Module 1: DECISION MAKING
Learning objectives:
After reading the module and reviewing the materials presented the learner will be able to:
1. Explain decision-making as a management responsibility.
2. Understand and ability to use the decision-making process.
3. Identify approaches in solving problems.
4. An appreciation for the various situation in which decisions are made.
Learning Content:
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 engineering manager must adapt a certain procedure designed to determine
the best option available to solve certain problems.
Decisions are made at various management levels (i.e. top, middle, and lower levels)
and at various management functions (i.e. planning, organizing, directing or leading, and
controlling). Decision-making, according to Nickels and others, “is the heart of all the
management functions.”
The Decision-Making Process
Rational decision-making according to David H. Holt, is a process involving the following steps:
1. Diagnose problem – What is the problem? According to an expert, “identification of the
problem is tantamount to having the problem half-solved.” A problem exists when there is a
difference
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 25-storey building on a certain site. The actual situation
of the firm is that it has not yet constructed the building. In this case, the actual situation is
different from the desired situation. The company, therefore, has a problem and that is
construction of the 25-storey building.
2. Analyze the environment – The environment where the organization is situated, plays a very
significant role in the success or failure of such organization. It is therefore, very important
that an analysis of the environment be undertaken.
The objective environment analysis is the identification of constraints, which may be spelled out
as either internal or external limitation such as follows:
A. Internal limitations
a. Limited funds available for the purchase of equipment.
b. Limited training on the part of employees.
c. Designed facilities
B. External limitations
a. Patents are controlled by other organizations.
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b. A very limited market for the company’s product and services
c. Strict enforcement of local of zoning regulations. When decisions are to be made,
external and internal limitations must be considered.
The components of the environment consist of two major concerns:
1. Internal – The internal environment refers to organizational activities within a firm that
surrounds decision-making.
2. External – The external environment refers to valuables that are outside the organization
and typically not within the short-run control of top management.
Develop Viable Alternatives
Oftentimes, problems may be solved by any of the solutions offered. The best among
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 solution.
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. This is important because the rest step
involves making a choice. Prepare 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. Should suggests that “each
alternative must be analyzed and evaluated in terms of its value, cost, and risk characteristics.
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.
Choice-making refers to the process of selecting among alternatives representing
potential solutions to a problem. At this point, Webber advise that “…particular effort should be
made to identify all significant consequences of each choice.”
Implement Decision
After a decision has been made, implementation follows. Implementation refers to
carrying out the decision so that objectives sought will be achieved. To make implementation
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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.
In this last stage of the decision-making process, the engineer manager will find out
whether or not the desired result is achieved. If the desired result is achieved, one may assume
that the decision made was good.
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. This term refers to evaluation of alternatives using intuition and
subjective judgement. Stevenson states that managers tend to use the qualitative approach
when.
a. The problem is fairly simple.
b. The problem is familiar
c. The costs involved are not great.
d. Immediate decisions are needed.
2. Quantitative 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:
1. Inventory Models consist 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 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.
b. Production order quantity model – this is an economic order quantity technique
applied to protection orders.
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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.
2. Queueing Theory is one that describe how to determine the number of service units that
will minimize both customer waiting time and cost of service. The queueing 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
processes jobs, etc.
3. Network Models. There are models where large complex tasks are broken into smaller
segments that can be managed independently. The two most prominent network
models are:
a. 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.
b. 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.
4. Forecasting. There are instances when engineer managers make decisions 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 start of
operations. To make decisions on capacity more effective, the engineer manager must
be provided with data on demand requirements for the 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. 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.
6. Simulation is a model constructed to represent reality, on which conclusions about reallife 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 I can evaluate the alternatives
fed into the process by the decision marker.
7. Linear programming is a quantitative technique that is used to produce an optimum
solution within the bounds is 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.
8. 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
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and marketing research. When data gathering is expensive, sampling provides an
alternative. Sampling in effect, saves time and money.
9. Statistical Decision theory refers to the “rational way to conceptualize, analyze, and
solve problems in situations in involving limited, or partial information about the decision
environment. When the decision-maker is able to assign probabilities to the various
events, the use of probabilistic decision rule, called the Bayes criterion, becomes
possible. The Bayes criterion selects the decision alternative having the maximum
expected payoff, or the minimum expected loss if he is working with a loss table. 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.
Assignment no. 1 (DECISION-MAKING)
1. When a problem becomes apparent and the engineer manager chooses to ignore it, is
he making a decision? Explain your answers.
2. What are components of the environment from the point of view of the decision-maker?
What do they consist of?
3. Why is it important for those who will be involved in the implementation to understand
and accept the solution to the problem?
4. What are the approaches in solving-problem?
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