by Eingel Joy Pangilinan
MODULE 5: Decision Making
Decision-making as a
Management Responsibility
Decision-Making
1. Diagnose the Problem
Problem
2. Analyze the Environment
EXAMPLES OF INTERNAL
LIMITATIONS
EXAMPLES OF EXTERNAL
LIMITATIONS
THE ENVIRONMENT CONSISTS
OF TWO MAJOR CONCERNS:
3. Develop Viable Alternative
- Decisions must be made at various levels in the workplace.
- Decision-making is a responsibility of the engineer manager.
- Management must strive to choose a decision option as correctly as possible.
- It may be defined as “the process of identifying and choosing alternative courses
of action in a manner appropriate to the demands of the situations’
- Decisions are made at various management levels (i.e., top, middle and lower
levels) and at various management functions (i.e., planning, organizing, directing
and controlling).
- According to Nickels and others, “it is the heart of the management functions.”
DECISION-MAKING PROCESS
(Rational decision-making, according to David H. Holt, is a process involving the
following steps:)
- If a manager wants to make an intelligent decision, his first move must be identify
the problem.
- If the manager fails in this aspect, it is almost impossible to succeed in the
subsequent steps.
- An expert said, “identifications of the problem is tantamount to having the
problem half-solved.”
- It exists when there is a difference between an actual situation and a desired
situation.
- The environment where the organization is situated plays a very significant role in
the success or failure of such organization. It is therefore, very important that an
analysis of the environment be undertaken.
- The objective of environmental analysis is the identification of constraints, which
may be spelled out as either internal or external limitations.
1. Limited funds available for the purchase of equipment
2. Limited training on the part of employees
3. Ill-designed facilities
1. Patents are controlled by other organizations
2. A very limited market for the company’s products and services exists
3. Strict enforcement of local zoning regulations
1. Internal – refers to the organizational activities within a firm that surrounds
decision-making.
2. External – refers to the variables that are outside the organization and not
typically within short-run control of top management.
1. Prepare a list of alternative solutions
2. Determine the viability of each solutions
3. Revise the list by striking out those which are not viable
 - An engineering firm has a problem of increasing its output by 30%. This is the result
of a new agreement between the firm and one of its clients.

List of Solutions:
EXAMPLE
1. Improve the capacity of the firm by hiring more workers and building additional
facilities.
2. Secure the services of subcontractors
3. Buy the needed additional output from another firm
- Proper evaluation makes choosing the right solution less difficult.
- How the alternatives will be evaluated will depend on the nature of the problem,
the objectives of the firm and the nature of alternatives presented.
- Souder suggests that ‘each alternative must be analyzed and evaluated in terms
of its value, cost and risk characteristics”
4. Evaluate Alternatives
- The value of the alternatives refers to the benefits that can be expected
- The cost of alternatives refers to the out-of-pocket costs, opportunity cost and
follow-on cost
- The risk characteristics refer to the likelihood of achieving the goals of the
alternatives.
- An engineer manager is faced with a problem of choosing between three
applicants to fill up a lone vacancy for junior engineer. He will have to set up a
criteria for evaluating the applicants. If the evaluation is not done by a
professional human resources officer, then the manager will be forced to use a
predetermined criteria.

EXAMPLE

- Choice-making refers to the process of selecting among alternatives

representing potential solutions to a problem.
5. Make a Choice
- Webber advises that “particular effort should be made to identify all significant
consequences of each choice”
- Implementation refers to carrying out the decisions so that the objectives sought
will be achieved.
6. Implement Decision - At this stage, the resources must be made available so that the decision may be
properly implemented. Those who will be involved in implementation according to
Aldag and Stearns, must understand and accept the solution.
- Use control and feedback mechanisms to ensure results and to provide
information for future decisions.
- Feedback refers to the process which requires checking each stage of the
7. Evaluate and adapt process to ensure that the alternatives generated, the criteria used in evaluation,
Decision Results and the solution selected for implementation are in keeping with the goals and
objectives.
- Control refers to actions made to ensure that activities performed match the
desired activities or goals that have been set.
 APPROACHES IN SOLVING PROBLEMS
(In decision-making, the engineer manager is faced with problems which may
either be complex or simple. He must be familiar with the following approaches:)
- It refers to evaluation of alternatives using intuition and subjective judgement.
1. Qualitative Evaluation Stevenson states that managers tend to use qualitative approach when:
1. The problem is fairly simple
2. The problem is familiar
3. The costs involved are not great
4. Immediate decisions are needed
- It refers to the evaluation of alternatives using any techniques in a group
2. Quantitative Evaluation
classified as rational and analytical.
QUANTITATIVE MODELS FOR DECISION-MAKING
1. Economic Order Quantity Model (EOQ) – This one is used to calculate the
number of items that should be ordered at one time to minimize the total yearly
cost of placing orders and carrying the items in inventory.

EXAMPLE: - