Decision Making in Engineering Management

Sub Topic Page Number

Intoduction - YASI 2

Models of Decision Making - YASI 2

Classical Model 3

Administrative Model 4

Types of Administrative Model 4

Types of Decision Making - SANCHEZ 6

Programmed Decision 6

Unprogrammed Decision 7

Difference between Programmed and Nonprogrammed 8

Tools for Decision Making - TORREQUEMADA 10

Categories of Decision Making 10

Certainty 10

Risk 10

Uncertainty 11

Steps in Decision Making - NOBLE 12

Steps in Decision Making 13

General Criteria 13

Feedback Procedure 14

Cognitive Biases in Decision Making - TOMOGSOC 14

Cognitive Bias 14

Types of Cognitive Biases 15

References 21

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 Decision Making in Engineering Management

I. INTRODUCTION

Decision making is an essential part of planning. Decision making and problem solving

are used in all management functions, although usually they are considered a part of the planning

phase. This presents information on decision making and how it relates to the first management

function of planning.

Decision making is the process by which managers respond to opportunities and threats

that confront them by analyzing options and making determinations about specific organizational

goals and courses of action.

Decisions in response to opportunities occurs when managers respond to ways to improve

organizational performance to benefit customers, employees, and other stakeholder groups while

decisions in response to threats occurs when events inside or outside the organization are

adversely affecting organizational performance.

II. Models of decision-

making

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 Various views and theories of decision-making may be found. The following list of views,

supporting theories and models is based upon categorisations.

 Classical Model

 The rational model

 Optimum decision

 Administrative Model

 Model of bounded rationality

 The organisational procedures view

 The political view

 The incrementalist view

The Classical Model

The classical model of decision making is a prescriptive model of decision making that

assumes the decision maker can identify and evaluate all possible alternatives and their

consequences and rationally choose the most appropriate course of action.

The rational model

The rational manager view assumes a rational and completely informed decision maker

The process of rational decision-making comprises a number of steps, such as;

• Intelligence: finding occasions for making a decision

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• Design: inventing, developing and analysing possible courses of action

• Choice: selecting a particular course of action from those available and

• Review: assessing past choices.

In classical or perfect rationality, methods of decision analysis are used to attach

numerical values or utilities to each of the alternatives during the “choice” phase. The alternative

with the highest utility (or maximum subjective expected utility) is selected. When using the

rational mode, it is assumed that managers know of all possible alternatives.

Optimum decision

The optimum decision is the most appropriate decision in light of what managers believe

to be the most desirable future consequences for their organization.

The Administrative Model

The administrative model of decision making is an approach to decision making that

explains why decision making is inherently uncertain and risky and why managers can rarely

make decisions in the manner prescribed by the classical model.

The Model of bounded rationality

Alternatives are searched for and evaluated sequentially. There is a large number of

alternatives and available information can be so extensive that managers cannot consider it all. If

an alternative satisfies certain implicitly or explicitly stated minimum criteria, it is said to

“satisfice” and the search is terminated.

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The organisational procedures view

The organisational procedures view seeks to understand decisions as the output of

standard operating procedures invoked by organisational subunits. This view earned the name

“program model,” indicating that the decisions are pre-programmed in existing procedures as

well as the routinised thinking of the people involved. Sometimes it is refered to as the

“avoidance mode” which views decision-making as a systematic process aimed at maintaining

the status quo at the cost of innovation. On the other hand, this view is also regarded in a positive

light, namely as the use of codified.

The political view

The political view sees decision-making as a personalised bargaining process, driven by

the agendas of participants rather than rational processes. People differ on the organisation’s

goals, values and the relevance of information. The decision-making process never ends,but

remains a continuous battle between different coalitions. After one group wins a round of the

battle, other parties might regroup or become even more determined to win the nextround.

Influence and power is wielded in a deliberate manner and to further self-interest.The goals of

the coalitions are defined by self-interest rather than by what is good for the organisation as a

whole.

