CHAPTER 2 Decision Making as a
Management Responsibility
DECISION What Is Decision Making?
The Decision Making Process
MAKING Approaches In Solving
Problems
Quantitave Models for
Decision Making
Decision Making as a
Management Responsibility
Decisions must be made at various levels in the workplace. If certain
resources must be used, someone must make a decision authorizing
certain persons to appropriate such resources.
Management must strive to choose a decision option as correctly as
possible.
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.
Decision-making
"is the heart of all the management
functions."
William G. Nickels and
Others
The Decision Making
Process
Diagnose Problem Evaluate Alternatives
Analyze The Environment Make A Choice
Articulate Problem or Opportunity Implement Decision
Develop Viable Alternatives 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.
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.
The objective of environmental analysis is the identification of
constraints which may be spelled out as either internal or external
limitations.
INTERNAL LIMITATIONS
Examples:
Limited funds available for the purchase of equipment.
Limited training on the part of employees.
Ill-designed facilities.
EXTERNAL LIMITATIONS
Examples:
Patents are controlled by other organizations.
A very limited market for the company's products and services exists.
Strict enforcement of local zoning regulations.
COMPONENTS OF THE
ENVIRONMENT
Internal Environment
External Environment
INTERNAL ENVIRONMENT
The internal environment refers to organizational activities within a
firm that surrounds decision-making.
THE ENGINEERING FIRM
INTERNAL ENVIRONMENT
Organizational Aspects
EXTERNAL
like org, structure, policies, procedures,
rules, ability of management, etc. ENVIRONMENT
Marketing Aspects
like product strategy. promotion strategy,
etc. DECISION
Personnel Aspects
like recruitment practices, incentive
systems, etc.
Production Aspects EXTERNAL
like plant facility layout, inventory
control, etc.
ENVIRONMENT
Financial Aspects
like liquidity, profitability, etc
EXTERNAL ENVIRONMENT
The external environment refers to variables that are outside the
organization and not typically within the short-run control of top
management.
Government
Engineers Labor Unions
ENGINEERING Suppliers
Clients
FIRM
Competitors Public Banks
DEVELOP VIABLE
ALTERNATIVES
The best among the alternative solutions must be considered by management. This is
made possible 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.
EVALUATE ALTERNATIVES
After determining the viability of the alternatives and a revised list has been
made, an evaluation of the remaining alternatives is necessary. 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.
MAKE A CHOICE
Choice-making refers to the process of selecting among alternatives
representing potential solutions to a problem.
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.
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.
At this stage, the resources must be made available so that the decision
may be properly implemented.
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
Qualitative Evaluation
Quantitative Evaluation
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:
The problem is fairly Immediate decisions are needed.
simple.
The costs involved are not
The problem is familiar.
great/low cost.
QUANTITAVE 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:
Inventory Models Simulation
Queuing Theory Linear Programming
Network Models Sampling Theory
Forecasting Statistical Decision Theory
Regression Analysis
INVENTORY MODELS
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.
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.
QUEING 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. The queuing theory is applicable to companies
where waiting lines are a common situation.
NETWORK MODELS
These are models where large complex tasks are broken into smaller segments that can be managed
independently.
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.
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.
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. Regression analysis
may be simple or multiple depending on the number of
independent variables present. When one independent variable
is involved, it is called simple regression: when two or more
independent variables are involved, it is called multiple
regression.
SIMULATION
Simulation is a model constructed to represent reality. On
which conclusions about real-life problems can be used. It is a
highly sophisticated tool by means of which the decision maker
develops a mathematical model of the system under
consideration. Simulation does not guarantee an optimum
solution. But it can evaluate the alternatives fed into the
process by the decision maker.
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 constraints upon the system.
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.
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.
BAYESIAN ANALYSIS
The purpose of Bayesian analysis is to revise and update the
initial assessments of the event probabilities generated by the
alternative solutions. This is achieved by the use of additional
information.
SUMMARY
Decision-making is a 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.
