DECISION MAKING

Decision Making- the process of identifying

and choosing alternative
courses of
action in a manner
appropriate to the
demands of
the situation.
- the heart of all the
management
function.
Decision are at various management levels.
TOP , MIDDLE and LOWER LEVELS
Decision are made at various management
functions. PLANNING, ORGANIZING,
DIRECTING, and CONTROLLING.

THE DECISION MAKING PROCESS

Diagnose Problem
Analyze environment
Articulate problem or opportunity
Develop viable 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 1st move must
be to identify the problem.

A problem exist when there is a

difference between an actual situation
and desired situation.

Example : the actual situation of the

firm is that it has not yet constructed
the building
Example: the desired situation is the
finished 25-storey building.
In this case, the actual situation is
different from the desired situation

ANALYZE THE ENVIRONMENT

The objective of environmental analysis

is the identification of constraints,
which may be spelled out as either
internal or external limitation.
* Internal limitation
1. limited funds available for the
purchase of equipment.
2. limited training on the part of
employees.
3. ill-designed facilities.

External limitation:
1. Patents are controlled by other
organization.
2. A very limited market for the
companys
products and services
exists.
3.Strict enforcement of local zoning
regulation.

COMPONENTS OF THE
ENVIRONMENT

Internal Environment refers to the

organizational activities within
a firm
that surrounds decisionmaking.

External Environment refers to

variables that
are outside the
organization and not
typically
within the short-run control of
top
management.

DEVELOP VIABLE ALTERNATIVES

The best among the alternative
solutions must be considered by
management using a procedure
with the ff. 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.

THE ENGINEERING FIRM AND ITS EXTERNAL

ENVIRONMENT

Government
Engineers
Labor Unions
Clients

Suppliers

ENGINEERIN
G FIRM

Competitors
Public

Banks

The list of solutions prepared by the

engineering manager shows alternative
courses of action:
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 companys
customers;
5. Delay servicing some clients.

EVALUATE ALTERNATIVE

How the alternatives will be evaluated

1. Depend on the nature of the problem
2. The objectives of the firm
3. The nature of the alternatives presented.
Each alternative must be analyzed and
evaluated in terms of its value, cost,
and risk characteristics.*
The value of the alternatives refers to
benefit that can be expected

MAKE A CHOICE

Choice Making refers to the

process of selecting among alternatives
representing potential solutions to a
problem.
* To make selection process easier,
the alternatives can be ranked
from best to worst on the basis of
some factors like benefit, cost, or
risk.*

IMPLEMENT DECISION

Implementation
refers to carrying out the
decision so that the objectives
sought will be achieved.
- to make Implementation
effective, a plan must be devised.

EVALUATE AND ADAPT DECISION

RESULT

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.
Control refers to the actions made to ensure
that
activities performed match the
desired
activities or goals, that have
been set.

APPROACHES IN SOLVING
PROBLEMS

Qualitative evaluation refers to the

evaluation of alternatives using
intuition and subjective judgement.
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.
4. Immediate decisions are needed.

Example of an evaluation using the qualitative

approach:
A factory operates on 3 shifts with the ff.
schedule:
First shift - 6:00A.M. to 2:00P.M.
Second shift - 2:00 P.M. to 10:00 P.M.
Third shift - 10:00 P.M.to 6:00 P.M.
Because of time constraints, the manager
made an instant decision on who among the 1 st
shift workers would work overtime to man the
five machines.

Each shift consist of 200 workers/200

machines. That day the operations
went smoothly until the factory
manager, an industrial engineer, was
notified at 1:00 P.M. that 5 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.

APPROACHES IN SOLVING PROBLEM

Quatitative 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

Types of quantitative techniques:

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

QUANTITATIVE MODELS FOR DECISION MAKING

Inventory Models :
1. Economic order quantity model
this one is
used to calculate the
number of items that should be
ordered at one time.
2. Production order quantity model
this is an economic order quantity
technique applied to production
orders.

QUANTITATIVE MODELS FOR DECISION MAKING

* Inventory Models
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.

QUANTITATIVE MODELS FOR DECISION MAKING

Queuing Theory is one that

describes how to determine the
number of service units that will
minimize both customers waiting
time and cost of service.
- applicable to companies
where waiting lines are a common
situation.

QUANTITATIVE MODELS FOR DECISION MAKING

Network Models these are models where

large complex tasks are broken into smaller
segments that can be managed independently.
The 2 most prominent network models are:
1. The Program Evaluation Review Technique
a technique w/c 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,

QUANTITATIVE MODELS FOR DECISION MAKING

Forecasting - the collection of past

and current
information to make
predictions about the future
Regression Analysis examines the
association
between 2 or more
variables. It uses data from previous
periods to predict future events.
Simulation is a model constructed to
represent reality, on w/c conclusions
about real-life problems can be used.

QUANTITATIVE MODELS FOR DECISION MAKING

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 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.

QUANTITATIVE MODELS FOR DECISION MAKING

Statistical Decision-Theory
- rational way to conceptualize,
analyze, and solve problems in
situations involving limited, or partial
information
about
the
decision
environment.