MANAGEMENT LEVEL

Decision making is the

responsibility of
TOP managers

The higher the

MIDDLE management level is,
the more complicated
decision making
becomes

BOTTOM
The process of defining the problem and
identifying and choosing alternative courses of
action in a manner appropriate to the demands
of the situation.
 Evaluating and
adapting results
Implementing the
decision

Making a choice

Evaluating the
alternatives

Developing viable
alternatives
Articulating the
problem or
opportunity
Analyzing the
environment

Diagnosing the
problem
A problem exist if there is a difference between
the actual situation and a desired situation
Examples of Internal Limitations
1.Limited funds available for the purchase of the
equipment
2.Limited training on the part of the employees

3.Ill designed facilities; and

4.Irrelevant organization of structure

Examples of External Limitations

1.Product patents are controllable by other organi

zations
2.A vey limited market for the company’s products
and services exist; and
3.Strict enforcement of local zoning regulations.
 THE FIRM
Organizational Aspects
Like organizational structure,
Policies, procedures, rules, ability of
management
Marketing Aspects
Like products strategy and
promotion strategy
Internal – consist of organizational
activities within a firm that
surrounds decision making
External – refers to variables that are
outside the organization and not
typically within the short-run
control of top management

Personal Aspects EXTERNAL

Like recruitment practices and Incentive
ENVIRONMENT
systems

Production Aspects
Like plant facility layout and inventory control INTERNAL
ENVIRONMENT
Financial Aspects
Like liquidity and profitability DECISION
 Government
Professional Labor Unions
Managers

Climate THE FIRM Suppliers

Competitors Banks

Public
1. Prepare a list of possible alternative solutions
2. Determine the viability of each solution; and
3. Revise the list by striking out those which are not via
ble.
An engineering firm has a problem of increasing
its output by 30%. This is a result of a new
agreement between the firm and one of its
clients. The list of solutions prepared by the
manager shows the following alternative courses
of action:
1. Improve the capacity of the firm by hiring more worke
rs and building additional facilities;
2. Secure the services of subcontractors;
3. Buy needed additional output from another firm;
4. Stop serving some of the company’s customers; and
5. Delay servicing some clients

The list was revised and only the first three were
deemed to be viable. The last two were deleted
because of adverse effects in the long run
profitability of the firm.
Analysis of best alternative is evaluated in terms of
 Value

 Cost

 Risk characteristics

Choice Making – refers to the process of selecting

among alternatives representing potential solutions to
a problem
Implementation – refers to carrying out the decision so that the
objectives sought will be achieved. To make implementation
effective, a plan must be devised.
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 action made to ensure that activities
performed match the desired activities, or goals, that have
been set.
Step 1 diagnose problem

2 analyze environment

Articulate problem
3
or opportunity

4 Develop viable
alternatives

5 evaluate alternatives

6 make a choice

7 implement decision

if results are not Determine steps

8 evaluate results where error is made
achieved

iIf results are adapt decision

achieved results
Qualitative E valuation – evaluation of alternative
using intuition and subjective judgment
Use the approach when
 The problem is fairly simple.

 The problem is familiar.

 The costs involved are not great.

 Immediate decisions are needed.

Quantitative E valuation – the evaluation of
alternatives using any technique in a group
classified as rational and analytical.

Quantitative Models for Decision-Making

 Inventory models  regression analysis
 queuing models  simulation
Network models Linear programming
Forecasting Sampling theory
Statistical decision
Inventory Models – consist of several types and are all designed
to help the manager make decisions regarding inventory
Examples:
1. Economic order quantity model

2. Production order quantity model

3. Bank order inventory model

4. Quantity discount model

Queuing Theory – is one that describes how to determine the

number of service units that will minimize both customer
waiting time and cost service
Network Models – models where large complex tasks are broken
into smaller segments that can be managed independently
e.g.
1. Program Evaluation Review Technique (PERT)

2. Critical Path Method (CPM)

Forecasting – collecting past and current information to make

predictions about the future

Regression Model - is a forecasting method that examines the

association between two or more variables.
Simulation – a model constructed to represent reality,
on which conclusions are about real-life problems can
be based
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 – a quantitative technique that is
used to produce an optimum solution within the
bounds imposed by constraints upon the decision
Sampling Theory – a quantitative technique where sample
populations are statistically determined for a number of
processes, such as quality control and marketing processes.

Statistical Decision Theory – the rational way to conceptualize,

analyze and solve problems in situations involving , limited or
partial information about the decision environment.
manager of Jona Car Rental. The company had branches in
Angeles City, Olongapo City, and Baguio City. The main office
was in Makati City.
Jose succeeded his brother Pedro who founded the company
and was well-liked by his subordinates. The car rental
company was very lucrative when Pedro left it to establish
another business . Jose was vey enthusiastic during the first
few months of his stewardship. At the 5th month his staff
members began losing confidence in his abilities to run the
firm. One time, when a purchase order for 3 units of Toyota
car was presented to him by the office manager for his
signature, he signed it immediately. The manager filed the
order with the dealer on the same day.
The next morning however, Jose instructed the
office manager to cancel the order. He also
instructed the manager to buy 3 units of
Mitsubishi cars from a dealer.
For the position of branch manager for Angeles
City became vacant, he appointed someone
whom his immediate staff thought to be least
deserving of the 3 candidates. After 3 months,
his staff members were proven right: the
revenues of the branch were drastically reduced.
Compared with a competitor in the area, the
When Jose decided to establish another branch,
he asked his staff to identify three potential sites
for him to choose from. He picked Laoag City. It
turned out that Laoag had the weakest potential.
After a few months of operation, the branch had
not shown any sign of promise. In contrast, the
competitor who put up a branch in Santiago City
in the same year was registering substantial
revenues. Santiago City was on of the potential
sites forwarded to Jose for consideration.
1. Examine and discuss which of the steps in dec
ision making was not done properly by Jose th
at caused the kind of output his decision has
brought.
2. Propose a decision tool or model that Jose can
use to improve his performance. Use either qu
alitative or quantitative approach.