Cebu Institute of Technology

University
N. Bacalso Avenue, Cebu City, Philippines
COLLEGE OF ENGINEERING AND ARCHITECTURE
Department of Industrial Engineering

COURSEWARE
ES034 | ENGINEERING MANAGEMENT
Week 2 (May 4 - 8)
 Welcome to Week 2!
Last week, we identified the difference of an engineer and manager with their functions in
different types of organization. We also defined what organizations are and the management
processes and functions that evolves on it. For those handling the organizations – managers,
we identified the necessary skills and competences needed to get the desired performance of
the organization. Coupled with the ethics in workplace for a harmonious working environment.
And lastly, corporate social responsibility where managers act in ways that respect and protect
the interests of society and corporate governance where boards of directors oversight the
managerial decisions and actions.

For Week 2, we will delve into the environment of organizations (including the global
environment), the usefulness of information in decision making, the decision making processes
and some of the tools that can be used for a successful and data-driven decisions.

This will be a long ride so I’m sharing to you an ideal study guide that will guide you through the
week.

Organizational Culture: Dimensions and Importance –

May 4
Factors To Consider In Managing A Global Environment
Workplace Diversity –
May 5
Entrepreneurship and Small Business Management
Information, Technology, and Management –
May 6
Issues in Managerial Decision Making
Approaches in Solving Problems –
May 7
Pareto Analysis
May 8 Finalize output

Again, if you have any questions, feel free to reach out to me!

I hope you will enjoy and learn so much for this week! 
 ENVIRONMENT
PART TWO

Organizational Culture & Environment

Global Dimension of Management
Small Business Management & Entrepreneurship

INTENDED LEARNING OUTCOMES

 Discuss the characteristics and importance of organizational culture.
 Describe the constraints and challenges facing managers in today’s external
environment.
 Explain how is diversity managed in a multicultural organization
 Distinguish multinational corporations and discuss their extensive operations
 Define culture and discuss how it relates to global diversity
 ORGANIZATIONAL CULTURE & EXTERNAL ENVIRONMENT

Organizational Culture: Dimensions and Importance

Organizational culture is a system of shared values, assumptions, beliefs, and norms that unite the
members of an organization. Organizational culture reflects employees’ views about “the way things are
done around here.” Culture gives meaning to actions and procedures within an organization and may be
considered to be the personality of the organization. The culture specific to each firm affects how employees
feel and act as well as the type of employee hired and retained by the company.

There are three aspects of an organization’s culture, as shown in Figure 2.1. The most obvious is the visible
culture that an observer can hear, feel, or see. Aspects of visible culture include how people dress, how
fast people walk and talk, whether there is an open floor plan
without office doors or managers have private offices, and the
extent to which status and power symbols are conspicuous.
Assigned parking spots based on rank, differing cafeteria or
eating arrangements based on organizational level, and the
degree to which furnishings are plush and conservative versus
simple and modern indicate the nature of power and status
differentials.

The signs of a visible culture make it possible to study dominant

Figure 2.1 Seven dimensions of Organizational Culture
cultural characteristics, such as whether the organization is
competitive or easygoing, formal or informal, hierarchical or
egalitarian, liberal or conservative. For instance, firms with
controlling cultures often record and review their employees’
communications, including telephone calls, e-mail, and Internet
connections.

At a deeper level, espoused values are not readily observed but instead are the ways managers and
employees explain and justify actions and decisions. For example, managers may justify layoffs primarily
on the basis of a need to cut costs or to expedite decision making and improve response time by
streamlining organizational levels. Other managers may say they tolerate mistakes because employees
need to be encouraged to take risks or because it is better to treat workers with respect and provide them
with second chances when necessary. Espoused values are those values that are expressed on behalf of
an organization or that are expressed as explanations for policies or actions.

People may not always give the real reason behind their actions. Employees are quick to spot hypocrisy.
Managers who are not honest about why actions were taken may create an organizational culture full of
cynicism, dishonesty, lack of credibility and poor ethics, all of which eventually translate into poor firm
performance.

Espoused values may vary substantially across organizations and this variability in expressed values can
reflect real and important differences in these organizations. For organizations that have merged or been
acquired it has been found that organizational performance after the merger is better for firms that had
more closely matched espoused values to begin with. This effect on postmerger financial performance
illustrates the importance of espoused values.

Espoused values are generally consciously and explicitly communicated. At the center of organizational
culture are core values that are widely shared, operate unconsciously, and are considered nonnegotiable.
In some organizations, a basic assumption may be that stability and commitment of the workforce are
critical for success. Consequently, employees are well treated and receive liberal fringe benefits. At the
other extreme, a basic assumption may be that employees are commodities and an expense that should
be minimized in the business process, rather than an investment. Thus employees are tightly controlled,
exceptions to established policy are kept to a minimum, there are detailed rules and procedures about what
employees can and cannot do, and managers believe it is their duty to prevent deviations from the norms.
Employees may be watching one another to ensure that no one breaks the rules, and people are trained to
check with their superiors before making most decisions.

The basic underlying cultural assumptions create the lenses through which people perceive and interpret
events. Someone sitting motionless may be seen as loafing in some firms, while at others, the employee
would be perceived as pondering an important problem. When employees are absent from work, the
organization’s culture may lead managers to conclude they are shirking, and if an employee requests
permission to perform some tasks at home, the request will probably be denied because the supervisor
expects the employee will “goof off” rather than work.

Why is having a strong culture important? For one thing, in organizations with strong cultures, employees
are more loyal than are employees in organizations with weak cultures. Research also suggests that strong
cultures are associated with high organizational performance. And it’s easy to understand why. After all,
if values are clear and widely accepted, employees know what they’re supposed to do and what’s
expected of them, so they can act quickly to take care of problems. However, the drawback is that a strong
culture also might prevent employees from trying new approaches especially when conditions are
changing rapidly.

KNOWLEDGE CHECK 2.1

ATC Macros is a marketing consulting firm that has no office doors. There are not even private offices
except on one floor, for client meetings. There are no reserved parking spaces, and the furnishings inside
the office are modern yet simple. ATC encourages its employees to take risks and managers are
encouraged to accept and tolerate employee mistakes when taking risks. At ATC, employees are treated
well and receive liberal fringe benefits. Employees enjoy an on-site fitness center, flexible work
schedules, and other family-friendly policies.

1. The minimalist furnishings in the office, the lack of office doors, and the lack of private parking spaces
all demonstrate part of ATC’s ______.
a. ethical code of conduct
b. espoused values
c. core values
d. visible culture
2. ATC encourages employees to take risks. This is demonstrated by accepting and tolerating employee
mistakes when other firms may not do so. This reflects ATC’s ______.
a. core values
b. visible culture
c. espoused values
d. stability
3. ATC considers employees central to the firm’s success, and therefore takes care of them by being
flexible with their schedules arid accommodating their family lives. Such policies at the center of ACT’s
organizational culture reflects its ______.
a. core values
b. espoused values
c. visible culture
d. ethical code of conduct

The External and Internal Environment

The decade from 2000 to 2009 was a challenging one for organizations. For instance, some well-known
stand-alone businesses at the beginning of the decade were acquired by other companies during this time,
including Compaq (now a part of Hewlett-Packard), Gillette (now a part of Procter & Gamble) and Merrill
Lynch (now a part of Bank of America); others disappeared altogether, including Lehman Brothers, Circuit
City, and Steve & Barry’s (all now bankrupt). Anyone who doubts the impact the external environment has
on managing just needs to look at what’s happened during the last decade.

The term external environment refers to factors and forces outside the
organization that affect its performance. As shown in Exhibit 2.2, it
includes several different components.
 Economic component - interest rates, inflation, changes in
disposable income, stock market fluctuations, and business cycle
stages.
 Demographic component - trends in population characteristics
such as age, race, gender, education level, geographic location, income,
and family composition.
 Political/legal component - federal, state, and local laws, as well
as global laws and laws of other countries. It also includes a country’s
political conditions and stability.
Exhibit 2.2 Components of External
Organization  Sociocultural component - societal and cultural factors such as
values, attitudes, trends, traditions, lifestyles, beliefs, tastes, and
patterns of behavior.
 Technological component - scientific or industrial innovations.
 Global component - issues associated with globalization and a world economy.

Internal environment is a component of the business environment,

Exhibit 2.3 Components of Internal
Organization
which is composed of various elements present inside the organization,
that can affect or can be affected with, the choices, activities and
decisions of the organization.
 Capital/Financial Resources - funds (often include cash, credit,
and lines of credit) necessary to grow and sustain a business
 Physical Resources - tangible assets of the organization that play
an important role in ascertaining the competitive capability of the
company like equipment and manufacturing plant
 Human Resources - most valuable asset of the organization;
firm’s real assets are its human resources consisting of board of directors,
top management, middle management, supervisors and employees.
 Technological Resources - imply the technical know-how of the
organization.

KNOWLEDGE CHECK 2.2

1. Some examples of internal environmental factors in an organization are _____.
a. Management Changes
b. Employee Moral
c. Cultural Changes
d. All of the answers are correct

2. Which of the following are NOT part of external environmental factors for an organization?
a. Changes to the economy
b. Political factors
c. Government regulations
d. Poor performance from upper management

3. What external factor may mean a company has to purchase new safety equipment which increases
costs and lowers profit?
 a. Political/Legislation
b. Economic
c. Social
d. Environmental

4. What factor may mean that the company has to alter its range of clothing to what customers currently
want or face getting into financial difficulties.
a. Human Resources
b. Economic
c. Sociocultural
d. Capital/Financial Resources

MANAGEMENT AND GLOBALIZATION

This is the age of the global economy in which resource supplies, product markets, and business
competition are worldwide rather than local or national in scope. It is also a time heavily influenced by the
forces of globalization, defined as the growing interdependence among the components in the global
economy.

