CHAPTER 2

Decision Making
• Decision - making
Managers of all kinds and types, including the engineer manager, are primarily
tasked to provide leadership in the quest for the attainment of the organizations
objectives. If he is to become effective, he must learn the intracacies of decision
making. Many times, he will be confr-onted by situations where he will have to
choose from among various options. Whatever his choi-ce it will have effects,
immediate or otherwise, in the operations of this organization.The engineer
manager's decision-making skill will be very crucial to his success as a
professional. A major blunder in decision making may be sufficient to cause the
destruction of any organization. Good decisions on the other hand, will provide the
right environment for continuous growth and success of any organized effort
 Decision Making as a Management
Responsibility
Decision must be made at various level in the workplace. They are also made
at the various stages in management process. If cerfain resources must be
used, someone must make a decision authorizing certain persons to
appropriate such resources.
Decision-making is a responsibility of the engineer manager. It is
understable for manager to make wrong decisions at time. The wise manager
will correcr them as soon as they are identified. The bigger issue is the manager
who cannot or do not want to make decisions.Dalaney concludes that this type
of managers are dangerous and "should be removed from their position as
soon as possible."
 Decision Making as a Management
Responsibility
Management must strive to choose decision option as correctly as possible. Since they have
that power, they are responsible for whatever outcome their decisions bring. The higher the
management level is, the bigger and the more complicated decision-making becomes.
Example.
The production manager of a certain company has recieved a written request from a
section head regarding to purchase of an airconditioning unit. Almost simultaneously, another
request from another section was forwarded to him requiring the purchase of a forklit. The
production manager was informed by his superior that he can only by one of the two requested
items due to budgetary contraints.
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.
 What is decision-making?
What is decision-making?
Decision-making may be defined as the process of identifying and choosing
alternative courses of action in a manner appropriate to the demands of the
situation."
The definition indicates that the engineer manager must adapt a certain
procedure designed to determine the best option available to solve certain
problem.
Decisions are made at various management levels (i.e., top, middle, and
lower levels) and at various management function (i. e., planning, organizing,
directing and controlling). Decision-making, according to Nickels and others, " is
the heart of all the management function".
 THE DECISION MAKING PROCESS
Rational decision making, according to David H. Holt, is a process involving the
following steps:
• diagnose problem
• analyze environment
• articulate problem or opportunity
• develop variable alternatives
• evaluate alternatives
• make a choice
• implement decision
• evaluate and adapt decision results
 Diagnose Problem
If a manager wants to make an intelligent decision, his
first move must be to identify the problem. If the manager
fails in this aspect, it is almost impossible to succeed in the
subsequent steps.
What is a Problem? A problem exists when there is a
difference between an actual situation and a desired
situation.
 Analyze the Environment
The environment where the organization is situatued
palys a significant role in the success or failure of such an
organization. It is, therefore very important that an analysis
of the environment be undertaken.
The objective of environmental analysis is the
identification of constraints, which may be spelled out as
either internal of external limitations.
 Analyze the Environment
Exmple of internal limitations:
• Limited funds available for the purchase of equipment
• limited training on the part of employees
• ill designed facilities
 Analyze the Environment
Exmple of external limitations:
• Patents are controlled by other organization
• a very limited market for the company’s products and
services exists.
• Strict enforcement of local zoning regulations
 Analyze the Environment
Components of the Environment.
• internal (it refers to organizational activities wthin a firm
that sorrounds decision-making) and;
• external (it refers to variables that are outside the
organization and typically within the short-run control of
top management)
 Figure 2.1 The Engineering Firm and the Internal Environment in Decision-Making

THE ENGINEERING FIRM

INTERNAL ENVIRONMENT
Organizational Aspects
like org. structures, policies, procedures, rules,
ability of management, etc. EXTERNAL ENVIRONMENT
Marketing aspects
like product strategy, promotion strategy, etc.
Personnel Aspects DECISION
like recruitment practices, incentive systems,
etc.
Production Aspects
likeplant facility layout, inventory control, etc.
EXTERNAL ENVIRONMENT
Financial Aspects
lie liquidity, profitability, etc.
 Figure 2.2 The Engineering Firm and Its External Environment

Government
Engineers
Engineers Clients

Labor Unions ENGINEERING FIRM Suppliers

Competitors Banks
Public
 Develop Variable Alternatives
Oftentimes, problems may be solved by any of the solutions
offered. The best amon alternative solutions must be considered by
management.
This is made possible with the following steps:

1. Prepare a list of alternative solutions

2. Determine the variability of each solutions
3. Revise the list by striking out those which are not viable.
 Develop Variable Alternatives
The lists of solutions prepared by the engineering
manager shows the following alternative courses of action:
1. improve the capacity of the firm by hiring more workers
and building additional facilities;
2. secure te services of subcontractors;
3. buy the needed additional output from nother firm;
4. stop serving some of the company’s customers; and
5. delay servicing some clients.
 Evaluate Alternatives
An evaluation of the remaining alternatives is neccessary
after determining te viability of the alternatives and a
revised list has been made. This is important because the
next step involves making a choice. Proper evaluation
makes choosing the right solution less difficult.
How the alternatives will e evaluated will depend on the
nature of the problem, the objective of the firm, and the
nature of the alternatives presented.
 Evaluation Sheet

Title of Vacant Position: JUNIOR ENGINEER

Date of Evaluation: December 28, 1996
Applicant Education Training Experience Age Total Points

1. Jose Sibayan, Jr. 40 35 4 10 89

2. Menandro Rillon 40 36 5 9 90
3. Dante dela Cruz 40 38 6 7 91

Evaluator:
Edgardo J. Viloria
Manager
Engineering Division III
 Make a Choice
After the alternatives have 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 the
alternatives representing potential solutions to a problem.
To make the selection process easier, the alternatives can be
ranked from the best to worst on the basis of some factors like
benefits, costs, or risks.
 Implement 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 e achieved. To make
implementation effective, a plan must be devised.
At this stage, the resources must be made available so
that the decision may be properly implemented.
 Evaluate and Adapt Decision Results
In implementing, the decision, the results expected may or may not happen.
It is therfore, 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 ensue 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 the actions made to ensure that ativities performed
matched the desired activities or goals, that have been set.
In this last stage of decision-making process, the engineer manager will find
out whether or not the desired result is achieved.
 APPROACHES IN SOLVING PROBLEMS

In decison-making, the engineer manageris faced with

problems which may be either be simple or complex. To
provide him with some guide, he must be familiar with the
following approaches:
1. Qualitative evaluation, and
2. quantitative evaluation.
APPROACHES IN SOLVING PROBLEMS
Qualitative Evaluation
This term refers to evaluation of alternatives using
intuition and subjective judgement. Stevenson states that
managers tend to use the qualitatve approach when:
 Figure 2.3 Feedback as a Control Mechanismin the Decision-Making-Process

diagnose problem

analyze environment

articulate problem or opportunity

develop viable alternatives

evaluate alternatives

make a choice
 Figure 2.3 Feedback as a Control Mechanismin the Decision-Making-Process

implement decision

evaluate results results not achieved determine steps where

error was made

results achieved adapt decision results

APPROACHES IN SOLVING PROBLEMS
1. the problem is fairly simple.
2. the problem is familiar.
3. the costs involved are not great
4. immidiate decisions are needed.
APPROACHES IN SOLVING PROBLEMS
Quantitative Evaluation.
This term refers to the evaluation of alternatives using
any technique in a group calssified as rational and
analytical.
 QUANTITATIVE MODELS FOR DECISION MAKING

The types of quantitative techniques which may be useful in

decision-making are as follows:
1.Inventory models
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:

1.Economic order quantity model - this one is used to calculate the

number of items that should be ordered at time to minimize the total
yearly cost of placing orders and carrying the items in inventory.
2.Product order quantity model - this is an economic order quantity
technique applied to production orders.
 INVENTORY MODELS
3. Back order inventory model - this is an inventory models
used for planned shortages.
4.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.
The queuing theory is applicable to companies where
waiting lines are a common situation.Examples are cars
waiting for service at a car 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.

The two most prominent network models are:

1.The Program Evaluation Review Technique(PERT)-a technique which enables
engineer manager to schedule,monitor,and control large and complex projects
by employing three time estimates for each activity.
2.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 such, manpower and facilities must be procured
before the start of operations. To make decision on capacity more effective,the
engineer manager must be provided with data on demand 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.
Regression analysis may be simple or multiple depending on the
number of independent variables present.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 a mathematical model of the system under
consideration.
Simulation does not guarantee an optimum solution,but
it can evaluate the alternatives fed into the process by the
decision-maker.
 LINEAR PROGRAMING
Linear programing is a quantitative technique that is
used to produce an optimum solution within the bounds
imposed by constraints upon the decision.Linear
programing is very useful as a decision-making tool when
supply and demand limitations at plants,warehouse,or
market areas are constraints upon the system.
 SAMPLING THEORY
Sampling theory is a quantitative technique where
samples of populations are statistically determined to be
used for a number of processes, such as quanlity control
and marketing research.
When data gathering is expensive,sampling provides an
alternative.Sampling, in effect, saves time and money.
 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.