Decision Making

By:
Lloyd, Klynt, ArJun, and Lem
 Decision Making

Managers of all kinds are primarily

tasked to provide leadership in the quest for
the attainment of the organization’s
objectives. To be effective, managers must
learn the art of decision making.
Good decisions will be crucial for the
success and growth of any organized effort.
Decision Making as a Management
Responsibility
It is understandable for managers to
make wrong decisions at times. The wise
manager will correct them once identified.
The bigger issue is the manager who
cannot or do not want to make decisions.
Managers must strive to choose a
decision option as correctly as possible,
which they are responsible for. The higher
the management level the bigger the
decision making becomes.
 Example:
The production manager of a certain company
has received a written request from a section head
regarding the purchase of an airconditioning 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 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.
 What is Decision Making?
• The process of identifying and choosing
alternative courses of action in a manner
appropriate to the demands of the
situation
• The engineer manager must adapt a
certain procedure designed to determine
the best option to solve certain problems.
 The Decision Making Process
Rational decision making according to
David H. Holt involves the following steps:
• Diagnose the Problem
• Analyze the Environment
• Develop Viable Alternatives
• Evaluate Alternatives
• Make a Choice
 The Decision Making Process
Diagnose the Problem
To make an intelligent decision, the first
move is to identify the problem. It is almost
impossible to succeed in the subsequent
steps without so.
A problems exists when there is a
difference between an actual situation and a
desired situation.
 The Decision Making Process
Analyze the Environment
The environment plays a very
significant role in the success or failure of
such an organization.
The objective of an environmental
analysis is the identification of constraints
which may be either internal or external
limitations.
The Decision Making Process
Analyze the Environment
Components of the environment
are internal which refers to
organizational activities within a firm,
and external which refers to variables
that are outside the organization and
not typically within the short-run
control of top management.
The Decision Making Process
Analyze the Environment
Example of internal limitations are as
follows: limited funds, limited training, ill
designed facilities etc.

Example of external limitations are as

follows: patents controlled by other
organizations, limited market for products.
Strict enforcement of local zoning
regulations etc.
 The Decision Making Process
Develop Viable Alternatives
The best among alternative solutions
must be considered by management. The
procedure is as follows:
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
 The Decision Making Process
Evaluate Alternatives
Proper evaluation makes choosing the
right solution less difficult. How alternatives
will be evaluated will depend on the nature
of the problem, the objectives of the firm,
and the nature of alternatives presented.
Each alternative must be analyzed and
evaluated in terms of its value, cost, and
risk characteristics.
 The Decision Making Process
Evaluate Alternatives
The value alternatives refer to benefits
that can be expected (profit). The cost of
alternatives refers to out of pocket costs
(initial cost), opportunity costs (opportunity if
money is invested elsewhere) and follow on
costs (maintenance etc.) The risk
characteristics is the likelihood of achieving
goals of the alternatives.
 The Decision Making Process
Make a Choice
After alternatives have been evaluated,
the decision maker must now be ready to
make a choice. Choice making refers to the
process of selecting among alternatives
representing potential solutions to a
problem. Webber advices that “particulate
effort should be made to identify all
significant consequences of each choice.”
 The Decision Making Process
Implement Decision
After the decision has been made,
implementation follows. Implementations
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.
 The Decision Making Process

Evaluate and Adapt Decision Results

Results expected may or may not
happen.
The manager must use control and
feedback mechanisms to ensure
results and provide information for
future decisions.
 Approaches in Solving
Problems

• Qualitative evaluation
• Quantitative evaluation
 Approaches in Solving
Problems
Qualitative evaluation refers to evaluation
of alternatives using intuition and subjective
judgement. It is used when:
1. The problems is fairly simple
2. The problem is familiar
3. The costs involved are not great
4. Immediate decisions are needed
 Approaches in Solving
Problems

Quantitative Evaluation
refers to the evaluation of
alternatives using any
technique in a group
classified as rational and
analytical.
 Quantitative Models of Decision
Making
• Inventory Models
• Queuing Models
• Network Models
• Forecasting
• Regression Analysis
• Simulation
• Linear Programming
• Sampling Theory
• Statistical Decision Making
 Quantitative Models of Decision
Making
Inventory Models consists of several types all
designed to help the engineer manager make
decisions regarding inventory. They are:
1. Economic order quantity model – used to
calculate the number of items that should be
ordered to minimize the total yearly cost
2. Production order quantity model – an
economic order quantity technique applied to
production orders.
Quantitative Models of Decision
Making
3. Back order inventory model – an
inventory model used for planned
shortages
4. Quantity discount model – used
to minimize the total cost when
quantity discounts are offered by
suppliers.
 Quantitative Models of Decision
Making

Queuing Models describes how to

determine the number of service units
that will minimize both customer waiting
time and cost of service. Applicable to
companies where waiting lines are a
common situation.
 Quantitative Models of Decision
Making
Network Models are models where large
complex tasks are broken into smaller
segments that can be managed
indepedently.
The two most prominent network models
are:
1. The Program Evaluation Review
Technique (PERT) - employs three time
estimates for each activity to monitor
large ang complex projects.
Quantitative Models of Decision
Making

2. The Critical Path Method (CPM) -

network technique using only one time
factor per activity that enables engineer
managers to schedule, monitor, and
control large and complex projects.
 Quantitative Models of Decision
Making

Forcasting may be defined

as “the collection of past and
current information to make
predictions about the future”
 Quantitative Models of Decision
Making
Regression Analysis is a forecasting
method that examines the association
between two or more variables. It may
be simple or multiple depending on the
number of independent variables
present. When one independent
variable is involved is is called simple
regression otherwise it is called
multiple regression.
 Quantitative Models of Decision
Making
Linear Programming is used to
produce an optimum solution within
the bounds imposed by constraints
upon decision. It is very useful
when supply and demand
limitations at plants, warehouses,
or market areas are constraints
upon the system.
 Quantitative Models of Decision
Making
Sampling Theory is a
technique where samples of
populations are statistically
determined to be used for a
number of processes. Sampling,
in effect, saves time and money.
Quantitative Models of Decision
Making
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. The Bayesan
analysis is applied which is to revise and
update the initial assessments of the
event probabilities generated by the
alternatives solutions.
Quantitative Models of Decision
Making
After assigning probabilities to
various events, the use of the
Bayes criterion becomes
possible. This selects the
decision alternative having the
maximum expected payoff, or
the minimum expected loss.
 Summary

Decision making is very

important function of the
engineer manager. The
organization will rise or fall
depending on the outcome of
his decisions.