DECISION

MAKING
Reporter: GROUP 1
 Objectives: Contents:
• Understand decision-making processes 1
Introduction to Decision-making
Processes
• Identify types of decisions in engineering
management Types of Decisions in Engineering
2 Management
• Learn tools and techniques for effective
decision making and qualitative and Tools and Techniques for Effective
quantitative decision making models 3 Decision Making

• Analyze risk and management in decision

Quantitative and Qualitative Decision-
making; 4 Making Models

• and be able to apply decision-making

techniques 5
Risk Analysis and Management in
Decision Making
A decision is an act of selection or choice of one action from
several alternatives.

The process of choosing a correct and successful course of

action from two or more alternatives in order to achieve a
desired outcome is known as decision-making. Management
is all about making decisions.

According to P. F. Drucker – “What­ever a manager does,he

does through making decisions.”
What is Management Decision Making?
Decision making in management refers to the process by which
managers analyze issues, evaluate alternatives, and choose
the most appropriate course of action to achieve organizational
objectives. It’s the cornerstone of effective leadership, as the
decisions of the manager shape the direction, performance,
and sustainability of an organization.

Manage­ment decisionmaking ensures resource optimization,

risk mitigation, and alignment with strategic goals.
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THE your title herePROCESS ACCORDING TO DAVID H. HOLT
DECISION-MAKING
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 DIAGNOSE THE PROBLEM: If the manager wants to make an intelligent decision, his frst
move must be to identify the problem. “Identification of the problem is tantamount to
having the problem half-solved,” an expert once said.
 ANALYZE ENVIRONMENT: The objective of environmental analysis is the identification
of constraints, which may be spelled out as either internal or external limitations.
1. Limited funds 1. Patents
2. Limited market
2. Limited training 3. Stict enforcement of
3. Ill-designed facilities local zoning
regulations
• The environment consist of two major concerns:
1. INTERNAL- refers to organizational activities within a firm that sorrounds decision
making.
2. EXTERNAL- refers to variables that are outside the outside the organization and not
typically within the short-run control oftop management.
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THE your title herePROCESS ACCORDING TO DAVID H. HOLT
DECISION-MAKING
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 DEVELOP VIABLE ALTERNATIVES: a. Prepare a list of alternative solutions.

b. Determine the viability of each solutions.
c. Revise the list by striking out hose which are not
viable

 EVALUATE ALTERNATIVES: The alternatives will be evaluated depending on the nature

of the problem, objectives of the firm, and nature of alternatives presented. Each
alternative must also be evaluated according to its cost, value, and risk characteristics.

 MAKE A CHOICE: Choice-making refers to the process of selecting among alternatives

representing potential solutions to a problem. At this point, particular effort should be
made to identify all significant consequences of each choice.
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THE your title herePROCESS ACCORDING TO DAVID H. HOLT
DECISION-MAKING
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 IMPLEMENT DECISION: Implementation refers to carrying out the decision so that the
objectives sought will be achieved. To make it effective, a plan must be made. In this stage,
the resources must be availableso that the decision can be properly implemented.

 EVALUATE AND ADAPT DECISION RESULTS: In implementing a decision, the results

expected may or may not happen. Thus, it is 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 each stage of the process to
assure that the alternatives generated, the criteria used in evaluation, and the solution
selected for implementation are aligned with the goals/objectives originally specified.
• CONTROL- refers o actions made to ensure thay activities performed match the desired
activities or goals that have been set.
 Add your
Types title here in Engineering Management
of Decisions
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STRATEGIC DECISIONS: Strategic decisions are high-level choices that set the
direction for an organization or a project. These decisions typically involve long-term
planning and resource allocation, affecting the overall mission and objectives of the
organization. Examples include; selecting new markets to enter, determining product
lines and establishing partnership or alliances.
TACTICAL DECISIONS: Tactical decisions focus om how to implement strategies
effectively. They are often medium-term in nature and involve specific actions that
support strategic goals. For instance, this type of decision include resource allocation for
specific projects, scheduling tasks within a project timeline, or choosing technologies to
adopt for development.
OPERATIONAL DECISIONS: Operational decisions are day to day choices that ensure
smooth functioning of an organization or project. These decisions are usually routine and
involve managing resources efficiently to meet immediate objectives. For example,
assigning tasks to team members, managing budgets for ongoing projects, and
addressing operational issues as they arise.
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Types title here in Engineering Management
of Decisions
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RISK MANAGEMENT DECISIONS: These are decisions that involve identifying

potential risk associated with engineering projects and determining appropriate
mitigation strategies. This type of decision is crucial for ensuing project success by
minimizing uncertainties that could impact timelines or budgets.

ETHICAL DECISIONS: They adress moral considerations in engineering practices and

management processes. Engineering managers must navigate dilemmas involving safety
hazards, environmental impacts and social responsibilities when making these types of
decisions.