There’s no better way to illustrate

the global economy than with the
clothes we wear. Where did you
buy your favorite t-shirt? Where
was it made? Where will it end up?
In a fascinating book called The
Travels of a T-Shirt in the Global
Economy, economist Pietra Rivoli
tracks the origins and disposition
of a t-shirt that she bought while on
vacation in Florida.

As shown here, Rivoli’s t-shirt lived

a complicated and very global life.
That life began with cotton grown
in Texas. It moved to China where
the cotton was processed and
white t-shirts were manufactured. The t-shirts were then sold to a firm in the United States that silk-screened
and sold them to retail shops for resale to American customers. These customers eventually donated the
used t-shirts to a charity that sold them to a recycler. The recycler sold them to a vendor in Africa who
distributed them to local markets to be sold yet again to local customers.
It’s quite a story, this t-shirt that travels the commercial highways and byways of the world. Thus;
globalization can be described as “one of the most powerful and pervasive influences on nations,
businesses, workplaces, communities, and lives.”

Global Management

The term used to describe management in businesses and organizations with interests in more than one
country is global management. Procter & Gamble, for example, pursues a global strategy with customers
in over 180 countries. Toyota has 14 plants in North America and employs over 35,000 locals. The success
of firms like these depends on being able to attract and hire truly global managers who have strong global
perspectives, are culturally aware, and always stay informed about international developments.
Why Companies Go Global

John Chambers, chairman and CEO of Cisco Systems Inc., once said: “I will put my jobs anywhere in the
world where the right infrastructure is, with the right educated workforce, with the right supportive
government.” Cisco, Honda, Haier, and other firms like them are classic international businesses that
conduct for-profit transactions of goods and services across national boundaries. Nike is another; its
swoosh is one of the world’s most recognized brands.

DID YOU KNOW???

Nike does no domestic manufacturing. All of Its competitor, New Balance, takes a different approach.
Even though making extensive use of global suppliers and
its products come from sources abroad,
licensing its products internationally, New Balance still
including 100+ factories in China alone. produces at factories in the United States.

The two firms follow somewhat different strategies, but each is actively pursuing these common reasons
for doing international business.

Profits—Gain profits through expanded operations.

Customers—Enter new markets to gain new customers.
Suppliers—Get access to materials, products, and services.
Labor—Get access to lower-cost talented workers.
Capital—Tap a larger pool of financial resources.
Risk—Spread assets among multiple countries.

Today you can add another reason to this list, economic development—where a global firm does business
in foreign countries with direct intent to help the local economy. Coffee giants Green Mountain Coffee
Roasters, Peet’s Coffee & Tea, and Starbucks, for example, are helping Rwandan farmers improve
production and marketing methods. They send advisers to teach coffee growers how to meet high
standards so that their products can be sold worldwide. It’s a win–win: The global coffee firm gets a quality
product at a good price, the local coffee growers gain skills and market opportunities, and the domestic
economy improves.

Managing Global Environment

The success of a foreign venture depends on who is in charge. If a manager does not perform up to par in
a domestic unit, others can fill in. This is not the case in an overseas operation. The importance of choosing
the right managers was underlined by CEOs of U.S. companies with revenues in the $300 million to $1
billion range who identified the choice of management for overseas units as one of their most crucial
business decisions. There are three basic approaches to managing an international subsidiary: the
ethnocentric, polycentric, and geocentric approaches.
  The ethnocentric approach involves filling
top management and other key positions
with people from the home country.
Ethnocentric staffing means to hire
management that is of same nationality of
parent company. These managers are
known as expatriates.

The ethnocentric approach places natives

of the home country of a business in key
positions at home and abroad. In this
example, the U.S. parent company places natives from the United States in key positions in both
the United States and Mexico.

 In the polycentric approach, international

subsidiaries are managed and staffed by
personnel from the host country, or local
nationals. The purpose of adopting this
approach is to reduce the cost of foreign
operations gradually. Even those organizations
which initially adopt the ethnocentric approach
may eventually switch over to the polycentric
approach. The primary purpose of handing over
the management to the local people is to ensure
that the company understands the local market
conditions, political scenario, cultural and legal
requirements better.

In this example, the Australian parent company uses natives of India to manage operations at the
Indian subsidiary. Natives of Australia manage the home office.

 Nationality is deliberately downplayed in the

geocentric approach as the firm actively searches
on a worldwide or regional basis for the best
people to fill key positions. Many of these
individuals are likely to be third-country
nationals—citizens of countries other than the host
nation or the firm’s home country.

In this example, the UK parent company uses

natives of many countries at company
headquarters and at the U.S. subsidiary.

KNOWLEDGE CHECK 2.3

1. DigiShot is in the process of choosing managers to head its overseas operations. The firm plans to
deliberately downplay nationality in the managers it selects. Instead, DigiShot is actively searching on a
worldwide basis for the best people to fill the key positions. The company believes that this _____
approach to managing the subsidiary will determine its success.
a. bureaucratic b. geocentric c. ethnocentric d. polycentric
2. If you were an owner of an international and rapidly growing high-tech firm making sophisticated
computer chips for medical equipment, (a) what do you think is the best approach to manage it and why?
(b) Do you think an international firm should have local managers in all important posts? Why or why
not?
Factors to consider in managing a Global Environment

The CTI Case. Bruce Humphrys serves in a general manager

capacity for a nonprofit technical organization. As the Executive
Director of Compatible Technology International (CTI), he must
encourage his employees—a group of volunteer engineers,
food scientists, and technicians—to create food processing
tools that can be used in underdeveloped nations all over the
world. To create products that will be used, rather than
abandoned, Bruce has to take into consideration the general
business environment, legal systems, the country’s economic
environment, and cultural environments. Take the case of the breadfruit dryer, for instance.

One of Bruce’s senior food scientists, George Ewing, saw a need to give people in Haiti a way to dry
breadfruit. Fresh breadfruit is a vegetable similar to squash. It has a very short shelf-life; fruit lasts only a
day or so after being harvested. But when breadfruit is dried, it can be turned into a flour which keeps well
and enriches both the islanders’ diet and their economy. Fortunately, Ewing met Camille George, a
professor at the University of St. Thomas in St. Paul, Minnesota, at a political lunch. She had the expertise
in heat transfer technology to help him create a simple breadfruit drying machine. If Professor George and
her students had been tasked with creating a food dryer for use in Minnesota, their job might have been
simple. But obviously, this was not the case. How could these engineers determine if their invention was
meeting the needs of clients a half a world away? They knew that they would have to test their product
extensively, and take the general business environment, the legal systems, the economic environment, and
the cultural environment of their clients into account when doing so.

General Business Environment

General Business Environment is the sum or collection of all internal and external factors such as
employees, customers need and expectations, supply and demand, management, clients, suppliers,
owners, activities by government, innovation in technology, social trends, market trends, economic
changes, etc. These factors affect the function of the company and how a company works directly or
indirectly. Sum of these factors influences the companies or business organizations environment and
situation.

Back to the CTI Case: Because Haiti is a country in turmoil, the general business environment was less
favorable than it is in other parts of the world. The former President, Jean-Bertrand Aristide, resigned from
office in 2004, which opened the door for the interim government to take steps to encourage foreign
investments. But there is still a great deal of political turmoil in the area, and the Haitian government
continues to be unstable. In fact, although a trip to Haiti was scheduled to test an initial food dryer design,
it had to be cancelled. Instead, Professor George and her students traveled to the island of St. Vincent,
where climate conditions were similar but the general business environment was much more stable.

Legal Environment

The legal environment of business introduces the role of legal agendas in managerial decisions. It helps
managers in the operation of their business and allows them to know the limits and boundaries of there
being in the name of their respective firms. It makes their decisions apt to the legal system. These
regulations assist the business enterprise to be under the scope of Law and government's regulations.
Companies, firms, managers, owners, and their share or debenture holders endeavor the operation to help
and protect the rights.

Back to the CTI Case: Like the general business environment, the legal environment in Haiti is difficult and
complex. While on the surface, Haiti is a democracy, with a civil law system based on the Napoleonic Code,
in practice, the Haitian legal environment is often chaotic. There is widespread corruption, and disputes are
often resolved through bribery and favoritism. Steps are being taken to modernize the legal system and
make Haiti more open to foreign investors, but at this time, changes are not fully in place. Fortunately for
Bruce Humphrys, CTI is a nonprofit organization, and therefore not bound by as many legal restrictions as
a for-profit organization would be.

Economic Environment

The term economic environment refers to all the external economic factors that influence buying habits of
consumers and businesses and therefore affect the performance of a company such as
employment/unemployment, income, inflation, interest rates, productivity, competition, demand and etc.

Back to the CTI Case: Haiti is a developing country, with high levels of poverty and a poor infrastructure.
The 2010 earthquake that killed almost 200,000 people in the Haitian capital, Port-au-Prince, has only made
a dire situation even more extreme. Jobs are scarce, and the average Haitian worker supports up to six
other people at any one time. If an invention is to benefit the Haitian people, it is imperative that it be simple,
useful, and use few natural resources (such as fuel). For example, CTI developed a food grinder that is
nothing more than a metal cylinder with a blade at the bottom and a crankshaft. Setting up the grinder is
simple, and powering it requires nothing more than the ability to turn the crankshaft. The breadfruit dryer
developed by CTI was solar powered and consisted of little more than wood and plastic sheeting, so it
would be easy to build and transport.

Cultural Environment

A cultural environment is a set of beliefs, practices, customs and behaviors that are found to be common
to everyone that is living within a certain population. Cultural environments shape the way that every person
develops, influencing ideologies and personalities. Cultural environments are determined by the
culmination of many different aspects of culture that influence personal choices and behaviors.