The incrementalist view

The logical incrementalist view involves a step-by-step process of incremental actions

and keeps the strategy open to adjustment. This view is disjointed, muddling through marginal

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 while feasible changes are made, working from the status quo to solve existing problems rather

than towards goals.

III. Types Of decision Making In Engineering Management

 Progammed Decision

 UnProgrammed Decision

What is the difference between programmed and nonprogrammed decisions? Because

managers have limited time and must use that time wisely to be effective, it is important for them

to distinguish between decisions that can have structure and routine applied to them (called

programmed decisions) and decisions that are novel and require thought and attention (non

programmed decisions).

Progammed Decision

Programmed decisions are those that a manager has encountered and made in the past.

The decision the manager made was correct because she used the assistance of company policies,

computations or a set of decision-making guidelines. In addition to being well structured with

predetermined rules regarding the decision-making process, programmed decisions may also be

repetitive or routine as their outcome was successful in the past. It generally does not take a

manager as long to come to a conclusion when faced with a business-related programmed

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decision because the challenge faced is not new. As a result, programmed decisions allow a

manager to make streamlined and consistently effective choices.

Programmed decision making can also be clearly laid out so that a good decision can be

reached by the new decision maker. Programmed decisions are also sometimes referred to as

routine or low-involvement decisions because they don’t require in-depth mental processing to

reach a decision.

Examples of Programmed Decisions:

Individuals naturally make programmed decisions on a daily basis. For example, in an

emergency, most people automatically decide to call 9-1-1. From a business perspective, a

company may create a standard routine for handling technical issues, customer service problems

or disciplinary matters. An employee’s duties may become routine with repetition, like the

process a mechanic uses to troubleshoot problems with a customer’s car.

Unprogrammed Decisions

Unprogrammed decisions involve scenarios that are new or novel and for which there are

no proven answers to use as a guide. In such a case, a manager must make a decision that is

unique to the situation and results in a tailored solution. Unprogrammed decisions generally take

longer to make because of all the variables an individual must weigh; and the fact that the

information available is incomplete, so a manager cannot easily anticipate the outcome of his

decision.

Examples of Unprogrammed Decisions

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 An individual may make an unprogrammed decision when she visits a new restaurant, is

unfamiliar with the menu and the menu is in a language she does not understand. In the business

world, the makers of the earliest personal computers had to make unprogrammed decisions

regarding the type of marketing to use to attract customers who possibly had never used a

computer in the past. Fast-food companies also had to make an unprogrammed decision

regarding consumer concerns about high fat contents and lack of healthy menu options.

Difference between Programmed Decisions and Nonprogrammed Decisions

Programmed decisions are those that are repeated over time and for which an existing set

of rules can be developed to guide process. These decisions might be simple, or they could be

fairly complex, but the criteria that go into making the decision are all known or can at least be

estimated with a reasonable degree of accuracy. For example, how many raw materials to order

should be programmed decision based on anticipated production, existing stock, and anticipated

length of time for the delivery of the final product. As another example, consider a retail store

manager developing the weekly work schedule for part time employees. The manager must

consider the availability of the workers by taking into account seasonal fluctuations in business.

Then she must consider the availability of the workers by taking into account requests for other

obligations that employees might have (such as school). Establishing the schedule might be

complex, but is still a programmed decision; it is made on a regular basis based on well-

understood criteria , so structure can be applied to the process. For programmed decisions,

managers may not know how busy the store will be the week of a big sale, but might routinely

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increase staff by 30% every time there is a big sale (because this has been fairly effective in the

past).

Heuristics are efficient – they save time for the decision maker by generating an adequate

solution quickly. Heuristics don’t necessarily yield the optimal solution – deeper cognitive

processing may be required for that. However, they generally yield the optimal solution.

