Chapter 2: Decision Making correctly as possible.

Since they
have that power, they are
responsible for whatever outcome
Objectives: their decisions bring. The higher the
management level is, the bigger
• Decision Making as a Management
and the more complicated
Responsibility
decision-making becomes.
• What is Decision Making?
o The Decision-Making
Process
What is Decision–Making?
o Approaches in Solving
Problems • Decision-making may be defined
o Quantitative Models for as “the process of identifying and
Decision Making choosing alternative courses of
action in a manner appropriate to
Introduction
the demands of the situation.”
• Managers of all kinds and types, • Decision-making, according to
including the engineer manager, Nickels and others, “is the heart of
are primarily tasked to provide all the management functions.”
leadership in the quest for the
attainment of the organization’s
objectives. The Decision-Making Process
• The engineer manger’s decision-
Diagnose Problem
making skills will be very crucial to
his success as a professional. • What is a Problem?
• Good decisions, on the other o A problem exists when there
hand, will provide the right is a difference between the
environment for continuous growth actual situation and a
and success of any organized desired situation.
effort. • If a manager wants to make an
intelligent decision; his first move
must be to identify the problem. If
Decision-Making as a Management the manager fails in this aspect, it is
Responsibility almost impossible to succeed in
the subsequent steps.
• Decision-making is the
• An expert once said, “identification
responsibility of the engineer
of the problem is tantamount to
manager. Management must strive
having the problem half-solved.”
to choose a decision option as
Analyze the Environment within the short-run control of top

• The objective of environmental management.

analysis is the identification of o Organizational Aspects
constraints, which may be
o Marketing Aspects
spelled out as either internal or
external limitations. o Personnel Aspects
o Production Aspects
Example of internal limitations are as
follows: o Financial Aspects

1. Limited fund available for the

purchase of equipment.
Develop Viable Alternatives
2. Limited training on the part of
employee. Oftentimes, problems may be solved
3. Ill-designed facilities. by any of the solutions offered. The best
among the alternative solutions must be
Examples of external limitations are as
considered by management. This is made
follows:
possible by using a procedure with the
1. Patents are controlled by other following steps:
organizations.
1. Prepare a list of alternative
2. A very limited market for the
company’s products and solutions
services exists. 2. Determine the viability of each
3. Strict enforcement of local solution
zoning regulations.
3. Revised the list by striking out those
Components of the Environment
which are not viable.
The environment consists of two major
concerns:

1. Internal environment-refers to
organizational activities within a
firm that surrounds decision
making.
2. External environment- refers to
variables that are outside the
organization and not typically
Evaluate Alternatives solutions to a problem. At this point

• After determining the viability of the Webber advises that “particular

alternatives and a revised list has effort should be made to identify

been made, an evaluation of the all significant consequences of

remaining alternatives is each choice.”

necessary. This is important

because the next step involves
Implement-Decision
making a choice. Proper
• Implementation refers to carrying
evaluation makes choosing the
out the decision so that the
right solution less difficult.
objectives sought will be achieved.
• How the alternatives will be
• At this stage, the resources must be
evaluated will depend on the
made available so that decision
nature of the problem, the
may be properly implemented.
objectives of the firm, and the
• According to Aldag and Stearns,
nature of the alternative
those who will be involved must
presented.
understand and accept the
solution.
Make a Choice

• After the alternatives has 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
Evaluate and Adapt Decision Results

• 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.
• This last stage of the decision-
making process, that engineer
manager will find out whether or
not the desired result is achieved.
APPROACHES IN SOLVING PROBLEMS QUANTITATIVE MODELS FOR DECISION

In decision making the engineer manager MAKING

is faced with problems which may either
1. Inventory Models
be simple or complex. To provide him with
some guide, he must be familiar with the • Consist of several types all
following approaches. designed to help the engineer
manager make decisions
1. Qualitative evaluation – refers to regarding inventory. They are as
evaluation of alternatives using follows:
intuition and subjective judgement. o Economic order quantity model
▪ This one is used to calculate
o The problem is fairly simple.
the number of items that
o The problem is familiar. should be ordered at one
o The costs involved are not time to minimize the total
great. yearly cost of placing orders
and carrying the items in
o Immediate decisions are
inventory
needed. o Production order quantity
model
▪ This is an economic order
2. Quantitative evaluation- refers to
quantity technique applied
the evaluation of alternatives using to production orders.
any technique in a group classified o Back-order inventory model
▪ This is an inventory model
as rational and analytical.
used for planned shortages.
o Quantity discount model
▪ An inventory model used to
minimize the total cost
when quantity discounts are
offered by suppliers.
2. Queuing Theory 4. Forecasting
• is one that describes how to • may be defined as the “
determine the number of collection of past and current
service units that will minimize information to make
both customers waiting time predictions about the future.”
and cost of service.
5. Regression Analysis
3. Network Models • is a forecasting method that
• These are models where large examines the association
between two or more variables.
complex tasks are broken into
It is used data from previous
smaller segments that can be periods to predict future
managed independently. events.

o The Program Evaluation Review

6. Simulation
Technique (PERT) – enables
• It is a model constructed to
managers to schedule, monitor
represent reality, on which
and control large and complex
conclusions about real-life
projects by employing three time
problems can be used.
estimates for each activity.
o The Critical Path Method (CPM)
– network technique using only
one time factor per activity that
enables engineer managers to
schedule, monitor and control
large and complex projects.
7. Linear Programming Summary
• It is a quantitative technique • Decision-making is a very important
that is used to produce an
function of the engineer manager.
optimum solution within the
bounds imposed by constraints His organization will rise or fall
upon the decision. depending on the outcomes of his
decisions. It is, therefore, necessary
8. Sampling Theory
for the engineer manager to develop
• It is a quantitative technique
some skills in decision-making.
where sample of populations
• The process of identifying and
are statistically determined to
choosing alternative courses of
be used for a number of
action in a manner appropriate to
processes, such as quality
the demands of the situation is
control and marketing
called decision-making. It is done at
research.
various management levels and
functions.
9. Statistical Decision Theory
• There are two approaches in solving
• It refers to the rational way to
problems, namely: qualitative
conceptualize, analyze, and
evaluation and quantitative
solve problems in situations
evaluation. Qualitative evaluation is
involving limited, or partial
used for solving fairly simple
information about the decision
problems, while quantitative
environment.
evaluation is applied to complex
ones.