TECHNICAL DECISIONS: These involves selecting specific technologies or

methodologies for implementation in engineering projects. These choices can
significantly affects project outcomes regarding efficiency, quality and performance.
 Add your title here
Tools and Techniques for Effective Decision Making
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Decision Making Tools:

 Decision trees: Used for visualizing decision options and outcomes.
 Spreadsheet software (e.g., Microsoft Excel): Enables data analysis, modeling, and
decision analysis.
 Project management software (e.g., Asana, Worksection): Facilitates collaboration
and task management for decision implementation.
 Data analytics tools (e.g., Tableau, Power BI): Aid in analyzing large datasets to
inform decision-making.
 Mind mapping software (e.g., MindMeister, XMind): Helps visualize and organize
thoughts, ideas, and options during the decision-making process.
 Tools and Techniques for Effective Decision Making

 Marginal Analysis: By evaluating the additional benefits and costs

of each option, decisionmak­ers can determine the optimal level
of a decision. This method ensures resources are allocated
efficiently, maxi­mizing benefits while minimizing costs, ultimately
leading to better-informed and more effective decision making.

 SWOT Analysis: This analy­sis aids in iden­ti­fy­ing

advan­tages, address­ing weak­ness­es, exploit­ing
oppor­tu­ni­ties, and mit­i­gat­ing threats, guid­ing strate­
gic deci­sion mak­ing and enhanc­ing the like­li­hood of
suc­cess in project man­age­ment and achiev­ing orga­
ni­za­tion­al objectives.
Tools and Techniques for Effective Decision Making

 Decision Matrix: used to systematically compare

multiple options based on various criteria or
factors. It involves creating a matrix where each
option is listed as rows, and criteria are listed as
columns. Scores or weights are assigned to each
criterion, and options are eval­u­at­ed against these
criteria. This decision-making method facilitates a
structured comparison, allowing decision-makers
to objectively assess and prioritize alternatives
based on their performance across multiple
dimensions.
Tools and Techniques for Effective Decision Making

 Pareto Analysis: based on the Pareto Princi­ple

(80÷20 rule), prioritizes issues by identifying the
most significant factors contributing to a
problem. It involves analyzing data to determine
which factors have the most substantial impact
or occurrence. By focusing efforts on addressing
these vital few factors, decision-makers can
achieve significant improvements, optimize
resource allocation, and enhance overall
decision making effectiveness in tackling
underlying issues.
Quantitative and Qualitative Decision-Making Models

 QUALITATIVE EVALUATION- refers to evaluation of alternatives using intuition and

subjective judgement. Managers tend to use the qualitative approach when:

1. The problem is fairly simple.

2. The problem is familiar.
3. The cost involved are not great/low cost.
4. Immediate decisions are needed.

 QUANTITATIVE EVALUATION- refers to the evaluation of alternatives using any

technique in a group classified as rational and analyical.
Quantitative and Qualitative Decision-Making Models

QUALITATIVE MODELS FOR DECISION-MAKING

 INVENTORY MODELS
 Economic order quantity model- 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.

 Production order quantity model- This is an economic quantity

technique applied to production orders

 Back order inventory model- This is an inventory model used for

planned shortages
Quantitative and Qualitative Decision-Making Models

 Quantity discount 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.

NETWORKING MODEL- e.g. The Program Evaluation Review Tecgnique (PERT),

The Critical Path Method (CPM). These are techniques which enables engineer
managers to schedule, monitor, and control large and complex projects by employing
three time estimates for each activity.

CRITICAL PATH METHOD- 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.
Quantitative and Qualitative Decision-Making Models

FORECASTING- The collection of past and current information to make prediction

about the future

REGRESSION ANALYSIS- Forecasting method that examines the association

between two or more variables. It uses data from previous periods to predict future
events

SIMULATION- model constructed to represent reality, on which conclusions about

real-life problems can be used

LINEAR PROGRAMMING- It is a quantitative technique that is used to produce an

optimum solution within the bounds imposed by constraints upon the decision.
Quantitative and Qualitative Decision-Making Models

SAMPLING THEORY- It 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

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.
Risk Analysis and Management in Decision Making

RISK ANALYSIS- Is a process that helps you to identify and manage potential problems
that could undermine key business initiatives or projects. However it can also be applied
to other projects outside of business such as organizing events.
When to Use Risk Analysis
Planning projects, to help you to anticipate and neutralize possible
problems.
Deciding whether or not to move forward with a project.
Improving safety and managing potential risk in the workplace
Preparing for events such as equipment or technology failure, theft
sickness, or natural disasters.
Planning for changes in your environment, such as new competitors
coming into the market, or changes to government policy.
Risk Analysis and Management in Decision Making

