NOTES ON MANAGEMENT

PART 3 of 5 PARTS

THE QUANTITATIVE SCHOOL OF

MANAGEMENT

Musbri Mohamed
DIL; ADIL ( ITM )
MBL ( UKM )

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Fundamentals of Decision Making

The decision –making process consists of: -

identifying the problem;
diagnosing the situation;
collecting and analyzing data relevant to the issue;
ascertaining solutions that may be used in solving the problem
analyzing these alternative solutions;
selecting the one that appears most likely to solve the problem; and
implementing it.

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A great deal of subjective as well as
objective evaluation must take place in
decision making. The personal values of
the top manager will play a significant role
in the assignment of risk and uncertainty
probabilities. In many cases even modern
managerial decision making may well be
75% subjective and 25% objective.

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The manager must be as rational as possible,
drawing upon all available techniques and
guidelines in choosing among the various
alternatives.

Some of the techniques that are most useful in

this process include the Laplace criterion, the
maximin criterion, the maximax criterion,
marginal analysis, financial analysis and the
Delphi technique. And these represent only a few
of the techniques available to the modern
manager. Modern decision making is notable for
great variety of decision-making aids it has
discovered.

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Emphasis should be given to creativity and
decision making. Creative thinking has four stages:
preparation, incubation, illumination and verification.
There are a number of techniques that can be used
to help stimulate creative thinking. Two of the most
popular are brainstorming and the Gordon technique.
Recent interest has also been generated in the area
of whole-brain thinking: teaching managers to use
both sides of their brain. Left brain thinkers are being
taught to be more creative; right brain thinkers are
being shown how to approach problem solving more
logically and sequentially. This latter area is
extremely important in decision making.

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Modern Quantitative Decision-Making
Tools and Processes

Operations Research ( OR ) has its

distinguishing characteristics. There are five
main areas of concern for operations
management personnel. Most of them fall
under the heading of OR. These varied in
complexity and mathematical rigor but all are
of value to managers in the decision making
process.

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Linear Programming assists the
manager in determining price-volume
relationship for effective utilization of the
organization resources. The technique
could be employed to allocate scarce
resources while simultaneously
maximizing profit.

The economic order quantity formula

helps the decision-maker determine at
what point and in what quantities
inventory should be replenished.

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Game theory is useful in providing the manager
with important insights into the elements of
competition. Sometimes this competition is best
represented as a zero-sum game with a saddle
point, but more often it is typified by a nonzero –
sum game without a saddle point, in which case it
is necessary to use a mixed strategy in solving
the problem.

Queuing ( waiting line ) theory employs

mathematical equations in balancing waiting lines
and services.

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When it becomes difficult to evaluate alternatives
by means of equations alone, many managers turn
to the Monte Carlo technique, which uses a
simulation approach and provides the decision
maker with an opportunity to evaluate the effect of
numerous decisions within the simulated
environment. On the basis of simulation results,
the manager is in a position to make the decision
that best attains the objective.

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Other OR tool, and one that has been receiving
increased attention in recent years, is the decision
tree. This technique, which is less mathematical
than those already mentioned, helps the manager
weigh the alternatives based on immediate and
long run results by encouraging the individual to:
( 1 ) identify the available courses of action
( 2 ) assign probability estimates to the events
associated with the alternatives
( 3 ) calculate the payoffs corresponding to each
act-event combination.

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Heuristic programming is the least
mathematical of all OR techniques, yet it
is used far more often by the manager in
every day decision making (through rule
of thumb and the use of trial and error)
than any other OR tools.

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Information Systems and Decision
Making

Focus on information systems and the

computer. Many information systems
are computerized, but this is not
universal. Nevertheless, the two areas
have one characteristic: They help
relate the departments and units of the
organization into a harmonious system.

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The primary goal of any information system
is to provide decision-making information to
the manager.

For this reason, a well-designed system must be

planned with the needs of management in mind
and must follow a from-the-top-down philosophy.
In addition, the system must discriminate by
organization level, providing the right kinds of
information to each. For example, top
management will need general information from
which to formulate strategic plans. Middle
management will need more specific data for
drawing up budgets, measuring and appraising
managerial performance. Lower-level
management will need very specific data for use
in areas such as production scheduling and
inventory control.

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The modern computer is often employed as
part of an information system, providing
necessary information to managers throughout
the hierarchy. In addition to performing book
keeping and arithmetic functions, it is also being
used for such functions as inventory control and
airline reservations processing. Another one of
its latest applications is answering “ what if “
questions through simulation.

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Despite their great value, computers have
some important drawbacks, of which
management must be aware.

First, many companies tend to buy more

complex computers than they need.

Second, many managers place too much faith

in computer printout results.

Third, many managers tend to over rate the

capabilities of the computer. There are a large
number of things people still do much better
than any machine and qualitative decision
making is one of them.

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The introduction of an information system
into an organization can bring about
dysfunctional behavior such as
aggression, projection and avoidance.

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In order to overcome the above problems,
management must be willing to adopt a
participative decision-making approach that
introduces the new system, relates its
advantages to personnel and assures that any
persons replaced because of it will have
employment secured for them elsewhere.

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Operations Management

We often discover what will do, by finding out

what will not do; and probably he who never
made a mistake never made a discovery.

Operations management is the process of

designing, operating and controlling a production
system that takes physical resources and
transforms them into goods and services. This
system has three basic phases: input,
transformation process and output.

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At the present time there are two major
operations management areas that are getting a
great deal of attention i.e. productivity and
technology. Productivity is measured by the
equation: output/input. The major reason that
American productivity has declined vis-à-vis
other nations is management ineffectiveness.
Too often companies have used a piecemeal
approach to their productivity efforts, provided
inadequate coordination among the various
departments, and allocated insufficient
investment in management and supervisory
training and development.

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Today, efforts are under way to correct
the above mistakes. Meanwhile, in the
area of technology, business firms are
turning to robots and other state-of-the-
art inventions, including supersonic
welders and lower-powered ultra sound.

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There are a number of important operations
management functions.

One is product design, which consists of planning

products to meet customer demand. A second is
production planning, which ties together demand
forecasts with scheduled resource outputs. A third
is purchasing and inventory control, in which
management is now making wide use of just-in-
time inventory, material requirements planning
and hierarchical production planning. A fourth is
quality control, which many firms are pursuing by
the use of quality circles. Taken together these
four major areas of operations research are
helping management meet the challenge for low
cost, high quality output that is being demanded
by today’s more informed customer.

Thank you.

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