Back to the CTI Case: Culture, is the final, key ingredient in determining whether or not a CTI project will
work. Humphrys tells the following story about how culture impacted a CTI project in Guatemala: “Our guys
visited a group of Guatemalan women hand-shelling corn. They saw the hard time they were having, how
labor-intensive the shelling was, and on the spot they developed a sheller. The sheller consisted of a piece
of wood with a hole in the middle. The women pushed the ear of com through the hole, shaving the kernels
from the cob. When the engineers passed out their device, the women said thanks and put the sheller to
work. But when the volunteers returned to that village several months later, they found the group still hand-
cutting kernels from corn. The women told them, ‘Thanks for your invention, it’s much easier. But this is the
time we use to talk about men, school, and kids, and your device makes our work too fast for that.’”
Extensive conversations and tests with the women of St. Vincent showed that there were no obvious cultural
problems with the breadfruit dryer, but interestingly enough, a different problem emerged.

Case Ending. George and her group of engineering students found that the dryer was not going to work in
Haiti—it dried the outside of the breadfruit without drying the inside, causing the fruit to spoil. It turned out
that breadfruit dried better when placed directly in the sun, where the island breezes provided continuous
airflow. The good news was that during the testing process, the women of St. Vincent suggested another
way to put the dryers to work making money for the islanders. It seems that Italian restaurants in the United
States demand red pepper flakes that are just one color—a dark red. The dryers allowed flakes to uniformly
dry to exactly that color, and the islanders in St. Vincent are now using them to improve their economy.

KNOWLEDGE CHECK 2.4

Give at least 5 takeaways on the CTI case on how important it is to consider the factors in managing
Global Environments.
 WORKPLACE DIVERSITY

What Is Workplace Diversity?

“The collective strength of experiences, skills, talents, perspectives, and cultures that each agent and
employee brings to the workplace”
- State Farm, the number one provider of auto insurance in the United States

“Diversity refer to variety, differences, multiformity (instead of uniformity), or dissimilarities (instead of

similarities.”
- Dictionary

“Diversity is often used to refer to differences based on ethnicity, gender, age, religion, disability, national
origin and sexual orientation,” but it also encompasses an “infinite range of unique characteristics and
experiences, including communication styles, physical characteristics such as height and weight, and
speed of learning and comprehension.”
- The Society for Human Resource Management

One important thing to note about these diversity definitions is that

they focus on all the ways in which people can differ. And that’s
significant because diversity is no longer viewed as simply specific
categories like race, gender, age, or disability but has broadened to
a more inclusive recognition of the spectrum of differences.

On the other hand, workforce diversity is the ways in which people

in an organization are different from and similar to one another. The
demographic characteristics that we tend to think of when we think
of diversity—age, race, gender, ethnicity, etc.—are just the tip of the
iceberg. These demographic differences reflect surface-level
diversity, which are easily perceived differences that may trigger
certain stereotypes, but that do not necessarily reflect the ways people think or feel. Such surface-level
differences in characteristics can affect the way people perceive others, especially when it comes to
assumptions or stereotyping. However, as people get to know one another, these surface-level differences
become less important and deep-level diversity—differences in values, personality, and work
preferences—becomes more important. These deep-level differences can affect the way people view
organizational work rewards, communicate, react to leaders, negotiate, and generally behave at work.

Why Is Managing Workforce Diversity So Important?

SUPPLEMENTARY The Importance of Diversity in The Workplace

VIDEO https://www.youtube.com/watch?v=Pn6WzHw7gHY

1. Expand your talent pool

 Better use of employee talent - employees will have

different skill sets, backgrounds, and experiences.
 Increased quality of team problem-solving efforts
 Ability to attract and retain employees of diverse
backgrounds since they can collaborate together and learn
from each other which will make them more well-rounded
employees
 2. Promote Innovation

 Enhanced problem-solving ability

 Work teams with diverse backgrounds often bring
different and unique perspectives to discussions,
which can result in more creative ideas and
solutions. However, recent research has indicated
that such benefits might be hard to come by in
teams performing more interdependent tasks over
a long period of time. Such situations also present
more opportunities for conflicts and resentments to
build. But, as the researchers pointed out, that
simply means that those teams may need stronger
team training and coaching to facilitate group decision making and conflict resolution.

3. Grow Your Business and Improve Your Business Reputation

 Businesses with a diverse employee base are

known to have an equally diverse customer base.
 Attract different types of customers which will help
grow your business
 Increased understanding of the marketplace,
which improves ability to better market to diverse
consumers
 Potential to improve sales growth and increase
market share
 Employees positive stories about their work will
propagate a positive reputation for your business.

Types of Workplace Diversity

Age

The aging population is a major critical shift taking place in the

workforce. With many of the nearly 85 million baby boomers still
employed and active in the workforce, managers must ensure that
those employees are not discriminated against because of age. One
issue with older workers is the perception that people have of those
workers. Perceptions such as they’re sick more often and they can’t
work as hard or as fast as younger employees—perceptions that are
inaccurate. Employers have mixed feelings about older workers. On
the positive side, they believe that older workers bring a number of
good qualities to the job including experience, judgment, a strong
work ethic, and a commitment to doing quality work. However, they
Exhibit 2.5 Types of Diversity Found in Workplaces
also view older workers as not being flexible or adaptable and being
more resistant to new technology. The challenge for managers is
overcoming those misperceptions of older workers and the
widespread belief that work performance and work quality decline with age. Managers need to ensure that
these workers, regardless of age, also are treated fairly and as valuable assets. Effectively managing an
organization’s diverse age groups can lead to their working well with each other, learning from each other,
and taking advantage of the different perspectives and experiences that each has to offer. It can be a win-
win situation for all.
Gender

Women (49.8%) and men (50.2 %) now each make up almost

half of the workforce. Yet, gender diversity issues are still quite
prevalent in organizations. So what do we know about
differences between men and women in the workplace?

First of all, few, if any, important differences between men and

women affect job performance. No consistent male-female
differences exist in problem-solving ability, analytical skills,
competitive drive, motivation, sociability, or learning ability.
Psychological research has found minor differences: Women
tend to be more agreeable and willing to conform to authority
while men are more aggressive and more likely to have
expectations of success.

Another area where we also see differences between genders is in preference for work schedules,
especially when the employee has preschool-age children. To accommodate their family responsibilities,
working mothers are more likely to prefer part-time work, flexible work schedules, and telecommuting. They
also prefer jobs that encourage work–life balance.

One question of much interest as it relates to gender is whether men and women are equally competent as
managers. Research evidence indicates that a “good” manager is still perceived as predominantly
masculine. But the reality is that women tend to use a broader, more effective range of leadership styles to
motivate and engage people. They usually blend traditional masculine styles—being directive, authoritative,
and leading by example—with more feminine ones that include being nurturing, inclusive, and collaborative.
Men tend to rely primarily on masculine styles. Another study showed that women
managers were significantly more likely than their male counterparts to coach and develop others and to
create more committed, collaborative, inclusive, and ultimately, more effective, teams.

Not that either women or men are the superior employees, but a better appreciation for why it’s important
for organizations to explore the strengths that both women and men bring to an organization and the barriers
they face in contributing fully to organizational efforts.

Race and Ethnicity

Race and ethnicity are important types of diversity in

organizations. Race is defined as the biological
heritage (including physical characteristics such as
one’s skin color and associated traits) that people
use to identify themselves. Most people identify
themselves as part of a racial group. Such racial
classifications are an integral part of a country’s
cultural, social, and legal environments. Ethnicity is
related to race, but it refers to social traits—such as
one’s cultural background or allegiance—that are
shared by a human population. Most of the research
on race and ethnicity as they relate to the workplace
has looked at hiring decisions, performance evaluations, pay, and workplace discrimination. However,
much of that research has focused on the differences in attitudes and outcomes. Let’s look at a few key
findings. One finding is that individuals in workplaces tend to favor colleagues of their own race in
performance evaluations, promotion decisions, and pay raises. Although such effects are small, they are
consistent. Next, research shows substantial racial differences in attitudes toward affirmative action. For
instance, in employment interviews, African Americans receive lower ratings. In the job setting, they receive
lower job performance ratings, are paid less, and are promoted less frequently. However, no statistically
significant differences between the two races are observed in absenteeism rates, applied social skills at
work, or accident rates. As you can see, race and ethnicity issues are a key focus for managers in effectively
managing workforce diversity.

Disability/Abilities

One issue facing managers and organizations is that the

definition of disability is quite broad. The U.S. Equal
Employment Opportunity Commission classifies a person as
disabled if he or she has any physical or mental impairment
that substantially limits one or more major life activities. For
instance, deafness, chronic back pain, AIDS, missing limbs,
seizure disorder, schizophrenia, diabetes, and alcoholism
would all qualify. The following describes some of the fears
organizations have in hiring persons with disability as well as
the reality; that is, what it’s really like.

FEAR
Hiring people with disabilities leads to higher
employment costs and lower profit margins
Workers with disabilities lack job skills and
experience necessary to perform as well as their
abled counterparts
Uncertainty over how to take potential disciplinary
action with a worker with disabilities
High costs associated with accommodating
disabled employees
REALITY
Absentee rates for sick time are virtually equal between employees with and
without disabilities; workers’ disabilities are not a factor in formulas
calculating insurance costs for workers’ compensation
Commonplace technologies such as the Internet and voice-recognition
software have eliminated many of the obstacles for workers with disabilities;
many individuals with disabilities have great problem-solving skills from
finding creative ways to perform tasks that others may take for granted
A person with a disability for whom workplace accommodations have been
provided has the same obligations and rights as far as job performance
Most workers with disabilities require no accommodation but for those who
do, more than half of the workplace modifications cost $500 or less

In effectively managing a workforce with disabled employees, managers need to create and maintain an
environment in which employees feel comfortable disclosing their need for accommodation. Those
accommodations, by law, need to enable individuals with disabilities to perform their jobs but they also need
to be perceived as equitable by those not disabled. That’s the balancing act that managers face.

