Engineering

Management
Chapter 2: Decision Making
Presented by:
Kenz Rix Magtoto
Jan Daniel Mallari
Peter Manabat
John Brix Manalo
 Contents
DECISION-MAKING ● APPROACHES IN SOLVING PROBLEMS

● DECISION-MAKING AS A MANAGEMENT ● QUANTITATIVE MODELS FOR DECISION MAKING

RESPONSIBILITY
- Inventory Models
● WHAT IS DECISION-MAKING? - Queuing Theory
- Network Models
● THE DECISION-MAKING PROCESS
- Forecasting
- Diagnose Problem
- Regression Analysis
- Analyze the Environment
- Simulation
- Develop Viable Alternatives
- Linear Programming
- Evaluate Alternatives
- Sampling Theory
- Make a Choice
- Statistical Decision-Theory
- Implement Decision
- Evaluate and Adapt Decision Results
 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
organization’s objectives. If he is to become effective, he must learn the
intricacies of decision-making. Many times he will be confronted by
situations where he will have to choose from among the various options.
The engineer manager’s decision-making skills will be very crucial to his
success.
DECISION MAKING
AS A MANAGEMENT
RESPONSIBILITY
 Decision Making as Management Responsibility

Management must strive to choose a decision option as correctly as

possible. The higher the management level is, the bigger and the more
complicated decision-making becomes.
 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
problems.
 THE DECISION MAKING PROCESS

01. Diagnose Problem

02. Analyze Environment
03. Articulate Problem or Opportunity

04. Develop Viable Alternatives

05. Evaluate Alternatives

06. Make a Choice

07. Implement Decision
08. 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. An expert once said
“identification of the problem is tantamount to having the problem half-
solved.”

What is a problem?

Problem is a difference between an actual situation and desired situation.

 ANALYZE THE ENVIRONMENT

It is the identification of constraints, which may be spelled out as either

internal or external limitations.

Examples of Internal Limitations

● Limited funds
● Limited training
● Designed facilities
Examples of External Limitations
● Patents are controlled by other organizations.
● Limited market for the company’s products and services exist
● Strict enforcement of local zoning regulations.
 ANALYZE THE ENVIRONMENT

Components of Environment
The environment consists of two major concerns:
1. Internal and
2. External
Internal Environment
It refers to organizational activities within a firm that surrounds decision
making. Figure 2.1 are the important aspects of the internal environment
External Environment
It refers to variables that are outside the organization and not typically
within the short-run control of top management. Figure 2.2 shows the
forces compromising the external environment of the firm.
DEVELOP VIABLE ALTERNATIVES
 DEVELOP VIABLE ALTERNATIVES

Oftentimes, problems may be solved by any of the solutions offered. The

best among the alternative 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 (example):
An engineering firm has a problem of increasing its output by 30%.
This is the result of a new agreement between the firm and one of its
clients.
 DEVELOP VIABLE ALTERNATIVES

We now know how the engineering firm’s process on how they will come
up with their alternative courses of action. These are the list of alternative
options.

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 and;
5. delay servicing some clients.

With added critical thinking, we know that the last two options can affect
the firm in the long run, so they decided to remove the 4th and 5th option.
 EVALUATE ALTERNATIVES
This is important because the next step involves
making a choice. Proper evaluation makes choosing
the right solution less difficult. How the alternatives
will be evaluated will depend on the nature of the
problem, the objectives of the firm, and the nature of
alternatives presented. Souder suggests that "each
alternative must be analyzed and evaluated in terms
of its value, cost, and risk characteristics."

The value of the alternatives refers to benefits that

can be expected. An example may be described as
follows: a net profit of P10 million per year if the
alternative is chosen.
EVALUATE ALTERNATIVES
 MAKE A CHOICE

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.
 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 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 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, 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 the desired activities or goals, that have
been set.
APPROACHES IN
SOLVING
PROBLEMS
 APPROACHES IN SOLVING PROBLEMS

Qualitative Evaluation

This term refers to evaluation of alternatives using intuition and

subjective judgment.

Quantitative Evaluation

This term refers to the evaluation of alternatives using any technique in a

group classified as rational and analytical.
APPROACHES IN SOLVING PROBLEMS
 QUANTITATIVE MODELS FOR
DECISION MAKING
01. Inventory Models
02. Queuing theory
03. Network models

04. Forecasting
05. Regression Analysis
06. Simulation
07. Linear Programming
08. Sampling Theory
09. Statistical Decision Theory
 INVENTORY MODELS

Inventory models consist of several types all designed to help the engineer
manager make decisions regarding inventory.

● 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.

● Production order quantity model – this is an economic order quantity

technique applied to production orders.

● Back order inventory model – this is an inventory model used for

planned shortages.

● 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.
 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) - 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 net. work technique using
only one time factor per activity.
 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.

 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 processes, such as
quality control and marketing research.
 STATISTICAL DECISION-THEORY

Decision theory refers to the “rational way conceptualize, analyze, and

solve problems in situations involving limited, or partial information about
the decision environment.

Bayesian Analysis
The purpose of the 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 the various
events, the use of probabilistic decision rule, called the Bayes criterion,
becomes possible. It selects the decision alternative having the maximum
expected payoff, or the minimum expected loss if he is working with a loss
table.
 SUMMARY (TLDL)

Decision making is very important function of the engineer manager. His

organization will rise or fall depending on the outcomes of his decisions. It
is, therefore, necessary for the engineer manager to develop some skills in
decision-making.
SUMMARY (TLDL)