2024 September 17

Decision
Making
Group 2
BSCESEP - 3A - T Engineering Management
CONTENTS
A. Decision-Making Responsibility
B. The Decision-Making Process
C. Approaches in Solving Problems
D. Quantitative Models for Decision-Making

2
Decision
A deliberate choice made from various
options to address a specific challenge or
opportunity. It involves selecting the best
course of action to achieve desired
outcomes, whether it's choosing the right
technology, allocating resources or settling
project failures.
Decision - Making
A process by which engineers and
managers identify and choose
alternative courses of action in a
manner appropriate to the demands of
the situation.
Acording to Nickel et al., decision
making is the "heart of all the
management functions"
 A
Characteristics of Decision-Making
Selective and Goal-Oriented: Decision-making involves choosing the
best alternative to achieve a specific goal.
Process Involvement: It includes defining the problem, analyzing
alternatives, and making a final choice.
Human and Rational: It’s a human and rational process involving
intellect, intuition, and instincts.
Dynamic and Risky: It’s dynamic and involves risks and uncertainties,
with solutions varying over time (Drucker).
Characteristics of Decision-Making
Creative and Integrative: Decision-making is a creative process that
blends knowledge, thought, feeling, and imagination (G.L.S. Shackle).
Core to Management and Planning: It’s central to management and
planning, including forecasting and problem-solving.
Continuous and Iterative: It’s a continuous process where decisions are
made iteratively, with learning from past decisions.
 IMPORTANCE OF
DECISION-MAKING
 Central to Planning
Decision-making is crucial for planning in engineering
management. It involves setting project goals, choosing
strategies to achieve them, and defining the steps to follow.
Good planning ensures projects are clearly defined and
resources are used efficiently.
 Key to Organizing
Organizing involves structuring tasks and teams effectively.
Decisions about job roles, team structure, and resource
allocation help streamline work and improve efficiency. Proper
organization ensures that tasks are matched with the right
skills and that workflows are smooth.
 Essential for Leading
Leadership decisions focus on motivating the team, choosing
the right leadership style, and managing conflicts. Effective
leadership through decision-making boosts team morale,
enhances performance, and ensures everyone works towards
the same goals.
 Crucial for Controlling
Controlling involves monitoring project progress and making
decisions to correct issues. Deciding what to monitor, how to
measure performance, and what actions to take if things go
off track helps keep projects within budget and on schedule.
 Decision-Making as a
Management Responsibility
Decision-making is a critical responsibility of the engineer manager.
It is understandable that managers may make wrong decisions at times, but
wise managers correct them as soon as they are identified.
A more significant issue arises when managers cannot or do not want to
make decisions.
Management must strive to make decisions as accurately as possible and
are accountable for the outcomes.
The higher the management level, the bigger and more complicated
decision-making becomes.
DECISION-MAKING
PROCESS
IDENTIFY THE GATHER DEVELOP EVALUATE
PROBLEM INFORMATION ALTERNATIVES ALTERNATIVES

REVIEW & MAKE OR CHOOSE THE

REFLECT THE IMPLEMENT THE BEST
RESULTS DECISION ALTERNATIVE
 E
Sample Scenario
Engr. Sibal Riego is managing a road construction
project in Costa Leona, a remote town in Aklan. This
project will benefit the province in terms of better
access and connectivity. However, Engr. Riego is
experiencing significant delays due to unreliable local
supplier who often fail to deliver materials on time or
provide subpar or below average quality.
 Identify the Problem
The first step in decision-making is to recognize that there is a
problemthat needs to be tackled and it is important enough
for managerial action. Problems generally arise because of
disparity between what is and what should be.
Problem
Engr. Sibal Riego is facing delays in the road
construction project in Costa Leona due to
unreliable local suppliers. These suppliers either
fail to deliver materials on time or provide
materials of subpar quality. This problem affects
project timelines, quality, and possibly costs.
Gather Relevant Information
After recognizing the problem, the next phase of decision
making involves classifying the problem and gathering relevant
information. Information can be gathered internally or
externally depending on the needs of the situation. Some
problems are unique to the company itself so that all the data
that is generated is internal and the basic source of this data
is the management information system while for some
problemsthe data are collected from both internal and
external environment.
Relevant
Information
The frequency of delays from suppliers and reasons
behind them (transportation, production issues, etc.).
The specific materials that have been delayed or are
substandard.
Alternative suppliers available in or near Aklan or
nearby provinces.
The potential impact of these delays on the overall
project timeline and costs.
 Develop Alternatives
After gathering the relevant information, the decision-maker
should formulate alternative solutions for the business problem.
There is hardly any problem in the world wherein alternatives
can’t be developed. So the decision-maker must develop a range
of alternatives in order to decide. This can be done by mixing up
resources in different proportionsthinking about the same
problem in different perspectives. It is desirable that we should
think of as many alternatives as possible before the decision
stage.
Alternatives
Find new, more reliable suppliers who may have more
resources and reliability than local suppliers even if
they are farther away.
Negotiate stricter terms with existing suppliers,
including penalties for late deliveries or substandard
materials.
Establish partnerships with multiple suppliers.
Pre-order materials in bulk to avoid delays, provided
there is enough storage.
 S