Religion

Hani Khan, a college sophomore, worked for three months

as a stock clerk at a Hollister clothing store in San
Francisco. One day, she was told by her supervisors to
remove the head scarf that she wears in observance of
Islam (known as a hijab) because it violated the company’s
“look policy” (which instructs employees on clothing, hair
styles, makeup, and accessories they may wear to work).
She refused on religious grounds and was fired one week
later. Religious beliefs also can prohibit or encourage work
behaviors. Many conservative Jews believe they should not
work on Saturdays. Some Christians do not want to work on
Sundays. Religious individuals may believe they have an
obligation to express their beliefs in the workplace making it
uncomfortable for those who may not share those beliefs. Some pharmacists have refused to give out RU-
486 (the “morning after” abortion pill) on the basis of their beliefs. As you can see, religion and religious
beliefs can generate misperceptions and negative feelings. In accommodating religious diversity, managers
need to recognize and be aware of different religions and their beliefs, paying special attention to when
certain religious holidays fall. Try to accommodate, when at all possible, employees who have special needs
or requests, but do so in a way that other employees don’t view it as “special treatment.”
GLBT: Sexual Orientation and Gender Identity

The acronym GLBT—which refers to gay, lesbian, bisexual, and

transgender people—is being used more frequently and relates
to the diversity of sexual orientation and gender identity. Sexual
orientation has been called the “last acceptable bias.” Despite
the progress in making workplaces more accommodating of gays
and lesbians, much more needs to be done. One study found
more than 40 percent of gay and lesbian employees indicated
that they had been unfairly treated, denied a promotion, or
pushed to quit their job because of their sexual orientation.

An increasing number of large companies are implementing

policies and practices to protect the rights of GLBT employees in
the workplace. For instance, Ernst & Young, S. C. Johnson &
Sons, Inc., and Kodak, among others, all provide training to
managers on ways to prevent sexual orientation discrimination.
A diversity manager at IBM says, “We believe that having strong transgender and gender identification
policies is a natural extension of IBM’s corporate culture.” Managers need to look at how best to meet the
needs of their GLBT employees. They need to respond to employees’ concerns while also creating a safe
and productive work environment for all.

Other Types of Diversity

As said earlier, diversity refers to any dissimilarities or differences that might be present in a workplace.
Other types of workplace diversity that managers might confront and have to deal with include
socioeconomic background (social class and income-related factors), team members from different
functional areas or organizational units, physical attractiveness, obesity/thinness, job seniority, or
intellectual abilities. Each of these types of diversity also can affect how employees are treated in the
workplace. Again, managers need to ensure that all employees—no matter the similarities or
dissimilarities—are treated fairly and given the opportunity and support to do their jobs to the best of their
abilities.

WORKPLACE DIVERSITY INITIATIVES

What should organizations do to promote diversity?

The Legal Aspect of Workplace Diversity

Federal laws have contributed to some of the social change over the last 50-plus years and have evolved
to the level of diversity that currently exists. Failure to do so can be costly and damaging to an
organization’s bottom line and reputation. It’s important that managers know what they can and cannot
do legally and ensure that all employees understand as well. However, effectively managing workplace
diversity needs to be more than understanding and complying with federal laws.

Top Management Commitment to Diversity

Today’s increasingly competitive marketplace underscores the reality that creating a diverse workplace has
never been more important. It’s equally important to make diversity and inclusion an integral part of the
organization’s culture. “A sustainable diversity and inclusion strategy must play a central role in decision
making at the highest leadership level and filter down to every level of the company.”
How do organizational leaders do that?

1. Make sure that diversity and inclusion are part of the organization’s purpose, goals, and
strategies. Even during economically challenging times, an organization needs a strong
commitment to diversity and inclusion programs.
2. Diversity needs to be integrated into every aspect of the business—from the workforce,
customers, and suppliers to products, services, and the communities served.
3. Policies and procedures must be in place to ensure that grievances and concerns are
addressed immediately.
4. Finally, the organizational culture needs to be one where diversity and inclusion are valued,
even to the point where, like Marriott International, individual performance is measured and
rewarded on diversity accomplishments.

Mentoring

Mentoring is a process whereby an experienced

organizational member (a mentor) provides advice and
guidance to a less-experienced member (a protégé).
Mentors usually provide two unique forms of mentoring
functions—career development and social support. A
good mentoring program would be aimed at all diverse
employees with high potential to move up the organization’s
career ladder. A good mentor (1) provides instruction, (2)
offers advice, (3) gives constructive criticism, (4) helps build
appropriate skills, (5) shares technical expertise, (6)
develops a high-quality, close, and supportive relationship
with protégé, (7) keeps lines of communication open and (8)
knows when to “let go” and let the protégé prove what he/she
can do. If an organization is serious about its commitment to diversity, it needs to have a mentoring program
in place.

Diversity Skills Training

“The only thing in human DNA is to discriminate. It’s a part of

normal human tribal behavior.” Our human nature is to not
accept or approach anything that’s different from us. But it
doesn’t make discrimination of any type or form acceptable.
So the challenge for organizations is to find ways for
employees to be effective in dealing with others who aren’t like
them. That’s where diversity skills training, specialized training
to educate employees about the importance of diversity
and teach them skills for working in a diverse workplace,
comes in. The Sodexho’s chief diversity officer said, “As an
organization, we have worked to implement the right policies,
but more importantly, empower all our employees to understand issues of diversity and work to ensure
change happens at every level of our company.”

Employee Resource Groups

Kellogg Company, the cereal company, is a pioneer in workplace

diversity. More than 100 years ago, the company’s founder, W.
K. Kellogg, employed women in the workplace and reached
across cultural boundaries. That commitment to diversity
continues today. The company’s CEO says, “There’s no doubt
that our success comes from the many different backgrounds,
experiences, ideas, and viewpoints that our people contribute to
our business.” Kellogg’s has been very supportive of its various employee resource groups, made up of
employees connected by some common dimension of diversity. Such groups typically are formed by
the employees themselves, not the organizations. However, it’s important for organizations to recognize
and support these groups. The diverse groups have the opportunity to see that their existence is
acknowledged and that they have the support of people within and outside the group. Individuals in a
minority often feel that they’re invisible and not important in the overall organizational scheme of things.
Employee resource groups provide an opportunity for those individuals to have a voice. Through these
employees’ resource groups, those in a minority find that they’re not alone. And that can be a powerful
means of embracing and including all employees, regardless of their differences.

INTERNET RESEARCH 2.1

Go to DiversityInc.com [www.diversityinc.com] and find the latest list of Top 50 Companies for Diversity.
Select three companies from this list. Describe and evaluate what they’re doing or initiatives as far as
workplace diversity. (Directly go to this link https://www.diversityinc.com/the-2019-top-50-diversityinc/)

ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT

Nature of Entrepreneurship
The term entrepreneurship describes strategic thinking and risk-taking behavior that results in the creation
of new opportunities.
Who are Entrepreneurs?
A classic entrepreneur is a risk-taking individual who takes action to pursue
opportunities others fail to recognize, or even view as problems or threats.
Some people become serial entrepreneurs that start and run new ventures
over and over again, moving from one interest and opportunity to the next.
We find such entrepreneurs both in business and nonprofit settings.
A common pattern among successful entrepreneurs is first-mover
advantage. They move quickly to spot, exploit, and deliver a product or
service to a new market or an unrecognized niche in an existing one.
Characteristics of Entrepreneurs
Attitudes and Personal Interests

 Internal locus of control: Entrepreneurs believe that they are in control of their own destiny; they
are self-directing and like autonomy.
 High energy level: Entrepreneurs are persistent, hardworking, and willing to exert extraordinary eff
orts to succeed.
 High need for achievement: Entrepreneurs are motivated to accomplish challenging goals; they
thrive on performance feedback.
 Tolerance for ambiguity: Entrepreneurs are risk takers; they tolerate situations with high degrees
of uncertainty.
 Self-confidence: Entrepreneurs feel competent, believe in themselves, and are willing to make
decisions.
 Passion and action orientation: Entrepreneurs try to act ahead of problems; they want to get things
done and not waste valuable time.
 Self-reliance and desire for independence: Entrepreneurs want independence; they are self-reliant;
they want to be their own bosses, not work for others.
 Flexibility: Entrepreneurs are willing to admit problems and errors, and are willing to change a
course of action when plans aren’t working.
Background, Experiences, and Interests
 Childhood experiences and family environment – some entrepreneurs are with parents who were
entrepreneurial and self-employed. And entrepreneurs are often raised in families that encourage
responsibility, initiative, and independence
 Career or work history - entrepreneurs who try one venture often go on to others. Prior work
experience in the business area or industry being entered is helpful.
 Deeply embedded life interest - entrepreneurs as having strong interests in starting things. They
enjoy creative production—things like project initiation, working with the unknown, and finding
unconventional solutions. Entrepreneurs also have strong interests in running things. They enjoy
enterprise control—being in charge, being held accountable, and making decisions while moving
others toward a goal.
Social Entrepreneurship
Speaking of entrepreneurship, don’t forget it can play an important role in tackling social issues: housing
and job training for the homeless; bringing technology to poor families; improving literacy among
disadvantaged youth; reducing poverty and improving nutrition in communities. These examples and others
like them are all targets for social entrepreneurship, a form of ethical entrepreneurship that seeks novel
ways to solve pressing social problems. Social entrepreneurs take risks and create social enterprises
whose missions are to help make lives better for underserved populations.
Entrepreneurship and Small Business
The U.S. Small Business Administration (SBA) defines a small business as one that has 500 or fewer
employees, is independently owned and operated, and does not dominate its industry. The most common
small business areas are restaurants, skilled professions such as craftspeople and doctors, general
services such as hairdressers and repair shops, and independent retailers. The vast majority of small
businesses employ fewer than 20 persons and over half are home based.
Why and How to Get Started
There are many reasons why people start their own small
businesses. They range from necessity, as discussed earlier as
a stimulus to entrepreneurship, to wanting to be your own boss,
control your future, and fulfill a dream. Once a decision is made
to go the small business route, the most common ways to get
involved are to start one, buy an existing one, or buy and run a
franchise—where a business owner sells to another the right to
operate the same business in another location. A franchise such
as Subway, Quiznos, or Domino’s Pizza runs under the original
owner’s business name and guidance. In return, the franchise
parent receives a share of income or a flat fee from the
franchisee.
Any business—large or small, franchise or startup, needs a solid underlying business model. Think of this
as a plan for making a profit by generating revenues that are greater than the costs of doing business.
Serial entrepreneur Steven Blank calls business startups temporary organizations that are trying “to
discover a profitable, scalable business model.” In other words, a startup is just that—a “start”; it’s a new
venture that the entrepreneur is hoping will take shape and prove successful as things move forward.
Writing a business plan
When people start new businesses or launch new units within existing ones, they can benefit from a good
business plan. This plan describes the details needed to obtain startup financing and operate a new
business and direction for a new business and the financing needed to operate it. Here is a sample business
plan outline.
 Executive summary—overview of the business purpose and the business model for making money.
  Industry analysis—nature of the industry, including economic trends, important legal or regulatory
issues, and potential risks.
 Company description—mission, owners, and legal form.
 Products and services description—major goods or services, with competitive uniqueness.
 Market description—size of market, competitor strengths and weaknesses, five-year sales goals.
 Marketing strategy—product characteristics, distribution, promotion, pricing, and market research.
 Operations description—manufacturing or service methods, supplies and suppliers, and control
procedures.
 Staffing description—management and staffing skills needed and available, compensation, and
human resource systems.
 Financial projection—cash fl ow projections for one to five years, breakeven points, and phased
investment capital.
 Capital needs—amount of funds needed to run the business, amount available, and amount
requested from new sources.
 Milestones—a timetable of dates showing when key stages of the new venture will be completed.

