ENGINEERING

MANAGEMEN
T II. DECISION-MAKING
Agenda
II. DECISION-MAKING

• Decision Making as a Management

Responsibility
• What is Decision Making?
• The Decision Making Process
• Approaches in Solving Problems
• Quantitative Models for Decision
Making
 Decision-Making

Managers - primarily tasked to provide leadership in the quest for the

attainment of the organization’s objectives.

Decision-Making As a Management Responsibility

• Decision-making s a responsibility of the engineer manager.

• The higher the management level is, the bigger and more complicated

Decision-Making decision-making becomes.

THE FUNCTION OF THE ENGINEER An example may be provided as follows:

The production manager of a certain company has received a writted request
from a section head regarding the purchase of an airconditiong unit. Almost
simultaneously, another request from another section was forwardde 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.
DECISION-
MAKING Decisions are made at various management levels (i.e.,
top, middle, and lower levels) and at various
management functions (i.e., planning, organizing,
“the process of identifying
directing, and controlling).
and choosing alternative
courses of action in a manner
Decision-making (according to Nickels and others)
appropriate to the demands of
“ is the heart of all the management functions”
the situation.”
 Rational decision-making, according to David H.

The Decision- Holt, is a process involving the following steps:

• diagnose problem
Making Process • analyze environment
• articulate problem or opportunity
• develop viable alternatives
• evaluate alternatives
• make a choice
• implement decision
• evaluate and adapt decision results
 “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
DIAGNOSE
PROBLEM For instance, the management of a construction company 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 is has not yet constructed the building. The desired
situation is the finished 25-storey building. In this case, the
actual situation is different from the desired situation. The
company, therefore, has a problem and that is, the construction
of the 25-storey building.
 The objective of 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:

ANALYZE THE • Limited funds available for the purchase of equipment

• Limited training on the part of employees
ENVIRONMENT • Ill-designed facilities.

Examples of external limitations are as follows:

• Patents are controlled by other organizations.
• A very limited market for the company’s products and
service exists.
• Strict enforcement of local zoning regulations.
Components of the
Environment

The environment consists of

two major concerns:
• internal and
• external.
 An illustration of failure to analyze the environment is as follows:

The president of a new chemical manufacturing company made a

decision to locate 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
ANALYZE THE of operation was sought from local authorities, this could not be given.
It turned out that the residents opposed the operation of the firm and
ENVIRONMENT made sure that no clearance is given.

The president decided to relocate the factory but not after much time
and money has been lost. This is a clear exampled of the cost
associated with management disregarding the environment when
decisions are made. In this case, the president did not consider what the
residents could do.
 Oftentimes, problems may be solved by any of the
solutions offered. The best among the alternative
solutions must be considered by management.

DEVELOP This is made possible by using a procedure with the

VIABLE following steps:

1. Prepare a list of alternative solutions.
ALTERNATIVES 2. Determine the viability of each solutions.
3. Revise the list by striking out those which are not
viable
 To illustrate:
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

DEVELOP the following alternative courses of action:

VIABLE 1. improve the capacity of the firm by hiring more workers and
building additional facilities;

ALTERNATIVES 2. secure the services of subcontractors;

3. buy the needed additional output from another firm;
4. stop serving some of the company's customers;
and
5. delay servicing some clients.
 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

EVALUATE solution less difficult.

ALTERNATIVES 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 of its value, cost, and
risk characteristics."
 Example of an evaluation of alternatives is shown below:

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
EVALUATE use a predetermined criteria.

ALTERNATIVES
 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. "
MAKE A 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.
 Implementation refers to carrying out the decision so that
the objectives sought will be achieved. To make
implementation effective, a plan must be devised.

IMPLEMENT At this stage, the resources must be made available so that

the decision may be properly implemented.
DECISION
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 Stearns, must understand and accept the
solution.
 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

EVALUATE AND each stage of the process to assure that the alternatives
generated, the criteria used in evaluation, and the solution
ADAPT selected for implementation are in keeping with the goals
DECISION and objectives originally specified.

RESULTS Control refers to actions made to ensure that activities

performed match the desired activities or goals, that have
been set.
sis is necessary.
EVALUATE AND
ADAPT
DECISION
RESULTS
 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

APPROACHES IN with the following approaches:
SOLVING
PROBLEMS 1. qualitative evaluation, and

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. I low cost
4. Immediate decisions are needed.

APPROACHES IN An example of an evaluation using the qualitative approach is as follows:

SOLVING A factory operates on three shifts with the following schedule:

First shift - 6:00 A.M. to 2:00 P.M.
PROBLEMS 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 September 16, 1996,
the operations went smoothly until the factory manager, an industrial 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.

Because of time constraints, the manager made an 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 as rational
and analytical

QUANTITATIVE MODELS FOR DECISION MAKING

The types of quantitative techniques which may be useful in

APPROACHES IN decision-making are as follows:

SOLVING 1. inventory models

PROBLEMS 2. queuing theory
3. network models
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:

• Economic order quantity model this one is used to calculate

APPROACHES IN the number of items that should be ordered at one time to
SOLVING minimize the total yearly cost of placing orders and carrying
the items in inventory.
PROBLEMS • Production order quantity model - this is an economic order
quantity technique applied to production orders.
• Back order inventory model - this is an inventory model
used for planned shortages.
• 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.

APPROACHES IN
The queuing theory is applicable to companies where waiting
SOLVING lines are a common situation.
PROBLEMS
Examples are cars waiting for service at a ear 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.

APPROACHES IN The two most prominent network models are:

• The Program Evaluation Review Technique (PERT) - a
SOLVING technique which enables engineer managers to schedule,
PROBLEMS monitor, and control large and complex projects by
employing three time estimates for each activity.
• The Critical Path Method (CPM) - 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
 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
APPROACHES IN such, manpower and facilities must be procured before the start of
SOLVING operations. To make decisions on capacity more effective, the
engineer manager must be provided with data on demand
PROBLEMS 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.
APPROACHES IN
SOLVING Regression analysis may be simple or multiple depending on the
number of independent variables present.
PROBLEMS
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
APPROACHES IN a mathematical model of the system under consideration.
SOLVING
Simulation does not guarantee an optimum solution, but it can
PROBLEMS evaluate the alternatives fed into the process by the decision-
maker.
 Linear Programming

Linear programming is a quantitative technique that is used

APPROACHES IN to produce an optimum solution within the bounds imposed
SOLVING by constraints upon the decision. Linear programming is
very useful as a decision-making tool when supply and
PROBLEMS demand limitations at plants, warehouse, or market areas
are constraints upon the system.
 Sampling Theory

Sampling theory is a quantitative technique where samples of

APPROACHES IN populations are statistically determined to be used for a

number of processes, such as quality control and marketing
SOLVING research.
PROBLEMS
When data gathering is expensive, sampling provides an
alternative. Sampling, in effect, saves time and money.
 Statistical Decision-Theory

APPROACHES IN
SOLVING Decision theory refers to the "rational way to concept-ualize,
analyze, and solve problems in situations involving limited, or
PROBLEMS partial information about the decision environment. "