborate explanation of decision theory is the decision making process
presented at the beginning of this chapter. What has not been included in the discussion on
the evaluation of alternatives, but is very important, is subjecting the alternatives to Bayesian
analysis.
 The purpose of Bayesian analysis is to revise and update the initial assessments of the
event probabilities generated by the alternative solutions. This is achieved by the use of
additional information.
When the decision-maker is able to assign probabilities to the various events, the use of
probabilistic decision rule, called the Bayes eriterion, becomes possible. The Bayes eriterion
selects the decision alternative having the maximum expected payoff, or the minimum
expected loss if he is working with a loss table.

SUMMARY
Decision-making is a very important function of the engineer manager. His organization
will rise or fall depending on the outcomes of his decisions. It is, therefore, necessary for the
engineer manager to develop some skills in decision-making.
The process of identifying and choosing alternative courses of action in a manner
appropriate to the demands of the situation is called decision-making. It is done at various
management levels and functions.
The decision-making process consists of various steps, namely: diagnose problem,
analyze environment, articulate problem or opportunity, and develop viable alter- natives,
evaluate alternatives, make a choice, implement decision, and evaluate and adapt decision
results.
There are two approaches in solving problems, namely: qualitative evaluation and
quantitative evaluation. Qualitative evaluation is used for solving fairly simple problems, while
quantitative evaluation is applied to complex ones.