Why Small Businesses Fail

Small businesses have a high failure rate—one high enough
to be intimidating. The SBA reports that as many as 60 to 80%
of new businesses fail in their first five years of operation.
The following are the eight reasons why many small businesses
fail.
• Insufficient financing—not having enough money
available to maintain operations while still building the
business and gaining access to customers and markets.
• Lack of experience—not having sufficient know how to
run a business in the chosen market or geographical area.
• Lack of expertise—not having expertise in the essentials
of business operations, including finance, purchasing, selling, and production.
• Lack of strategy and strategic leadership—not taking the time to craft a vision and mission, nor to
formulate and properly implement a strategy.
• Poor financial control—not keeping track of the numbers, and failure to control business finances and
use existing monies to best advantage.
• Growing too fast—not taking the time to consolidate a position, fine-tune the organization, and
systematically meet the challenges of growth.
• Lack of commitment—not devoting enough time to the requirements of running a competitive
business.
• Ethical failure—falling prey to the temptations of fraud, deception, and embezzlement.

ACTION LEARNING EXERCISE – Becoming a Social Entrepreneur

Make a list of social problems that exist in your local community. Choose one and identify how you might
deal with it through social entrepreneurship. How will you be able to earn a living wage from this venture
while still doing good? Create a brief business plan.
 INFORMATION AND
DECISION MAKING
PART THREE

Information, Technology and Management

Information and Managerial Decisions
The Decision Making Process
Issues in Managerial Decision Making
Qualitative and Quantitative Models for Decision Making

INTENDED LEARNING OUTCOMES

 Conclude the role of information in the management process
 Generalize how managers use information to make decisions
 Enumerate and discuss the steps in the decision-making process
 Use techniques / tools in decision making
 Distinguish the current issues in managerial decision making
 INFORMATION, TECHNOLOGY, AND MANAGEMENT
The challenges begin with the fact that our society is now highly information-driven, digital, networked, and
continuously evolving. Career and personal success increasingly requires three “must-have” competencies:
technological competency—the ability to understand new technologies and to use them to their best
advantage; information competency—the ability to locate, gather, organize, and display information; and
analytical competency—the ability to evaluate and analyze information to make actual decisions and
solve real problems.

What Is Useful Information?

This sign should be on every manager’s desk—Warning: Data ≠
Information! Data are raw facts and observations. Information is data
made useful and meaningful for decision making. We all have lots of
access to data, but we don’t always turn it into useful information that
meets the test of these five criteria:
1. Timely—The information is available when needed; it meets
deadlines for decision making and action.
2. High quality—The information is accurate, and it is reliable; it can
be used with confidence.
3. Complete—The information is complete and sufficient for the
task at hand; it is as current and up to date as possible.
4. Relevant—The information is appropriate for the task at hand; it
is free from extraneous or irrelevant materials.
5. Understandable—The information is clear and easily understood by the user; it is free from
unnecessary detail.

Even when the information is good, we don’t always make the right decisions based upon it. The term
analytics, sometimes called business analytics or management analytics, describes the systematic
evaluation and analysis of information to make decisions. Think of it as putting data to work for informed
decision making. Analytics is critically important to all aspects of the management process—planning,
organizing, leading, and controlling.

Information System and Business Intelligence

People perform best when they have available to them the right information at the right time and in the right
place. This is the function served by management information systems that use the latest technologies
to collect, organize, and distribute data. Silicon Valley pioneer and Cisco Systems CEO John Chambers
once pointed out that he always has the information he needs to be in control—be it information on earnings,
expenses, profitability, gross margins, and more. “Because I have my data in that format,” he said, “every
one of my employees can make decisions that might have had to come all the way to the president. . ..
Quicker decision making at lower levels will translate into higher profit margins. . .. Companies that don’t
do that will be noncompetitive.” Given the great power of technology today, information systems are
indispensable executive tools.
Business intelligence is the process of tapping or mining information systems to extract data that is most
useful for decision makers. It sorts and reports data in organized ways that help decision makers detect,
digest, and deal with patterns posing important implications. One of the trends in business intelligence is
use of executive dashboards that visually display and update key performance metrics as graphs, charts,
and scorecards on a real-time basis.
Information Needs in Organization

Information serves the variety of needs described in the

Figure. At the organization’s boundaries, information in
the external environment is accessed. Managers use this
intelligence information to deal with customers,
competitors, and other stakeholders such as government
agencies, creditors, suppliers, and stockholders.
Organizations also send vast amounts of public
information to stakeholders and the external environment.
This often takes the form of advertising, public relations
messages, and financial reports that serve a variety of Figure 3.1 Internal and external information needs in organizations
purposes, etc. And within organizations, people need vast
amounts of internal information to make decisions and solve problems in their daily work. They need
information from their immediate work setting and from other parts of the organization.
INFORMATION AND MANAGERIAL DECISIONS

Information is the anchor point for all three—information helps a leader sense the need for a decision, frame
an approach to the decision, and communicate about the decision with others.
Managers as Information Processors - Managers are information processors who are continually gathering,
giving, and receiving information. This information processing is now as much electronic as it is face to
face. Managers use technology at work the way we use it in our personal lives—always on, always
connected.
Managers as Problem Solvers – In all company situations, the manager’s skill in problem solving - the
process of identifying a discrepancy between an actual and a desired state of affairs, and then taking action
to resolve – is very essential. Success in problem solving comes from using information to make good
decisions—choices among alternative possible courses of action.

KNOWLEDGE CHECK 3.1 – You are the mayor

Base on the trend of the positive cases of the novel coronavirus, COVID 19, in Cebu, what would you
implement to lessen the number of the positive cases as the Cebu City Mayor and why? How can
electronic communications such as the Internet and news be used to improve the decision-making
process? Give some examples.
 THE DECISION MAKING PROCESS

The decision-making process can be understood in the context of the following short case.
The Ajax Case. On December 31, the Ajax Company decided to close down its Murphysboro plant. Market
conditions were forcing layoffs, and the company could not find a buyer for the plant. Some of the 172
employees had been with the company as long as 18 years; others as little as 6 months. All were to be
terminated. Under company policy, they would be given severance pay equal to one week’s pay per year
of service.

This case reflects how competition, changing times, and the forces of globalization can take their toll on
organizations, the people who work for them, and the communities in which they operate. Think about how
you would feel as one of the affected employees. Think about how you would feel as the mayor of this small
town. Think about how you would feel as a corporate executive having to make the difficult business
decisions.
STEP 1. Identify and Define the Problem

The first step in decision making is to find and define the problem. Information gathering and deliberation
are critical in this stage. The way a problem is defined can have a major impact on how it is resolved, and
it is important to clarify exactly what a decision should accomplish. The more specific the goals, the easier
it is to evaluate results after the decision is actually implemented.
Back to the Ajax Case. Closing the Ajax plant will put a substantial number of people from the small
community of Murphysboro out of work. The unemployment will have a negative impact on individuals, their
families, and the town as a whole. The loss of the Ajax tax base will further hurt the community. The local
financial implications of the plant closure will be great. The problem for Ajax management is how to minimize
the adverse impact of the plant closing on the employees, their families, and the community.
STEP 2. Generate and Evaluate Alternative Courses of Action

Once a problem is defined, it is time to assemble the facts and information that will solve it. This is where
we clarify exactly what is known and what needs to be known. Extensive information gathering should
identify alternative courses of action, as well as their anticipated consequences. Key stakeholders in the
problem should be identified, and the effects of possible courses of action on each of them should be
considered. A cost-benefit analysis is a useful approach for evaluating alternatives. It compares what an
alternative will cost in relation to the expected benefits. The benefits of an alternative should be greater
than its costs, and it should also be ethically sound.
Back to the Ajax Case. The Ajax plant is going to be closed. Given that, the possible alternative
approaches that can be considered are (1) close the plant on schedule and be done with it; (2) delay the
plant closing until all efforts have been made to sell it to another firm; (3) offer to sell the plant to the
employees and/or local interests; (4) close the plant and offer transfers to other Ajax plant locations; or (5)
close the plant, offer transfers, and help the employees find new jobs in and around Murphysboro.

STEP 3. Choose a Preferred Course of Action

This is the point where an actual decision is made to select a preferred course of action.
Back to the Ajax Case. Ajax executives decided to close the plant, offer transfers to company plants in
another state, and offer to help displaced employees find new jobs in and around Murphysboro.