How to use Risk Analysis

1. Identify Threats- The first step in risk analysis is to identify the existing and possible
threats that you might face. These can come from many different sources. For instance
could be:
• Human- Illness, death, injury, or other loss of a key individual
• Operational- Disruption to supplies and operations, loss of access to essential
assets or failure in distributions.
• Reputational- Loss of customer or employee confidence, or damage to market
reputation.
• Procedural- Failures of accountability, internal systems, or controls, or from
fraud.
Risk Analysis and Management in Decision Making

How to use Risk Analysis

• Project- Going over budget, taking too long on key tasks, or experiencing
issues with the product or service quality.
• Financial- Business failure, stock market fluctuations, interest rate changes,
or non-available of funding.
• Technical- Advance in technology, or from technical failure.
• Natural- Weather, natural disasters, or disease.
• Political- Changes in tax, public opinion, government policy, or foreign
influence.
• Structural- Dangerous chemicals, poor lighting, falling boxes, or any situation
where staff, products, or technology can be harmed.
Risk Analysis and Management in Decision Making

Risk Value = Probability of Event x Cost of Event

2. Estimate Risk- Once you’ve identified the threats you’re facing, you need to calculate
both the likelihood of these threats being realized, and their possible impact.
As a simple example, imagine that you’ve identified a risk that your rent may increase
substantially.
One way of doing this is to make your best estimate of the probability of the event
occurring, and then to multiply this by the amount it will cost you to set things right if it
You think that there’s an 80 percent chance of this happening within the next year,
happens. This gives you a value for the risk:
because your landlord has recently increased rents for other businesses. If this happens,
it will cost your business an extra $500,000 over the next year.

So the risk value of the rent increase is:

0.80 (Probability of Event) x $500,000 (Cost of Event) = $400,000 (Risk Value)
 Risk Analysis and Management in Decision Making

 RISK MANAGEMENT- Risk management is a strategy of avoiding risk, sharing it,

accepting it, and controlling it as effectively as you can. Once you’ve identified the value
of the risks you face, then start to look at ways of managing them.

 Avoid the Risk- In some cases, you may want to avoid the risk altogether. This could
mean not getting involved in a business venture, passing on a project, or skipping a
high-risk activity. This is a good option when taking the risk involves no advantages to
your organization, or when the cost of addressing the effects is not worthwhile.
 Risk Analysis and Management in Decision Making

 Share the Risk- You can also opt to share the risk- and the potential gain- with other
people, teams, organizations, or third parties.

For instance, you share risk when you insure your office building and your inventory with a
third-party insurance company, or when you partner with another organization in a joint
product development initiative.

 Accept the Risk- Your last option is to accept the risk. This option is usually best when
there’s nothing you can do to prevent or mitigate a risk, when the potential loss is less
than the cost of insuring against the risk, or when the potential gain is worth accepting
the risk.

For example, you might accept the risk of a project launching late if the potential sales will
still cover your cost.
 Risk Analysis and Management in Decision Making

Control the Risk- If you choose to accept the risk, there are a number of ways in which you
can reduce its impact.
Business Experiments- Are an effective way to reduce risk. They involve rolling out the
high-risk activity but on a small scale, and in a controlled way. You can use experiments to
observe where problems occur, and to find ways to introduce preventative and detective
actions before you introduce the activity on a larger scale.

• Preventative action involves aiming to prevent a high risk situation from happening.
It includes health and safety training, firewall protection on corporate servers, and
cross-training your team.
• Detective action involves identifying the points in a process where something could
go wrong, and then putting steps in place to fix the problems promptly if they occur.
Detective actions include double-checking finance reports, conducting safety testing
before a product is released, or installing sensors to detect product defects.
 Risk Analysis and Management in Decision Making

Risk Management Framework- A Risk management Framework serves as the bedrock on

which a company’s risk culture is built, offering a structured approach to protect its assets.
Adopting an effective Risk Management Framework is crucial to protecting an
organization’s financial future.

The Five Elements of a Risk Management Framework

1. Risk Identification- An exhaustive catalog of potential risks is produced, encompassing

IT, operational, regulatory, legal, political, strategic, and credit risks.

2. Risk Measurements- The magnitude and likelihood of specific and aggregate risk
exposures is measured. This assessment aids in determining the impact of risks on the
organization’s overall risk profile, allowing for informed prioritization.
 Risk Analysis and Management in Decision Making

The Five Elements of a Risk Management Framework

3. Risk Mitigation- Once risks are identified and measured, strategies for risk reduction or
elimination can be devised. Options include asset or liability sales, insurance, derivatives
hedging, and diversification.

4. Risk Reporting and Monitoring- Regular and automated reporting on both specific and
aggregate risk measyres is essential for maintaining optimal risk levels. Real-time
accessibility through dashboards enhance proactive risk management.

5. Risk Governance- Establishing a structure process to help employees adhere to the Risk
Management Framework is vital. This involves defining roles, segregating duties,
assigning authority, and overseeing risk- related matters at all levels within the
organization.
Thank You
for listening