Study Guide No.

DECISION MAKING
ENGINEERING MANAGEMENT

Prepared by :
Eng’r. Isagani C. Flores
Department of Engineering and Architecture
 BATAAN HEROES COLLEGE

Study Guide No. 2 : DECISION MAKING

Module Description
This module deals with the intricacies of decision-making. It deals with the engineer
manager’s decision-making skills, as he is primarily tasked to provide leadership in the quest for
the attainment of the organization’s objectives.

Objectives of the Module :

After finishing this module the students must be able to :
1. realize that decision-making is a big responsibility.
2. describe the seven steps to effective decision making.
3, explain what good decision making is.
4. explain between making a decision and taking a decision.

 Introduction
Managers of all kinds and types, including the engineer manager, are primarily tasked to
provide leadership in the quest for 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 various options. Whatever his choice, it will
have effects, immediate or otherwise, in the operations of this organization.
The engineer manager’s 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 decisions, on the other hand, will provide the right environment for
continuous growth and success of any organized effort.

1. DECISION-MAKING AS A MANAGEMENT RESPOSIBILITY

Decision must be made at various level in the work place. They are also made at the
various stages in the management process. If certain resources must be used, someone must
make a decision authorizing certain persons to appropriate such resources.

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Decision-making is a responsibility of the engineer manager. It is understandable for

managers to make wrong decisions 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.”
Management must strive to choose a decision option as correctly as possible. Since they
have that power, they are responsible for whatever outcomes their decisions bring. The higher
the management level is, the bigger and the more complicated decision-making become.
An example may be provided as follows:
The production manager of certain company has received a written request from a section
head regarding the purchase of an air conditioning unit. Almost simultaneously, another request
from another section was forwarded to him requiring the purchase of a forklift. The production
manager was inform by his superior that he can only buy one of the two requested items due to
budgetary constraints.
The production manager must now make a decision. His choice, however, must be based
on sound arguments for he will be held responsible, later on, if he had made the wrong choice.

1.1 Types of decision-making?

Decision making can also be classified into three categories based on the level at which they occur.

a. Strategic decisions set the course of organization.

b. Tactical decisions are decisions about how things will get done.
c. Operational decisions are decisions that employees make each day to run the organization

2. WHAT IS DECISION MAKING?

Decision making is the process of making choices by identifying a decision, gathering
information, and assessing alternative resolutions. Using a step-by-step decision-making
process can help you make more deliberate, thoughtful decisions by organizing relevant
information and defining alternatives.

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Decision-making may also 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 a certain problems.
Decision are made at various management levels (i.e. top, middle, and lower levels) and
at various management function (i.e., planning, organizing directing, and controlling). Decision-
making, according to Nickels and others, “is the heart of all the management functions”.

 Why is decision-making important?

Decision-making plays a vital role in management. ... It plays the most important role in
the planning process. When the managers plan, they decide on many matters as what goals their
organization will pursue, what resources they will use, and who will perform each required task.

 What is good decision-making?

Good decision-makers involve others when appropriate and use knowledge, data and
opinions to shape their final decisions. They know why they chose a particular choice over
another. They are confident in their decisions and rarely hesitate after reaching conclusions.
Anyone can be a good decision-maker.

3. THE DECISION-MAKING PROCESS

Rational decision-making, according to David H. Holt, is a process involving the following
steps :
1. Diagnose problem
2. Analyze environment
3. Articulate problems or opportunity
4. Develop Viable alternatives
5. Evaluate the alternatives
6. Make a choice
7. Implement decision

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3.1 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 impossible to succeed in the subsequent steps.
An expert one said “identification of the problem is tantamount to having the problem half-
solved”.
What is a Problem? A problem exists when there is a different between an actual
situation and a desired situation. “For instance, the management of a construction company
entered into a contract with another party for the construction of a 25-storey building on a certain
site company made a decision to locate his factory in a place adjacent to a thickly population
area. Construction of the building was made with procession and was finished in a short period.
When the clearance for the commencement of operation was sought from local authorities, this
could not be given. It turned out that the residents opposed the operation of the firm and made
sure that no clearance is given.

