DECISION-MAKING

Group 1
Jean Lei Aguilar
Rochmel B. Banania
Christian Dale A. Dasco
Chester F. Mendaro
Robin B. Reynoso
BSCE-III

Introduction

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
intricacies of decision-making.

Introduction

The engineering managers decision making skills

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 decision, 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 levels in the

workplace. They are also made at the various
stages in the management process.

Decision-making as a Management
Responsibility
Decision-making is a responsibility of the
engineer manager. It is understandable to
make wrong decision at times. The wise
manager will correct them as soon as they
are identified. The bigger issue is the
manager who cannot or do not want to
make decisions. Delaney 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 a
decision option as correctly as possible.
The higher the management level is, the
bigger and more complicated decisionmaking becomes.

What is Decision-making?

Decisionmaking may be defined as the

process of identifying and choosing
alternative courses of action in a manner
appropriate to the demands of the
situation.

What is 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, directing, and
controlling). Decision-making, according to
Nickels and others, is the heart of all the
management functions.

The Decision-making Process

Rational decision making, acording 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

1. Diagnose Problem

If a manager wants to make intelligent

decision, his first move must be to identify
the problem.
An expert once said, identification of the
problem is tantamount to having the
problem half-solved.

1. Diagnose Problem

What is a problem?
A problem exists when there is a difference
between an actual situation and desired
situation.

2. Analyze the Environment

The environment where the organization is

situated plays a very significant role in the
success or failure of such an organization.
It is, therefore, very important that an
analysis
of
the
environment
be
undertaken.

2. Analyze the Environment

The objectives of environment analysis is
the identification of constraints, which may
be spelled out as either internal or external
limitations. Example of internal limitations
are as follows:
1. Limited funds available for the purchase
of equipment.
2. Limited training on the part of employees.
3. Ill-designed facilities.

2. Analyze the Environment

Examples of external limitations are as
follows:
1. Patents are controlled by other
organizations
2. A very limitred market for the company's
products and services exists.
3. Strict enforcement of local zoning
regulations.

2. Analyze the Environment

Components of Environment
1. Internal - organizational activities within a firm
(shown in Fig. 1)
2. External - variables that are outside the
organization and not typically within the shortrun control of top management (shown in Fig. 2)

3. Develop Viable Alternatives

Oftentimes, problem may be solved by any

of the solution offered. The best among
the alternative solutions must be
considered by management.

3. Develop Viable Alternatives

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.

3. Develop Viable Alternatives

The Engineering Firm

INTERNAL ENVIRONMENT
Organizational Aspects like org.
structure, policies, procedures, rules,
ability of management, etc.

EXTERNAL
ENVIRONMENT

Marketing Aspects like product

strategy. promotion stategy, etc.

DECISION

Personal Aspects like recruitment

practices, incentive systems, etc.
Financial Aspects
profitability, etc.

like

liquidity,

EXTERNAL
ENVIRONMENT

Fig. 1

3. Develop Viable Alternatives

Government
Engineers

Clients

Competitors

Labor Unions

ENGINEERING
FIRM

Public

Suppliers

Banks
Fig. 2

4. 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.
The value of the alternatives refers to
benefits that can be expected.

4. Evaluate Alternatives
The cost of the alternative refers to out-ofpocket costs, opportunity costs, and
follow-on costs.
The risks characteristics refers to the
likelihood of achieving the goals of the
alternatives. If the probability of a net profit
of 10 million is only 10 percent, then the
decision-maker may opt. to consider an
alternative with a 5 million profit but with
an 80 percent probability of success.

5. 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 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."

5. 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.

6. 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
be achieved. To implementation effective,
a plan must be revised.

6. Implement Decision

At this stage, the resources must be made

available so that the decision may be
properly implemented.
According to Aldag and Stearns, those who
will be involved in implementation must
understand and accept the solution.

7. Evaluate and Adapt Decision Results

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 and to provide information for
future decisions.

7. 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, the criteria used in evaluation,
and
the
solution
selected
for
implementation are in keeping with the
goals and objectives originally specified.
Control refers to actions made to ensure that
activities
performed
match
desired
activities or goals, that have been set.

Approaches in Solving Problems

In decision-making, the engineer manager is

faced with problem s which may either be
simple or complex. To provide him with
some guide, he must be familiar with the
following approaches:
1. Qualitative evaluation
2. Quantitative evaluation

Approaches in Solving Problems

Qualitative evaluation refers to evaluation of
alternative using intuition and subjective
judgment.
Stevenson
states
that
managers tend to use the qualitative
approach when:
1. the problem is fairy simple
2. the problem is familiar
3. the cost involved are not great or low cost
4. immediate decision are needed

Approaches in Solving Problems

Quantitative evaluation refers to the

evaluation of alternative using any
technique in 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 program
8. Sampling theory
9. Statistical decision theory

1. Inventory Models
Inventory models consist of several types of designed to
help the engineer manager make decisions regarding
inventory. They are as follows:
1. Economic order quantity model - this one used to
calculate the number of item 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.

2. 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 service.

3. Network models
These are model where large complex tasks are broken
into smaller segment that can be managed
independently.
The two most prominent network models are:
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 (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.

4. Forecasting

There are instances when engineer

managers make decisions that will have
implication in the future.
Forecasting may be defined as the
collection of past and current information
to make productions about the future.

5. Regression Analysis
The regression model is a forecasting
method that examines the association
between two or more variables. It uses
data from previous period to predict future.
Regression analysis may be simple or
multiple depending on the number of
independent variables present. When one
independent variables is involved. It is
called simple regression, when two or
more independent variables is involved, it
is called multiple regression.

6. Simulation

Simulation is a model constructed to

represent reality, on which conclusions
about real-life problems can be used. It is
highly sophisticated tool by means of
which the decision maker develops a
mathematical model of the system under
consideration.

7. 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.
Linear programming is very useful as a
decision-making tool when supply and
demand limitations at plants, warehouse,
or market areas are constraint upon the
system.

8. 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 quality
control and marketing research.
When data gathering is expensive, sampling
provides an alternative. Sampling, in
effect, saves time and money.

9. 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.

9. Statistical Decision-Theory
Bayesian Analysis
The purpose of Bayesian analysis is to revise and update
the initial assessments of the event probabilities
generated by the alternatives solutions. This is achieved
by the use of additional information.
When the decision-maker is able to assign probabilities to
the 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 I he is working with a loss table.