Evaluate Alternatives
After developing all alternatives, the next step should be to
judge and evaluate them through some good decision criteria.
The main goal here is to figure out what the outcome of each
option would be if it were chosen and to see how well it would
solve the problem or meet the project’s goals. By evaluating
the alternatives, we can weigh the pros and cons of each,
helping us pick the solution that’s most likely to be effective
and successful.
Alternatives
Evaluation
New suppliers: May offer better reliability but could
increase costs due to transportation or unfamiliarity.
Stricter negotiations: Could improve supplier
performance but may strain relationships.
Multiple suppliers: Diversifies risk but could introduce
coordination issues and more complexity.
Pre-ordering in bulk: Ensures steady supply but may
increase storage costs and risks related to over-ordering.
Choose the Best Alternative
After evaluating the alternatives, 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 consequences of each choice.”
Best Alternative
The best alternative would likely be a mix of
negotiating stricter terms with current suppliers,
while also seeking out backup suppliers in case of
failure. Additionally, pre-ordering certain key
materials in bulk could minimize delays without
incurring significant storage costs.
Make/Implement the 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
The Decision
Approach current suppliers to discuss stricter
contracts with penalties for non-performance.
Start negotiations or procurement with backup
suppliers.
Identify and pre-order crucial materials that could
cause the most disruption if delayed.
 Review & Reflect the 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.
Review and
Reflection
Monitor the performance of suppliers over time
and whether delivery times improve.
Assess if any penalties need to be enforced or if
new suppliers prove more reliable.
Evaluate the impact on the project timeline and
whether delays have decreased.
Reflect on whether further actions, such as
switching suppliers completely or using bulk orders
more frequently, are necessary.
 U

APPROACHES IN
SOLVING
PROBLEMS
Qualitative Evaluation
It refers 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 fairly simple.
2. The problem is familiar.
3. The costs involved are not great.
4. Immediate decisions are needed.
 Sample Scenario
A chemical manufacturing plant 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 of 200 workers manning 200 machines. On November 24,
2015, the operations went smoothly until the operations manager, a chemical
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 injuries sustained in a
traffic accident while they were on their way to the factory.
 What could be the
manager’s decision?
Quantitative Evaluation
It refers to the use of mathematical models
to seek optimal solutions to problems in a
given business situation, while recognizing
the constraints imposed by the environment.
Key characteristics include:
1. Objective Measurement
2. Data-Driven
3. Statistical Analysis
QUANTITATIVE
MODELS
 Inventory Model
Inventory refers to idle goods or materials held by an organization for future
use. While it plays a crucial role, the costs associated with financing and
maintaining inventory represent a significant part of business expenses.

Two important questions that must be answered in order to effectively

manage inventories are as follows:
1. How much should be ordered when the inventory for an item is
replenished?
2. When should the inventory be replenished? 5
T
Types of Inventory Model
Economic Order Quantity Model (EOQ)
Used to calculate how many items to order at once to
minimize the total annual cost of ordering and storing
inventory.