STEP 4. Implement the Decision

Once a decision is made, actions must be taken to fully implement it. Nothing new can or will happen unless
action is taken to actually solve the problem. Managers not only need the determination and creativity to
arrive at a decision, they also need the ability and willingness to implement it.
Back to the Ajax Case. Ajax ran ads in the local and regional newspapers. The ad called attention to an
“Ajax skill bank” composed of “qualified, dedicated, and well-motivated employees with a variety of skills
and experiences.” Interested employers were urged to contact Ajax for further information.

STEP 5—Evaluate Results

The decision-making process is not complete until results are evaluated. If the desired outcomes are not
achieved or if undesired side effects occur, corrective action should be taken. Evaluation is a form of
managerial control. It involves gathering data to measure performance results and compare them against
goals. If results are less than what was desired, it is time to reassess and return to earlier steps. In this way,
problem solving becomes a dynamic and ongoing activity within the management process. Evaluation is
always easier when clear goals, measurable targets, and timetables were established to begin with.
Back to the Ajax Case. How effective were Ajax’s decisions? We don’t know for sure. But after the
advertisement ran for some 15 days, the plant’s relations manager said: “I’ve been very pleased with the
results.” That’s all we know and more information would certainly be needed for a good evaluation of how
well management handled this situation. Wouldn’t you like to know how many of the displaced employees
got new jobs locally and how the local economy held up? You can look back on the case as it was described
and judge for yourself. Perhaps you would have approached the situation and the five steps in decision
making somewhat differently.

ACTION LEARNING EXERCISE FOR DECISION MAKERS 3.1: Tired of Excuses

Little problems are popping up at the most inconvenient times to make your work as team leader
sometimes difficult and even aggravating. Today it’s happened again. Trevor just called in “sick,” saying
his doctor advised him yesterday that it was better to stay home than to come to work and infect others
with his flu. It makes sense, but it’s also a hardship for you and the team. Applying the decision making
process, what can you do to best manage this type of situation since it’s sure to happen again?
 ISSUES IN MANAGERIAL DECISION MAKING

Decision Errors and Traps

Framing Error

Managers sometimes suffer from framing error that occurs when a

problem is evaluated and resolved in the context in which it is
perceived—either positively or negatively. Suppose, for example, data
show a product that has a 40% market share. A negative frame views
the product as deficient because it is missing 60% of the market. The
likely discussion would focus on: “What are we doing wrong?”
Alternatively, the frame could be a positive one, looking at the 40%
share as a good accomplishment. In this case the discussion is more
likely to proceed with “How do we do things better?” Sometimes people
use framing as a tactic for presenting information in a way that gets
other people to think inside the desired frame. In politics, this is often
referred to as “spinning” the data.

Availability Bias

The availability bias occurs when people assess a current

event or situation by using information that is “readily
available” from memory. An example is deciding not to invest
in a new product based on your recollection of a recent
product failure. The potential bias is that the readily available
information is fallible and irrelevant. For example, the product
that recently failed may have been a good idea that was
released to market at the wrong time of year.

Representativeness Bias
The representativeness bias occurs when people assess
the likelihood of something happening based on its similarity
to a stereotyped set of occurrences. An example is deciding
to hire someone for a job vacancy simply because he or she
graduated from the same school attended by your last and
most successful new hire. The potential bias is that the
representative stereotype masks factors important and
relevant to the decision. For instance, the abilities and career
expectations of the job candidate may not fit the job
requirements; the school attended may be beside the point.
Anchoring and Adjustment Bias

The anchoring and adjustment bias occurs when decisions

are influenced by inappropriate allegiance to a previously
existing value or starting point. An example is a manager who
sets a new salary level for an employee by simply raising her
prior year’s salary by a small percentage amount. Although the
increase may appear reasonable to the manager, the decision
actually undervalues the employee relative to the job market.
The small incremental salary adjustment, reflecting anchoring
and adjustment bias, may end up prompting her to look for
another, higher-paying job.
Confirmation Error

One of our tendencies after making a decision is

to try and find ways to justify it. In the case of
unethical acts, for example, we try to “rationalize”
them after the fact. This is called confirmation
error. It means that we notice, accept, and even
seek out only information that confirms or is
consistent with a decision we have just made.
Contrary information that shows what we are
doing is incorrect is downplayed or denied.

Escalating Commitment
Another decision-making trap is escalating commitment. This
occurs as a decision to increase effort and perhaps apply more
resources to pursue a course of action that is not working. Managers
prone to escalation let the momentum of the situation and personal
ego overwhelm them. They are unwilling to admit they were wrong
and unable to “call it quits,” even when facts indicate that this is the
best thing to do. This is a common decision error, perhaps one that
you are personally familiar with. It is sometimes called the sunk-cost
fallacy.

ACTION LEARNING EXERCISE 3.2 – Oh! I didn’t know it’s a bias!

State any personal or someone’s experiences on each of the decision traps and bias.

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 Approach; and
2. Quantitative Approach.
Qualitative Approach. This term refers to evaluation of alternatives using intuition and subjective
judgment. Stevenson states that managers tend to use the qualitative approach when (1) the problem is
fairly simple, (2) the problem is familiar, (3) the costs involved are not great / low cost and (4) immediate
decisions are needed. An example of an evaluation using the qualitative approach is as follows:
A factory operates on three shifts with the following schedule: (1) First shift — 6:00 A.M. to 2:00 P.M. (2)
Second shift — 2:00 P.M. to 10:00 P.M and (3) Third shift — 10:00 P.M. to 6:00 A.M. Each shift consists of
200 workers manning 200 machines. On September 16, 1996, the operations went smoothly until the
factory manager, an industrial engineer, was notified at 1:00 P.M. that five of the workers assigned to the
second shift could not report for work because of injuries sustained in a traffic accident while they were on
their way to the factory. Because of time constraints, the manager made an instant decision on who among
the first shift workers would work overtime to man the five machines.
Quantitative Approach. It concentrates on the quantitative facts or data associated with the problem and
develop mathematical expression that describes the objectives, constraints, and other relationships that
exist in the problem. Used when: (1) The problem is complex, and the manager cannot develop a good
solution without the aid of quantitative analysis, (2) The problem is very important (e.g. great deal of money
is involved), (3) The problem is new and the manager has no previous experience from which to draw, (4)
The problem involves many variables, (5) There are data which describe the decision environment, (6)
There are data which describe the value or utility of the different possible alternatives, (7) The goals of the
decision maker or her organization can be described in quantitative term and (8) Workable models are
available for these situations
QUANTITATIVE MODELS FOR DECISION MAKING

1. Inventory Models – consist of several types all designed to help the engineer manager make
decision regarding inventory. They are as follows:
a. Economic order quantity model - calculate the number of items that should be ordered at one
time to minimize yearly cost of placing orders and carrying items in inventory
b. Production Order Quantity Model – economic order quantity technique applied to production
orders
c. Back Order Inventory Model – used for planned shortages
d. Quantity Discount Inventory Model – minimize the total cost when quantity discounts are
offered by suppliers
2. Queuing Theory – describes how to determine the number of service units that will minimize both
customer waiting time and cost of service. This is applicable to companies where waiting lines are
a common situation. Examples are cars waiting for service at the car wash center, ships and batges
waiting at the harbor for loading and unloading by dockworkers, etc.
3. Network Models – models where the large tasks are broken into smaller segments that can be
managed independently. Two most prominent network models are:
a. Program Evaluation Review Technique (PERT)– enables managers to schedule, monitor and
control large and complex projects with three time estimates for each activity
b. Critical Path Method (CPM) – network technique using only one-time factor per activity
4. Forecasting - the collection of past and current information to make predictions about the future
5. Regression Analysis - a forecasting method that examines the association between two or more
variables. It uses data from previous periods to predict future events.
a. Simple Regression – one independent variable is involved
b. Multiple Regression – two or more independent variables are involved
6. Simulation - a model constructed to represent reality on which conclusions about real-life problems
can be used
7. Linear Programming - quantitative technique that is used to produce an optimum solution within
the bounds by constraints upon the decision
8. Sampling Theory - quantitative technique where samples of populations are statistically determined
to be used for a number of processes such as quality control and marketing research.
9. Statistical Decision Theory / Decision Analysis - rational way to conceptualize, analyze and solve
problems in situations involving limited or partial information about the decision environment.

Decision environment has three (3) classifications:

a. Decision Making Under Conditions of Certainty - only one state of nature exists. There is
complete certainty about the future.
b. Decision Making Under Conditions of Uncertainty - More than one state of nature exists, but
the decision maker has no knowledge about the various states
c. Decision Making Under Conditions of Risk - More than one state of nature exists, but now the
decision maker has information which will support the assignment of probability values to each
of the states
 INVENTORY MODELS (specifically Economic Order Quantity)

 Independent demand - the demand for item is independent of the demand for any other item in
inventory
 Dependent demand - the demand for item is dependent upon the demand for some other item in
the inventory

Inventory Cost

 Holding costs - the costs of holding or “carrying” inventory over time; e.g. obsolescence, insurance,
extra staffing, interest, pilferage, damage, warehousing, etc.
 Ordering costs - the costs of placing an order and receiving goods; eg. Supplies, forms, order
processing, clerical support, etc.
 Setup costs - cost to prepare a machine or process for manufacturing an order; e.g. clean-up costs,
re-tooling costs, adjustment costs, etc.

