DECISION-MAKING
Decision-Making as a Management Responsibility
Decision-making is a responsibility of the engineer manager.
It is understandable to make wrong decisions at times. The wise manager will correct them as soon
as they are identified.
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.”
Decision are made at various management levels (i.e., top, middle, and lower levels) and at various
management functions (i.e., planning, organizing, directing and controlling). Decision-making, according to
Nickels and others, “is the heart of all the management functions.”
The production manager of a certain company has received a written request from a
section head regarding the purchase of an airconditioning unit. almost, simultaneously ,
another request from another section was forwarded 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 responsible if he had made the wrong choice.
THE DECISION-MAKING PROCESS
Rational decision-making, according to David H. Holt, is a process involving the following
steps;
1. diagnose problem
2. analyze environment
3. articulate problem or opportunity
4. develop viable alternatives
5. evaluate alternatives
6. make a choice
7. implement decision
8. 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.
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 situated plays a very significant role in the
success or failure of such an organization.
The objective of environmental analysis is the identification of constraints, which may be
spelled out as either internal or external limitations.
The president of a new chemical manufacturing company made a decision o locate his
factory in 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 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 made sure that no clearance is given.
The president decided to relocate the factory but not after much time and money has been
lost.
Internal environment refers to organizational activities within a
firm that surrounds decision-makings
EXTERNAL
INTERNAL ENVIRONMENT ENVIRONMENT
• Organizational Aspects
• Marketing Aspects DECISION
• Personnel Aspects
• Production Aspects
EXTERNAL
• Financial Aspects ENVIRONMENT
External environment refers to variables that are outside the organization and or
typically within the short-run control of top management
Government
Engineers Labor Unions
Clients ENGINEERING FIRM Suppliers
Competitors Banks
Public
Develop Viable Alternatives
The best among the alternatives solutions must be considered by management. This is
made possible by using a procedure with the following 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.
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 the clients.
Alternative courses:
1.improve the capacity of the firm by hiring more workers and building additional facilities
2. Secure the services of subcontractors
3. Buy the needed additional output from another firm
4. Stop serving some of the company’s customers
5. Delay servicing some clients
Evaluate Alternatives
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 solution less
difficult.
Souder suggested that “each alternatives must be analyzed and evaluated in terms of
its value, cost and risk characteristics.”
Make a Choice
Choice-making refers to the process of selecting among alternatives representing potential solutions to a
problem.
Webber advises that “…particular effort should be made to identify all significant consequences of each
choice.”
Implement Decision
Implementation refers to carrying out the decision so that the objectives sought will be achieve.
Those who will be involved in implementation, according to Aldag and Stearns, must understand and
accept the solution.”
Evaluate and Adapt Decision Results
Feedback refers to the process which requires checking at each stage of the process to assure
that the alternatives generated
Control refers to action made to ensure that activities performed match the desired activities or
goals that have been set.
Approaches in Solving Problems
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 with the following approaches:
1. Qualitative Evaluation and
2. Quantitative Evaluation
1. 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:
2. 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 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
— 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 one time to minimize the total yearly cost of placing orders and carrying the items in
inventory.
2. Production order quantity model — this is an economic order quantity technique applied to
production orders.
3. Back order inventory model — this is an inventory model 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 costumers waiting time and cost of service.
The queuing theory is applicable to companies where waiting lines are a common
situation.
Network Models
These are models where large complex task are broken into smaller segments that can be managed
independently.
1. 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.
2. The 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.
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.
Regression analysis may be simple or multiple depending on the number of the independent variables
present.
Simulation
Simulation is a model constructed to represent reality, on which conclusions about real-life problems
can be used.
Linear Programming
Linear programming is a quantitative technique that is used to produce an optimum solution within the
bounds imposed by constraints upon the decision.
Sampling Theory
Sampling theory is a quantitative technique where samples of populations are statistically determined to be
used for a number of process, 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.
The purpose of Bayesian analysis is to revise and update the initial assessments of the event
probabilities generated by the alternative solutions.
when the decision maker is able to assign probabilities to various events, the use of probabilistic
decision rule, called Bayes criterion becomes possible. The Bayes criterion selects the decision
alternative having the maximum expected payoff or the minimum expected loss if he is working with
a loss table
THANK YOU.