3.2 Analyze environment

The president decided to relocate the factory but not after much time and money has been
lost. This is a clear example of the cost associated win management disregarding the
environment when decision are made. In this case, the president did not consider what the
residents could do.
Components of the environment. The environment consist of two major concerns:
1. Internal and
2. External
The internal environment refers to organizational activities within a firm that surrounds
decision-making. Shown in figure 2.1 are the important aspects of the internal environment.
The external environment 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
comprising the external environment of the firm.

Figure 2.1 the Engineering Firm and the Internal Environment in Decision Making

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The Engineering Firm

3.4 Develop Viable Alternatives

Oftentimes, problems may be solved by any of the solution 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:
An engineering firm has a problem of increasing its output by 30%. This is the result of a
new agreement between firm and one of its clients.
The list of solutions prepared by the engineering manager shown the following
alternatives courses of action:
1. Improve the capacity of the firm by
2. hiring more workers and building additional facilities;

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3. Secure the services of subcontractors;

4. Buy the needed additional output from another firm;
5. Stop serving some of the company’s customers; and
6. Delay servicing clients.
The list was revised and only the first three were deemed to be viable. Last two were
deleted because of adverse effects in the long-run profitability of the firm.

3.5 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 making choosing the right solution less difficult.
Hoe the alternatives bill be evaluated will depend on the nature of the problem. The
objectives of the firm, and the nature of alternatives presented. Souder suggest that “each
alternative must analyze 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
describes as follows: a net portion of Php 10 million per year if the alternative is chosen.
The cost of the alternative refers to out-of-pocket costs (like Php 10 million for
construction of facilities), opportunity costs (like the opportunity to earn interest of Php 2 million
per year if money is invested elsewhere), and follow on costs (like Php 3 million per year for
maintenance of facilities constructed).
The risk characteristics refer to the likelihood of achieving the goals of the alternatives. If
profitability of a net profit of Php 10 million is only 10%, then the decision-maker may opt to
consider an alternative with a Php 5 million profit but with an 80% profitability of access.
Another example of an evaluation of alternatives is shown below:
An engineer manager is faced with a problem of choosing between three applicants to fill
up a lone vacancy for a junior engineer. He will have to set up certain criteria for evaluating the
applicants. If the evaluation is not done by a professional human resources officer, then the
engineer manager will be forced to use a predetermined criteria.

A typical evaluation of job applicants will appear as follows:

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EVALUATION SHEET
Title of Vacant Position: JUNIOR ENGINEER
Date of Evaluation: December 28, 1996
Applicants Education Training Experience Age Total Points
Jose Sibayan, Jr. 40 35 4 10 89

Menandro Rillo 40 36 5 9 90

Dante dela Cruz 40 38 6 7 91

3.6 Make a Choice

After the alternatives have been evaluated, the decision maker must now be ready to
make a choice. This the point where he must be convinced that all the previous steps were
currently undertaken.
Choice-making refers to the process of selecting among alternatives representing
potential solution to a problem. ”At this point, Webber advises that “… particular effort should
be made to identify all significant consequences of each choice”.
To make the selection process easier, the alternatives can be ranked from best to worst on
the basis of same factors like benefits, cost, or risk.

2.7 Implement Decision

After a decision has been made, implementation follows. This is necessary, or any
decision-making will be an exercise in futility
. Implementation refers to carrying out the decision so that the objectives sought will be
achieved. To make implementation, a plan must be devised.
At this stage, the resources must be made available so that the decision may be properly
implemented. Those who will be involved in implementation, according to” Aldag and Stearns,
must understand and accept the solution”.

2.8 Evaluate and Adapt the Decision Results

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In implementing the decision, the result 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 goal and objectives originally specified.
Controlling refers to action made to ensure that activities performed match activities or
goals that have been set.
In this last stage of the decision-making process, the engineering manager will find out
whether or not the desired result is achieve. If the desired result is achieved, one may assume that
the decision made was good. If it was not achieve, Ferrell and Hirt suggest that further analysis is
necessary. Figure2.3 presents an elaboration of this last step.