Economic Order Quantity (EOQ)

Basic Assumptions
 Demand is known, constant, and independent
 Lead time is known and constant
 Receipt of inventory is instantaneous and complete
 Quantity discounts are not possible
 Only variable costs are setup and holding
 Stock outs can be completely avoided

EOQ Model Equations

Q = Number of pieces/units per order

Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year

Optimal Order Quantity, Q* Expected Number of Orders, N Expected Time Between Order, T
2𝐷𝑆 𝐷 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠 / 𝑦𝑒𝑎𝑟
𝑄∗ = √ 𝑁= 𝑇=
𝐻 𝑄∗ 𝑁

Setup Cost Holding Cost

𝐷 𝑄
𝑆𝑒𝑡𝑢𝑝 𝐶𝑜𝑠𝑡 = (𝑆) 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 = (𝐻)
𝑄 2

Example 1: Forever 25, a famous clothing manufacturer company, wanted to determine the number of
units of needles that they should order to minimize the yearly cost of placing orders. They also want to know
how many times do they need to order in a year, the optimal time between order/replenishment and the
total annual cost for ordering the needles in a year. Following data was provided by the procurement
department.
D = 1,000 units S = $10 per order
Q*= 200 units H = $.50 per unit per year
Solutions:

2𝐷𝑆 2(1,000)(10)
𝑄∗ = √ = √ = 𝟐𝟎𝟎 𝒖𝒏𝒊𝒕𝒔
𝐻 (0.50)

𝐷 1,000
𝑁= = = 𝟓 𝒐𝒓𝒅𝒆𝒓𝒔 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓
𝑄∗ 200

𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠 / 𝑦𝑒𝑎𝑟 250

𝑇= = = 𝟓𝟎 𝒅𝒂𝒚𝒔 𝒃𝒆𝒕𝒘𝒆𝒆𝒏 𝒐𝒓𝒅𝒆𝒓𝒔
𝑁 5

𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝑆𝑒𝑡𝑢𝑝 𝐶𝑜𝑠𝑡 + 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝐶𝑜𝑠𝑡

𝐷 𝑄 1000 200
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 = (𝑆) + (𝐻) = (10) + (0.50) = $𝟏𝟎𝟎 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓
𝑄 2 200 2

PROBLEM SOLVING 3.1 - Economic Order Quantity

The I-75 Carpet Discount Store in North Georgia stocks carpet in its warehouse and sells it through an
adjoining showroom. The store keeps several brands and styles of carpet in stock; however, its biggest
seller is Super Shag carpet. The store wants to determine the optimal order size and total inventory cost
for this brand of carpet given an estimated annual demand of 10,000 yards of carpet, an annual carrying
cost of $0.75 per yard, and an ordering cost of $150. The store would also like to know the number of
orders that will be made annually and the time between orders (i.e., the order cycle) given that the store
is open every day except Sunday, Thanksgiving Day, and Christmas Day (which is not on a Sunday)
(311 days/yr). Determine the following:
A. Determine the optimal order quantity.
B. Determine the number of orders per year.
C. Determine the time between orders.
D. Determine the annual set-up cost.
E. Determine the annual holding cost.
F. What is the total inventory cost of the Q* system?

STATISTICAL DECISION THEORY / DECISION ANALYSIS

A rational way to conceptualize, analyze and solve problems in situations involving limited or partial
information about the decision environment. Three classifications of decision environment are the following:
(1) Decision Making Under Conditions of Certainty, (2) Decision Making Under Conditions of Uncertainty
and (3) Decision Making Under Conditions of Risk.

Definition of terms:

 Decision Alternative – the workable options that must be considered in the decision
 States of Nature – the probable future events that can occur, not under the control of the decision
maker
 Payoff Table – a table which shows the payoffs (profit or loss) which would result from each possible
combination of decision alternative and state of nature
 DECISION MAKING UNDER CONDITIONS OF UNCERTAINTY

There are four types of criteria that we will look at (1) Maximax Criterion (Optimist), (2) Maximin Criterion
(Pessimist), (3) Minimax Regret Criterion (Opportunist) and (4) Criterion of Realism (Realist).

Example: Consider the following problem of ABC Company. The company has to choose whether they will
have to expand, build or subcontract a building for company expansion. Come up with a decision using the
different criteria under conditions of uncertainty. The table shows the profit or loss – for example, if they
choose to expand but the demand (states of nature) of their product is low then they will make a loss of
Php250,000. (Amount in Php)

States of Decision Alternatives

Nature Expand Build Subcontract
High 500,000 700,000 300,000
Moderate 250,000 300,000 150,000
Low -250,000 - 400,000 - 10,000
Failure - 450,000 - 800,000 - 100,000

1. Maximax Criterion (Optimist)

The maximax rule involves selecting the alternative that maximises the maximum payoff
available. In the optimistic criterion, select the decision alternative which would maximize his
maximum payoff. Select the maximum payoff possible for each decision alternative then choose
the alternative that provides the maximum payoff within the group

States of Decision Alternatives The optimistic decision-maker locates

Nature Expand Build Subcontract the maximum payoff for each decision
High 500,000 700,000 300,000
alternatives. The maximum of these
Moderate payoffs is identified and the
250,000 300,000 150,000
corresponding alternative is selected.
Low - 250,000 - 400,000 - 10,000
The optimal decision alternative in the
Failure - 450,000 - 800,000 - 100,000
example, based on this criterion, is to
Maximum
Payoff
500,000 700,000 300,000 Build with a maximum payoff of
Php700,000.

2. Maximin Criterion (Pessimist)

In the pessimistic criterion, it is to maximize his minimum possible payoff or to choose the best of
the worst. Select the minimum payoff possible for each decision alternative then choose the
alternative that provides the maximum payoff within the group.

States of Decision Alternatives The pessimistic decision-maker locates

Nature Expand Build Subcontract the minimum payoff for each decision
High 500,000 700,000 300,000 alternatives. The maximum of these
Moderate 250,000 300,000 150,000 minimum payoffs is identified and the
Low - 250,000 - 400,000 - 10,000 corresponding alternative is selected.
Failure - 450,000 - 800,000 - 100,000 Since –Php100,000 is maximum out of
Minimum the minimum payoffs, the optimal
- 450,000 - 800,000 - 100,000
Payoff decision alternative is to Subcontract.
3. Minimax Regret Criterion (Opportunist)
Assume that a states of nature actually happened, solve for the regret or the difference of the
largest payoff for that state and the payoff of each decision alternative. Choose the minimum of
these regret values. It is useful for a risk-neutral decision maker. Essentially, this is the technique
for a 'sore loser' who does not wish to make the wrong decision. 'Regret' in this context is defined
as the opportunity loss through having made the wrong decision.

Using the same example, if the demand is high, they will make a maximum profit of 700,000 if they
build. If they had decided to expand, they will only make a profit of 500,000. The difference or regret
between the 500,000 profit and the maximum of 700,000 achievable profit for that state of nature
(high) is 200,000. This means that they had an opportunity loss of 200,000 for choosing to expand
than to build. The regrets can be tabulated as follows:
The regret criterion is based upon
States of Decision Alternatives
the minimax principle, i.e., the
Nature Expand Build Subcontract
High 500,000 - 700,000 700,000 - 700,000 300,000 - 700,000 decision-maker tries to minimize
200,000 P0 400,000 the maximum regret. Thus, the
Moderate 250,000 - 300,000 300,000 - 300,000 150,000 - 300,000
decision-maker selects the
50,000 0 150,000
Low - 250,000 -(- 10,000) -400,000 -(- 10,000) - 10,000-(- 10,000) maximum regret for each of the
240,000 390,000 0 decision alternatives and out of
Failure - 450,000 -(- 100,000) -800,000 -(-100,000) - 100,000 -(- 100,000)
350,000 700,000 0 these the alternatives which
Maximum corresponds to the minimum regret
350,000 700,000 400,000
Regret is regarded as optimal. Since
Php350,000 is the minimum regret, the optimal alternative is to Expand.

4. Criterion of Realism
It is considering both optimism and pessimism. Alpha is used as an index of optimism. Determine
the maximum and the minimum payoff for each decision alternative and use the formula. Then a
weighted average/measure of realism of the maximum and minimum payoffs of an action, with α
and 1 - α as respective weights, is computed. The decision alternative with highest average is
regarded as optimal.

𝑴𝒆𝒂𝒔𝒖𝒓𝒆 𝒐𝒇 𝑹𝒆𝒂𝒍𝒊𝒔𝒎 = (𝑴𝒂𝒙𝒊𝒎𝒖𝒎 𝑷𝒂𝒚𝒐𝒇𝒇) 𝜶 + (𝑴𝒊𝒏𝒊𝒎𝒖𝒎 𝑷𝒂𝒚𝒐𝒇𝒇)(𝟏 − 𝜶)

Using the same example, come up with a decision using criterion of realism with an index of
optimism at α = 60%.
Decision Alternatives
States of Nature
Expand Build Subcontract
High 500,000 700,000 300,000
Moderate 250,000 300,000 150,000
Low - 250,000 - 400,000 - 10,000
Failure - 450,000 - 800,000 - 100,000
Maximum Payoff 500,000 700,000 300,000
Minimum Payoff - 450,000 - 800,000 - 100,000
500,000*0.6 + -450,000*0.4 500,000*0.6 + -450,000*0.4 500,000*0.6 + -450,000*0.4
Measure of Realism 120,000 100,000 140,000

Since the average for Subcontract is the maximum, it is the optimal alternative.
 PROBLEM SOLVING 3.2 - Decision making under conditions of Uncertainty
1. Andre and Zac run a salad shop called "Healthy from A to Z". They need to make the salads a day
before so they have to decide how many salads to make in advance each day before they know the
actual demand. Their choice is between 45, 55 and 65 salads. The following table shows their profit or
loss/ payoff table. Amount in Php.

States of Nature Decision Alternatives (Daily Supply) Determine the optical decision alternative for
(Daily Demand) 45 Salads 55 Salads 65 Salads the four types of criteria. For Criterion of
45 Salads 2000 1000 -1000 Realism, consider an index of optimism at
55 Salads 2000 2500 -500 α=65%.
65 Salads 2000 2500 2600

QUEUING THEORY

- Queuing theory is the mathematics of waiting lines.

- It is extremely useful in predicting and evaluating system performance.
- Queuing theory has been used for operations research, manufacturing and systems analysis.
Traditional queuing theory problems refer to customers visiting a store, analogous to requests
arriving at a device. Commonly used in telecommunications, traffic control, health services (e.g.
control of hospital bed assignments)

Queuing System

Key elements of the queuing system are the (1) customer which refers to anything that arrives at a facility
and requires service, e.g., people, machines, trucks, emails. And (2) server refers to any resource that
provides the requested service, eg. repairpersons, retrieval machines, runways at airport.