D = Annual Demand
C = Carrying Cost
S = Ordering Cost
Types of Inventory Model
Production Order Quantity Model (POQ)
An economic order quantity technique applied to
production orders.
Types of Inventory Model
Quantity Discount Model
This is an inventory model used to minimize the
total cost when quantity discounts are offered by
suppliers.
 Queuing Theory
Describes how to determine the number
of service units that will minimize both
customer waiting time and cost of service.
Key measures for balancing capacity and
waiting costs include:
Average time in the queue
Average length in the queue
Average customer in the system
Number of customers in the queue
Probability of system being used
 Forecasting
Forecasting plays a major role in
decision-making because forecasts
are useful in improving the efficiency
of the decision-making process.
Businesses utilize forecasting to
determine how to allocate their
budget or plan for anticipated "The collection of past and current
expenses for an upcoming period. information to make predictions about
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the future"
Example:
A company, ABC Electronics, is planning to launch a new
smartphone model called "SmartX". To ensure efficient
production, marketing, and distribution, the company
needs to forecast the demand for SmartX over the next 6
months. Accurate demand forecasting will help the
company avoid overproduction (leading to excess
inventory costs) or underproduction (leading to stockouts
and lost sales opportunities).
 Regression Analysis
A popular technique among
economists and statisticians,
regression analysis uses complex
statistical equations to estimate the
impact of one or more factors,
known as predictors or independent
variables, on an outcome of interest,
known as a dependent variable.
Types of Regression Analysis
Simple Linear Regression
used to model the relationship between two continuous variables. Often, the
objective is to predict the value of an output variable (or response) based on
the value of an input (or predictor) variable.
Y = a + bX
where:
Y is the dependent variable
X is the independent variable
a is the intercept (the value of Y when X = 0)
b is the slope (the change in Y for a one-unit
change in X)
Example:
Suppose we want to understand the relationship between
a company's stock price (dependent variable) and the
company's quarterly earnings (independent variable). For
several quarters, we collect historical data on the
company's earnings and stock prices. And by performing
simple linear regression, we can identify the linear
relationship between earnings and stock prices, if any.
 Y
Types of Regression Analysis
Multiple Regression
extends linear regression by considering multiple independent variables to
predict the dependent variable

Y = a + b₁X₁ + b₂X₂ + ... + bₙXₙ

where:
Y is the dependent variable
X₁, X₂, ..., Xₙ are the independent variables.
a is the intercept
b₁, b₂, ..., bₙ are the coefficients of the
independent variables
Example:
In real estate, we can predict the selling price of a house
based on various factors such as area, number of bedrooms,
number of floors, and location. This is where multiple linear
regression comes into play.
 Simulation
Simulation is a broad term indicating
any activity that attempts to imitate an
existing system or situation in a
simplified manner. Simulation is
basically model building, in which the
simulator tries to gain understanding
by replicating something and then
manipulating it by adjusting the
variables used to build the model.
Examples:
Engineering Systems
Simulation is widely used for engineering systems to imitate operations
and functions of equipment, processes, and procedures. Engineering
simulations can combine mathematical models and computer-assisted
simulation for the design or improvement of existing processes.
Robotics
Robotics simulations are used to mimic situations that may not be
possible to recreate and test in real life due to time, cost, or other
factors. The results of these tests can then be assessed and
transferred to real-life robots.
 Linear Programming
A method used to achieve the best
outcome (e.g., maximum profit or lowest
cost) in a mathematical model with linear
relationships. It's commonly applied in
resource allocation, production
scheduling, and project selection, helping
managers efficiently allocate limited
resources while meeting constraints and
optimizing objectives.
Example:
A company wants to maximize its profit by producing two
products, A and B. The profit from product A is $5 per unit,
and from product B is $3 per unit. The company has 100
hours of labor and 180 units of raw materials available. Each
unit of product A requires 2 hours of labor and 3 units of
raw materials, while each unit of product B requires 1 hour of
labor and 2 units of raw materials.
 Sampling Theory

Sampling theory is a branch of

statistics that deals with selecting a
representative part of a population.
It enables reliable decisions based
on smaller samples, making it
essential for surveys and experiments
where studying the entire population
is impractical. 5
Examples:

For instance, imagine a researcher who wants to determine the

average height of students in a large university with tens of thousands
of students. It would be logistically impossible to measure every
student's height. Instead, sampling theory guides the researcher to
collect a sample, such as measuring the height of 500 randomly
selected students. This sample, if chosen correctly, will provide a good
estimate of the average height across all students.
 Statistical Decision Theory
Decision theory is a rational approach to solving problems with
limited information. Statistical decision theory is concerned
with the making of decisions in the presence of statistical
knowledge (data), which sheds light on some of the
uncertainties involved in the decision problem. The goal is to
choose actions that lead to the best outcome by assessing risk,
accounting for uncertainty, and establishing an optimal decision
rule. 5
 D
Example:
A drug company wants to produce the right quantity of a drug for
the market to maximise their profit. However, we don’t know the
true market demand. This uncertainty greatly affects the
company’s profit. The consequences of over-production and
under-production can be different. We need to identify the
impact on the profit if our production mismatches the market
demand.
Four Styles in Decision-Making

1. Directive
2. Analytical
3. Conceptual
4. Behavioral
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 2024 September 17

Thank You!

Group 2
BSCESEP - 3A - T Engineering Management