DECISION MAKING

ENGINEERING MANAGEMENT CHAPTER I

 “the process of identifying and
choosing alternative courses of action
in a manner appropriate to the
DECISION demands of the situation.”
MAKING
-According to Nickels and others, “is
the heart of all the management
functions.”
  Decision-making is a responsibility of the engineer
manager.
Decision-making as a
 It is understandable for managers to make wrong
decisions at time.
 The wise manager will correct them as soon as they
are identified. The bigger issue is the manager who
Responsibility
Management

cannot or do not want to make decisions.

 Management must strive to choose a decision option

as correctly as possible. Since they have that power,
they are responsible for whatever outcome their
decisions bring. The higher the management level
is, the bigger and the more complicated decision-
making becomes.
  The production manager of a 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 informed by his superior
that he can only buy one of the two requested items due to
EXAMPLE 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.
 Diagnose Analyze Develop Viable
Problem Environment Alternatives

DECISION
Evaluate Implement
MAKING Alternatives
Make A Choice
Decision
PROCESS

Evaluate and Adapt Decision

Results
 I. DIAGNOSE THE 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.

THE PROCESS
II. 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.
  Components of the Environment. The environment consists of two
major concerns: the internal and external:
 Internal environment – refers to organizational activities within a
firm that surrounds decision-making.
THE PROCESS
 External environment – refers to variables that are outside the
organizationand not typically within the short-run control of top
management
 III. 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:
THE PROCESS
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.
 III. 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.

THE PROCESS IV. Make a choice

 after the alternatives have been evaluated, the decision-
maker must now be ready to make a choice. This is the point
where he must be convinced that all the previous steps were
correctly undertaken. 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.
 V. Implement Decision
 refers to carrying out the decision so that the objectives
sought will be achieved. To make implementation
effective, a plan must be devised.

VI. Evaluate and Adapt Decision Results

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

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 keeping with the goals and
objectives originally specified.
 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:

Qualitative evaluation – refers to evaluation of alternatives

Approaches in using intuition and subjective judgment. Stevenson states that
managers tend to use the qualitative approach when:
Solving a) The problem is fairly simple.
Problems b) The problem is familiar.
c) The costs involved are not great.
d) Immediate decisions are needed.

Quantitative evaluation – refers to the alternatives using any

technique in a group classified as rational and analytical.
 Inventory models – consists of several types all designed to help
the engineer manager make decisions regarding inventory. They are
as follows:
a) Economic order quantity model – this one is used to calculate
Quantitative the number of items that should be ordered at one time to
minimize the total yearly cost of placing orders and carrying the
Models for items in inventory.
b) Production order quantity model – this is and economic order
Decision- quantity technique applied to production orders.
making c) Back order inventory model – this is an inventory model used
for planned shortages.
d) Quantity discount model – an inventory model used to
minimize the total cost when quantity discounts are offered by
suppliers.
 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 situations.

Quantitative  Network models – these are models where large complex

Models for tasks are broken into smaller segments that can be managed
independently. The tow most prominent network models are:
Decision- a) The Program Evaluation Review Technique – a
making technique which enables engineer managers to schedule, monitor,
and control large and complex projects by employing three time
estimates for each activity.
b) The Critical Path Method – 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 – there are instances when engineer
managers make decision that will have implications in
the future.
Regression analysis – the regression model is a
forecasting method that examines the association
between two or more variables. It uses date from
Quantitative previous period to predict future events. Regression
Models for analysis may be simple or multiple depending on the
number of independent variables presents. When one
Decision- independent variable is involved, it is called simple
making regression, when two or more independent variables are
involved, it us called multiple regression.
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.
 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
Quantitative system.
Models for Sampling theory – is a quantitative technique where
samples of populations are statistically determined to be
Decision- used for a number of processes, such as quality control
making and marketing research. When data gathering is
expensive, sampling provides an alternative. Sampling,
in effect, saves time and money.
Statistical Decision-theory – refers to the “rational
way to conceptualize, analyze, and solve problems in
situations involving limited, or partial information about
the decision environment.”