Heuristics are often used for programmed decisions, because experience in making the decision

over and over helps the decision maker know what to expect and how to react.

In contrast, non-programmed decisions are novel, unstructured decisions that are

generally based on criteria that are not well defined. With nonprogrammed decisions,

information is more likely to be ambiguous or incomplete, and the decision maker may need to

exercise some thoughtful judgement and creative thinking to reach a good solution. These are

also sometimes referred to as nonroutine decisions or as high-involvement decisions because

they require greater involvement and thought on the part of the decision maker. For example,

consider a manager trying to decide whether or not to adopt a new technology. There will always

be unknowns in situations of this nature. Will the new technology really be better than the

existing technology? Will it become widely accepted over time, or will some other technology

become the standard? The best the manager can do in this situation is to gather as much relevant

information as possible and make an educated guess as to whether the new technology will be

worthwhile. Clearly, nonprogrammed decisions present the greater challenge.

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IV. TOOLS FOR DECISION MAKING

Decision making can be discussed conveniently in three categories: decision making

under certainty, under risk, and under uncertainty.

Decision Making under Certainty

Decision making under certainty implies that we are certain of the future state of nature

(or we assume that we are.) The solution, naturally, is to choose the alternative that gives us the

most favorable outcome Although this may seem like a trivial exercise, there are many problems

that are so complex that sophisticated mathematical techniques are needed to find the best

solution.

Decision Making under Risk

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 In decision making under riskone assumes that there exist a number of possible future

states of nature. Each has a known (or assumed) probability of occurring, and there may not be

one future state that results in the best outcome for all alternatives. Examples of future states and

their probabilities are as follows:

• Alternative weather ( weather) will affect the profitability of alternative construction schedules;

here, the probabilities of rain and of good weather can be estimated from historical data.

• Alternative economic futures (boom or bust) determine the relative profitability of conservative

versus high-risk investment strategy; here, the assumed probabilities of different economic

futures might be based on the judgment of a panel of economists.

Uncertainty

Decisions are limited by people’s cognitive limitations which leads to uncertainty where

probabilities cannot be given for outcomes and the future is unknown. Managers explore a

limited number of options and choose acceptable decisions rather than the optimum decision.

This is the typical response of managers when dealing with incomplete information.

 Causes of Incomplete Information

 Uncertainty

This occurs when probabilities cannot be given for outcomes and the future is

unknown.

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  Ambiguous information

Information whose meaning is not clear allows it to be interpreted in multiple

or conflicting ways.

 Time constraints and information cost

Managers have neither time nor money to search for all possible alternatives

and evaluate potential consequences.

 Satisficing

Searching for and choosing an acceptable or satisfactory response to problems

and opportunities, rather than trying to make the best decision.

V. Steps in decision-making

The decision-making process of several of the decision-makers may be described broadly

as having two phases: a divergent, exploratory phase and a convergent phase where the focus is

to reduce the number of alternatives and then make the decision. The divergent phase is

described as a creative phase where alternative solutions are generated.

Step 1: Recognize Need for a Decision

The need is sparked by an event such as environmental changes. Managers must first

realize that a decision must be made.

Step 2: Generate Alternatives

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 Managers must then develop feasibe alternative courses of action. If good alternatives are

missed, the resulting decision is poor. If it is hard to develop creative alternatives, managers need

to look for new ideas.

Step 3: Evaluate Alternatives

Managers should specify criteria, then evaluate. What are the advantages and

disadvantages of each alternative?

General Criteria for Evaluating Possible Courses of Action

 Legality – Is the alternative legal and will not violate any domestic and

international laws or government regulations?

 Ethicalness- Is the a;ternative ethical andwill not bring harm to the stakeholders

unnecessarily?

 Economic Feasibility – Can organizations performance goals sustain this

alternative?

 Physicality- Does the management have the capabilities and resources required to

implement the alternative?

