DECISION

DECISION
MAKING
MAKING
BY: Group 1
DECISION-MAKING
as a Management Responsibility 01
WHAT IS DECISION MAKING ?
02
03 APPROACHES IN SOLVING
PROBLEMS

04 QUANTITATIVE MODELS FOR

DECISION- MAKING
 - the process of identifying
and choosing alternative
What courses of action in a
manner appropriate to the
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demands of the situation

Making?
 The Decision Making Process
Rational decision- making, according to David H.
Holt, is a process involving the following steps:
I. Diagnose a Problem
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II. Analyze the Environment

III. Develop Viable Alternatives
IV. Evaluate Alternatives
V. Making a Choice
VI. Implementing Decision
VII. Evaluate and Adapt Decision Results
 01 Diagnose the Problem

Identify the Problem

3 2 An expert once said, “ identification of the problem 1

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is tantamount to having the problem half solved.”

What is a problem?
A problem exists when there is a difference
between the actual situation and the desired
situation.
 Analyze the Environment 02
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The objective of environmental analysis is

the identification of constraints.
 Analyze the Environment 02
Examples of Internal Examples of External
Limitations Limitations

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1. Limited funds 1. Patents are controlled
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available for the by other organizations.

purchase of equipment. 2.A very limited market
2. Limited training on for the company's
products and services
the part of the
exists.
employees.
3. Strict enforcement of
3. III-designed facilities. local zoning regulations.
 Analyze the Environment 02
COMPONENTS OF THE ENVIRONMENT
The environment consists of two major
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concerns:
Internal Environment refers to organizational
activities within a firm that surrounds.
External Environment refers to variables that
are outside the organization and not typically
within the short-run control of top
management.
 I. The Engineering Firm and the Internal
Environment in Decision Making
THE ENGINEERING FIRM

INTERNAL ENVIRONMENT
 Organizational Aspects

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EXTERNAL
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(org. structures,policies, rules, etc) ENVIRONMENT

 Marketing Aspects
(product and promotion strategy)
 Personnel Aspects
(recruitment practices, etc) DECISION
 Production Aspects
(plant facility layout, inventory
control, etc.)
 Financial Aspects EXTERNAL
ENVIRONMENT
(profitability, etc)
 I. The Engineering Firm and its External
Environment

Government
Engineers Labor Unions
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Clients ENGINEERING FIRM Suppliers

Competitors Banks
Public
 Develop Viable Alternatives 03
Oftentimes, problems may be solved by any of the
solutions offered. The best among the alternative
solutions must be considered by the management.
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This is made possible by using a procedure with

the folllowing steps:
1. Prepare a list of alternative solutions.
2. Determine the viability of each solutions.
3. Revise the list by striking out those which are
not viable.
 Develop Viable Alternatives 03
Alternative courses of action:
1. Improve the capacity of the firm by hiring more
workers and building additional facilities.
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2. Secure the services of subcontractors;

3. Buy the needed addtional output from another
firm;
4. Stop serving some of the company's customers;
and
5. Delay servicing some client
 Evaluate Alternatives 04
 Proper evaluation makes choosing the
right solution less difficult.
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 Alternatives will be evaluated depending

on the nature of the problem, the
objectives of the firm, and the nature of
the alternatives presented.
 Evaluate Alternatives 04
 “Each alternative must be analyzed and valuated in
terms of its value, cost, and risk characteristics.”
(Souder)
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 Value of the alternatives refers to the benefits that

can be expected.
 Cost of the alternative refers to the buy-of-pocket
costs, oppurtunity costs, and follow-on costs
 Risk Characteristics refers to the likelihood of
achieving of the goals of the alternatives
 Making a Choice

 CHOICE MAKING refers to the process of

selecting among the alternatives representing
potential solutions to a problem
 Webber advises that ”... particular effort should
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be made to identify all significant consequences

of each choice.”
 Alternatives can be ranked from the best to the
worst on the basis of some factors like benefit,