Figure 2.3 Feedback as a Control Mechanism in the

Decision-Making-Process

The 9 Characteristics of a Good Decision

 Good decisions positively impact others. ...
 Good decisions are replicable. ...
 Good decisions foster opportunity. ...
 Good decisions include others. ...
 Good decisions are executable. ...

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 A good decision is systematic. ...

 Good decisions are accountable. ...
 Good decisions are pragmatic.

4. APPROACHES IN SOLVING PROBLEMS

In decision-making, the engineer manager is faced with problems which may either be
simple or complex. To provide him with some guide, he must be familiar with the following
approaches:
1. Qualitative evaluation, and
2. Quantitative evaluation

4.1 Qualitative Evaluation.

This term refers to evaluation of alternatives using intuition and subjective judgment.
Stevenson states that manager 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.
5.
An example of an evaluation using the quantitative approach as follows:

A factory operates on three shifts with the following schedule:

First shift -6:00 A.M. to 2:00 P.M.
Second shift -2:00 P.M. to 10:00 P.M.
Third shift -10:00 P.M. to 6:00 A.M.

Each shift consists of 200 workers manning 200 machines. On September 16,
1996, the operations went smoothly until the factory manage, an industrial engineer, was
notified at 1:00 P.M. that five of the workers assigned to the second shift could not report

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for work because of injuries sustained in a traffic accident while they were on their way
to the factory.
Because of time constraints, the manager made an instant decision on who among
the first shift worker would work overtime to man the five machines.

4.2 Quantitative Evaluation.

This term refers to the evaluation of alternatives using any technique in a group classified
as rational and analytical.

5. 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 programming
8. Sampling theory
9. Statistical decision theory

5.1 Inventory models

Inventory models consist of several types all designed to help the engineer manager make
decision regarding inventory. They are as follows:
1. 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.
2. Production order quantity model – this is an economic order quantity technique
applied to production orders.

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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.

5.2 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 of service.
The queuing theory is applicable to companies where waiting lines are a common
situation. Examples are cars waiting for service at a car service center, ships and barges waiting
at the harbor for loading and unloading by dock-workers, programs to be run in a computer
system that process jobs, etc.

5.3 Network Models

These are models where large complex tasks are break into smaller segments 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 project by employing three time estimates for each activity.
2. The Critical Path Method (CPM) – this is a network technique using only one
time factory per activity that enables engineer managers to schedule, monitor, and
control large and complex projects.

5.4 Forecasting
There are instances when engineer managers make decision that will have implications in
the future. A manufacturing firm, for example, must put up a capacity which is sufficient to
produce the demand requirements of customers within the next 12 months. As such, manpower
and facilities must be procured before the star of operations. To make decision on capacity more

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effective, the engineer manager must be provided with data on demand requirements for that
next 12 months. This type of information may be derived through forecasting.
Forecasting may be defined as “the collection of past and current information to make
predictions about the future.”

5.5 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.

5.6 Simulation
Simulation is 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 process by the decision-maker.

5.7 Linear Programing

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 when supply and demand limitations at plants, warehouse, or
market areas are constraints upon the system.

5.8 Sampling Theory

Sampling theory is a quantitative technique where samples of populations are statistically
determine 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.

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5.9 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.”
A more elaborate explanation of decision theory is the decision making process presented
at the beginning of this chapter. What has not been included in the discussion on the evaluation
of alternatives, but is very important, is subjecting the alternatives to 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.
When the decision-maker is able to assign probabilities to the various events, the use of
probabilistic decision rule, called Bayesian criterion, becomes possible. The Bayesian criterion
selects the decision alternative having the maximum expected payoff, or the minimum expected
loss if he is with a loss table.

Assessment
1. What are the seven steps to effective decision making?
2. Can the engineer manager avoid making bad decision? Why or why not?
3. Give some examples of decisions you do in your everyday life?
4. How do you know it's the right decision?
5. What is the difference between make a decision and take a decision?
6. What can a positive decision do to your life?

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References :

1. Engineering Management by Roberto G. Medina

2. https://www.umassd.edu/fycm/decision-making/process/
3. https://ebrary.net › management

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