The queuing system has four major

components: Input which is the Arrival
Process, Queue or Waiting Line, Service
Process or the Server and the Output/Exit.
The input or the arrival process is when the
customers arrive. The customers will then
have to wait their turn for service in the queue
or waiting line, are serviced and leave after the
service. Example in a hospital (system), the
patients (customer) are arriving and being
entertained by the nurses (servers).

Queue Structure

Queue Structure is the crucial element of a queuing system, as it shows the queue discipline, which means
the order in which the customers are picked from the queue for the service. It depends on the arrival of
customers and the nature of service being offered. The customers can be chosen from the queue in one of
the following ways:

1. First-come-first-served. When the services are rendered to the customers in order of their arrival,
the queue discipline is the first-come-first-served type. Simply, serving the customer first, who
 comes first to the service facility. Example: At the movie ticket counter, a person who came first will
get the tickets first.
2. Last-come-first served. It simply means, the person who comes last will be served first.
Sometimes the customers are serviced in the order reverse of the order in which they enter the
service facility. Example: A pile of files, the file that comes in the last will be read first.
3. Service-in-random-order (SIRO). Under this type of queue structure, the customer is chosen for
service randomly and hence all the customers are equally likely to be selected. Therefore, the time
of arrival of the customer has no consequence on the selection of the customer.
4. Priority Service. Under this rule, customers are grouped in priority classes on the basis of some
attributes such as service time or urgency or according to some identifiable characteristic, and
FCFS rule is used within each class to provide service. Treatment of VIPs in preference to other
patients in a hospital is an example of priority service.

Service System

Parallel channels means, a number of channels providing identical service facilities so that several
customers may be served simultaneously. Series channel means a customer go through successive
ordered channels before service is completed. A queuing system is called a one-server model, i.e., when
the system has only one server, and a multi-server model i.e., when the system has a number of parallel
channels, each with one server.
a. Arrangement of service facilities in series
1. Single Queue Single Server

2. Single Queue, Multiple Server

b. Arrangement of Service facilities in Parallel

Customer Characteristics/Attitude

1. Balking: “I’m not going to wait in that line”. Customer decides not to join the queue by seeing the
number of customers already in service system.

2. Reneging: “I’m outta here”. Customer after joining the queue, waits for some time and leaves the
service system due to delay in service.

3. Jockeying: “Hey, that line looks like it’s moving faster”. Customer moves from one queue to
another thinking that he will get served faster by doing so.
Single Channel Model

 = Mean number of arrivals per time period

µ = Mean number of units served per time period

Average number of units (customers) in the Average time a unit spends waiting in the
system (waiting and being served), Ls queue, Wq
 
𝐿𝑠 = 𝑊𝑞 =
µ−  µ (µ − )

Average time a unit spends in the system

Utilization factor for the system, ρ
(waiting time plus service time), Ws 
1 𝜌=
𝑊𝑠 = µ
µ− 

Average number of units waiting in the queue, Probability of 0 units in the system (that is, the
Lq service unit is idle), ρ0
2 
𝐿𝑞 = 𝜌0 = 1 −
µ (µ − ) µ

Example: You are an owner of a single server carwash. The customers arrive at a mean rate of 2 cars per
hour with a service rate/mean number of units served per time period of 3 cars serviced per hour. Compute
for the six parameters of single channel model and conclude whether there is a need to add a carwash boy.

 = 2 cars arriving/hour µ = 3 cars serviced/hour

Average number of units (customers) in the system Average time a unit spends waiting in the queue, W q
(waiting and being served), Ls  2
𝑊𝑞 = = = 𝟒𝟎 𝒎𝒊𝒏𝒖𝒕𝒆 𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒘𝒂𝒊𝒕𝒊𝒏𝒈 𝒕𝒊𝒎𝒆
 2 µ (µ − ) 3 (3 − 2)
𝐿𝑠 = = = 𝟐 𝒄𝒂𝒓𝒔 𝒊𝒏 𝒕𝒉𝒆 𝒔𝒚𝒔𝒕𝒆𝒎 𝒐𝒏 𝒂𝒗𝒆𝒓𝒂𝒈𝒆
µ−  3− 2

Average time a unit spends in the system (waiting time Utilization factor for the system, ρ
plus service time), Ws  2
𝜌= = = 𝟔𝟔. 𝟔% 𝒐𝒇 𝒕𝒊𝒎𝒆 𝒄𝒂𝒓𝒘𝒂𝒔𝒉 𝒃𝒐𝒚 𝒊𝒔 𝒃𝒖𝒔𝒚
1 1 µ 3
𝑊𝑠 = = = 𝟏 𝒉𝒐𝒖𝒓 𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒘𝒂𝒊𝒕𝒊𝒏𝒈 𝒕𝒊𝒎𝒆 𝒊𝒏 𝒕𝒉𝒆 𝒔𝒚𝒔𝒕𝒆𝒎
µ−  3− 2

Average number of units waiting in the queue, Lq Probability of 0 units in the system (that is, the service unit
2 22 is idle), ρ0
𝐿𝑞 = = = 𝟏. 𝟑𝟑 𝒄𝒂𝒓𝒔 𝒘𝒂𝒊𝒕𝒊𝒏𝒈 𝒊𝒏 𝒍𝒊𝒏𝒆  2
µ (µ − ) 3 (3 − 2) 𝜌0 = 1 − = 1 − = 𝟎. 𝟑𝟑 𝒑𝒓𝒐𝒃𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝒐𝒇 𝟎 𝒖𝒏𝒊𝒕𝒔 𝒊𝒏 𝒕𝒉𝒆 𝒔𝒚𝒔𝒕𝒆𝒎
µ 3

Conclusion: Base on the computed parameters, there is a need to add a server/carwash boy. The system
has a low probability of having zero units and with an average of 2 cars waiting and being served. The
customers also have to wait for 40 minutes for a 20-minute service.

PROBLEM SOLVING 3.3 - Queuing Theory

1. You are an owner of a single server Burger Junction. The customers arrive at a mean rate of 5
customers per minute with a service rate/mean number of units served per time period of 7 customers
serviced per minute. Compute for the six parameters of single channel model and conclude whether
there is a need to add a server.
 PARETO ANALYSIS

Pareto analysis is a formal technique useful where many

possible courses of action are competing for attention. This
technique is also called the vital few (20%) and the trivial many
(80%). It is statistical technique in decision making for selection
of limited tasks which have significant overall impact. This
technique helps to identify the top 20% of causes that needs to
be addressed to resolve the 80% of the problems.

The value of the Pareto Principle for a project manager is that it

reminds them to focus on the 20% of things that matter. Of the
things you do during your project, only 20% are really important.
Those 20% produce 80% of your results. Identify and focus on those things first, but don't totally ignore the
remaining 80% of causes.

History of Pareto Analysis

 The Pareto effect is named after Vilfredo Pareto, an economist and sociologist who lived from 1848
to 1923.
 He observed in 1906 that 20% of the Italian population owned 80% of Italy’s wealth.

Pareto Chart

 A Pareto Chart is a series of bars whose height reflect the

frequency or impact of problems
 The bars are arranged in descending order of height from left
to right
 Bars on left are relatively more important (vital few) than that
the bars on the right (trivial many)

Example: The business was investigating the delay associated with

processing credit card applications, the data could be grouped into
the ff categories: no signature, residential address not valid, non-
legible handwriting, already a customer and other.

Step 1: Identify and List Problems (Record the raw data)

Category Frequency Write out a list of all of the causes to the problem that needs
No address 9 to resolve. Where possible, gather feedback from clients and
Non-legible writing 22 team members. This could take the form of customer
Current Customer 15 surveys, formal complaints, or helpdesk logs, for example.
No signature 40 Score the listed problem; it will depend on the sort of problem
Other 8 that needs to be resolved.

Step 2: Order the data in descending order

Category Frequency
No signature 40
Non-legible writing 22
Current Customer 15
No address 9
Other 8
Step 3: Determine the percentage that each category represent

Category Frequency Percentage To compute for the percentage, divide each frequency
No signature 40 43% to the total frequency of all the causes and multiply by
Non-legible writing 22 23% 100. From the example, divide the frequency of the ‘No
Current Customer 15 16% signature’ cause by the total of all frequency which is
No address 9 10% 94 and multiply by 100; this will yield 43%.
Other 8 8% Percentages of the causes are shown in the table.

Step 4: Solve for the cumulative percentage

Category Frequency Percentage Cumulative To solve for the cumulative
Percentage percentages, add the percentage of
No signature 40 43% 43% one category to the percentage of the
Non-legible writing 22 23% 66% preceding category. This calculation is
Current Customer 15 16% 82% important in statistics because it shows
No address 9 10% 92% how the percentages add together over
Other 8 8% 100% a time period.

Step 5: Prepare and Analyze the diagram

Make a bar graph with respect to the frequency of
the causes. The cumulative line is plotted at the
midpoint of each bar at a height equal to the
cumulative percentage. Draw a line at 80% on the
y-axis running parallel to the x-axis. Then drop the
line at the point of intersection with the curve on the
x-axis. This point on the x-axis separates the
important causes on the left (vital few) from the
less important causes on the right (trivial many).
Therefore, 80% of the delays in processing the
credit card application is a result from the 20%
causes – no signature & non-illegible writing.

PROBLEM SOLVING 3.4 – Pareto Analysis

1. Company XYZ wanted to implement process improvement activities. But before doing such, they
want to prioritize the causes of their defective paint products to "get the most bang for the buck". In doing
so, they will be able to identify what process to focus; thus, making their process improvement activity
impactful. Conduct a Pareto Analysis using the data below:
Paint Defects Paint Defect Frequency
Dirt in paint 65
Sag 21
Thin Paint 5
Off-color 12
Sealer Under 4
Scratch 2

END OF WEEK 2
Congratulations for making it through! You are doing a great job!