Step 4: Choose among Alternatives

This is where the managers ank the various alternatives and make a decision. Managers

must be sure all the information available is brought to bear on the problem or issue at hand.

Step 5: Implement Chosen Alternative

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 Managers must now carry out the alternative since often times a decision is made but not

implemented.

Step 6: Learn from Feedback

Managers should consider what went right and wrong with the decision and learn for the

future. Without feedback, managers do not learn from experience and will not repeat the same

mistake over.

Feedback Procedure

1. Compare what actually happened to what was expected to happen as a result

of the decision.

2. Explore why any expectations for the decisions were not met.

3. Derive guidelines that will help in future decision making.

VI. Cognitive Biases in Decision Making

Decision making is inherently a cognitive activity, the result of thinking that may be

either rational or irrational (i.e., based on assumptions not supported by evidence). Individual

characteristics including personality and experience influence how people make decisions. As

such, an individual’s predispositions can either be an obstacle or an enabler to the decision-

making process.

From the psychological perspective, decisions are often weighed against a set of needs

and augmented by individual preferences. Abraham Maslow’s work on the needs-based

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hierarchy is one of the best known and most influential theories on the topic of motivation—

according to his theory, an individual’s most basic needs (e.g., physiological needs such as food

and water; a sense of safety) must be met before an individual will strongly desire or be

motivated by higher-level needs (e.g., love; self-actualization.

The Myers-Briggs Type Indicator (MBTI) is a widely used diagnostic for identifying

personality characteristics. By categorizing individuals in terms of four dichotomies—thinking

and feeling, extroversion and introversion, judging and perception, and sensing and intuition—

the MBTI provides a map of the individual’s orientation toward decision making.

Decision makers use heuristics to deal with bounded rationality. Heuristics are rules of thumb

that simplify the process of making decisions. If the heuristics is wrong, however, then poor

decision result from its use.

Cognitive Bias

A cognitive bias is a systematic pattern of deviation from norm or rationality in

judgment. Individuals create their own "subjective reality" from their perception of the input. An

individual's construction of reality, not the objective input, may dictate their behavior in the

world. Thus, cognitive biases may sometimes lead to perceptual distortion, inaccurate judgment,

illogical interpretation, or what is broadly called irrationality.

Some cognitive biases are presumably adaptive. Cognitive biases may lead to more

effective actions in a given context. Furthermore, allowing cognitive biases enables faster

decisions which can be desirable when timeliness is more valuable than accuracy, as illustrated

in heuristics. Other cognitive biases are a "by-product" of human processing limitations,

resulting from a lack of appropriate mental mechanisms (bounded rationality), impact of

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individual's constitution and biological state (see embodied cognition), or simply from a limited

capacity for information processing.

Types of Cognitive Biases

Biases in how we think can be major obstacles in any decision-making process. Biases

distort and disrupt objective contemplation of an issue by introducing influences into the

decision-making process that are separate from the decision itself. We are usually unaware of the

biases that can affect our judgment. The most common cognitive biases are confirmation,

anchoring, halo effect, and overconfidence.

1. Confirmation bias

This bias occurs when decision makers seek out evidence that confirms their previously

held beliefs, while discounting or diminishing the impact of evidence in support of differing

conclusions.

For example, imagine that a person holds a belief that left-handed people are more

creative than right-handed people. Whenever this person encounters a person that is both left-

handed and creative, they place greater importance on this "evidence" that supports what they

already believe. This individual might even seek "proof" that further backs up this belief while

discounting examples that don't support the idea.

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 Confirmation biases impact how we gather information, but they also influence how we

interpret and recall information. For example, people who support or oppose a particular issue

will not only seek information to support it, they will also interpret news stories in a way that

upholds their existing ideas. They will also remember details in a way that reinforces

these attitudes.

2. Anchoring

This is the overreliance on an initial single piece of information or experience to make

subsequent judgments. Once an anchor is set, other judgments are made by adjusting away from

that anchor, which can limit one’s ability to accurately interpret new, potentially relevant

information.