05 cost or risk.
 Implementing Decision
 Implementation refers to carrying out the
decision so that the objectives sought will
be achieved.
 A plan must be devised.
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At this stage:
• Resources must be available
• Those involved in the implementation
must understand and accept the solution
(Aldag and Stearns)
06
 Evaluate and Adapt Decision Results
 In implementing the decision, the results
expected may or may not happen.
 CONTROL and FEEDBACK MECHANISM
 FEEDBACK - the process which requires checking at
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each stage of the process to assure that the

alternatives generated the criteria used in the
evaluation, and the solution selected for
implementation are in keeping with the goals and
objectives originally specified
 CONTROL - refers to the actions made to ensure that
activities performed matched the goals 07
 Evaluate and Adapt Decision Results

 If the desired result is achieved, one may

3 2 assume that the decision made was good. 1

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 If not achieved, further analysis is

necessary. (Farell and Hirt)

07
 diagnose

Feedback as a Control Mechanism in

Step 1 problem
analyze

the Decision-Making Process

environment
articulate
problem or
oppurtunity
develop
viable
alternatives
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evaluate
alternatives
make a
choice
implement
decision
evaluate results not determine
results achieved steps where
error was

07
results adapt decision made
achieved results
 3 APPROACHES IN 1
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PROBLEM SOLVING
 01 APPROACHES IN
PROBLEM SOLVING

Qualitative Evaluation
- evaluation of alternatives using intuition and
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subjective judgement.

It is used when:
the problem is fairly simple; the problem is
familiar; the costs involved are not great; immediate
decisions are needed
 02 APPROACHES IN
PROBLEM SOLVING

Quantitative Evaluation
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- refers to evaluation of alternatives using

any technique in a group classified as rational
and analytical
 02 APPROACHES IN
PROBLEM SOLVING

The models are:

a. inventory models f. simulation
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b. queuing theory g. linear programming

c. network models h. sampling theory
d. forecasting i. statistical decision
e. regression analysis theory
 QUANTITATIVE MODELS
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FOR DECISION MAKING

 01 QUANTITATIVE MODELS
FOR DECISION MAKING

1) Inventory Models
2) Queuing Theory
3) Network Models
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4) Forecasting
5) Regression Analysis
6) Simulation
7) Linear Programming
8) Sampling Theory
9) Statistical Decision Theory
 02 INVENTORY MODELS

 Economic order quantity model - this one is used to

calculate the number of items that should be
ordered at one time
 Production over quantity model - this is an economic
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order quantity technique applied to production

orders
 Back order inventory model - this is an inventory
model used for planned shortages
 Quanity discount model - an inventory model used to
minimize the total cost when quantity discounts are
offered by suppliers
 03 QUEUING THEORY

 It describes how to determine the number

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of service units that will minimize both

customer waiting time and cost of service.
 04 NETWORK MODELS

The two most prominent network models are:

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 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.
 04 NETWORK MODELS

The two most prominent network models are:

 The Critical Path Method (CPM)

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- this is a network technique using only

one time factor per activity that enables
engineer managers to schedule, monitor and
control large and complex projects.
 05 FORECASTING

Forecasting may be defined as

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“the collection of past and

current information to make
predictions about the future.”
 06 SIMULATION

It is a model constructed to
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represent reality on which

conclusions about real life
problems can be used.
 07 LINEAR PROGRAMMING

It is a quantitative technique that

is used to produce optimum 3 21
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solution within the bounds

imposed by constraints upon the
decision.
 08 SAMPLING THEORY

It is a quantitative technique
where samples of populations are
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statistically determined to be
used for a number of processes,
such as quality control and
marketing research.
 09 STATISTICAL DECISION- THEORY

It refers to the “rational way to

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conceptualize, analyze, and solve
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problems in situations involving

limited, or partial information about
the decision environment.
 MEMBERS:

ATOK, MARK
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AVISADO, SHAN DENISE
BUELA, YLLEN CAE
CABANGON, KIMBERLY
CHAVEZ, CARMELA