Anchoring Bias Example

If I were to ask you where you think Apple’s stock will be in three months, how would

you approach it? Many people would first say, “Okay, where’s the stock today?” Then, based on

where the stock is today, they will make an assumption about where it’s going to be in three

months. That’s a form of anchoring bias. We’re starting with a price today, and we’re building

our sense of value based on that anchor.

3. Halo effect

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 This is an observer’s overall impression of a person, company, brand, or product, and it

influences the observer’s feelings and thoughts about that entity’s overall character or properties.

It is the perception, for example, that if someone does well in a certain area, then they will

automatically perform well at something else regardless of whether those tasks are related.

Halo Effect in Organizations

Such thinking – the glow of a halo – can even spread to an entire company. In “The Halo

Effect: and the Eight Other Business Delusions That Deceive Managers,” Phil Rosenzweig notes

that a company that achieves great financial success could be touted for its “clear strategy,

strong values, brilliant leadership and outstanding execution.”

The halo effect can also backfire; if sales at the same company were to implode, the

company could be derided for cultivating the wrong strategy, harboring a complacent culture and

coddling an arrogant boss.

The book attempts to “unmask the delusions found in the corporate world,” and the

examples and lessons for the small business owner can be plentiful.

4. Overconfidence bias

This bias occurs when a person overestimates the reliability of their judgments. This can

include the certainty one feels in her own ability, performance, level of control, or chance of

success.

When People Are Overconfident

Overconfidence can cause a person to experience problems because he may not prepare

properly for a situation or may get into a dangerous situation that he is not equipped to handle.

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Some examples of overconfidence include:

 A person who thinks his sense of direction is much better than it actually is. The person

could show his overconfidence by going on a long trip without a map and refusing to ask for

directions if he gets lost along the way.

 A person who thinks he is much smarter than he actually is. The person could show his

overconfidence by not studying for his SATs, ending up with a lower score than he could

otherwise have received.

 A person who thinks he has a photographic memory and a detailed understanding of a

subject. The person could show his overconfidence by deciding not to study for a test that he

has to take on the subject, thus doing poorly on the test due to lack of preparation.

5. Progress bias

Explains our tendency to overestimate the effects of our positive or goal-supportive

actions (like exercising) and underestimate the effects of negative actions (like eating

poorly), which can lead to making poor choices as we think we’re in a better position than

we are.

This is when we give too much credit to the good things we’ve done, despite the fact they’re

offset by the not-so-good. We have a tendency to overemphasize the consequences of our

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constructive actions, while at the same time underrating the consequences of our harmful actions.

Progress bias can cause people to make bad choices, as they think they’re in a more beneficial

standing than they are.

Example: if someone ate healthily all week but indulges on the weekend, they’re likely to

overstate their positive actions while minimizing the unhealthy behavior.

6. Survivorship bias

  Is the logical error of concentrating on the people or things that made it past some

selection process and overlooking those that did not, typically because of their lack of visibility.

This can lead to false conclusions in several different ways.

The media loves a good rags-to-riches story, and so do our brains. Yet while it’s

perfectly fine to celebrate and look up to those things and people who have succeeded, where

we go wrong is by attributing that success merely to the path they chose. In many situations,

these successful people passed some selection process in the past that we aren’t considering.

7. Planning fallacy

Refers to a prediction phenomenon, all too familiar to many, wherein people

underestimate the time it will take to complete a future task, despite knowledge that previous

tasks have generally taken longer than planned.

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 When I first started freelancing, I would underestimate the time it took to do most tasks,

which led to overbooking work, stress, and even burnout syndrome. Turns out I wasn’t just bad

with time, but suffering from another common cognitive bias. The Planning Fallacy is our

inability to correctly judge how long we need to complete a task, regardless of how often we’ve

done it before or how proficient we are in it.

References

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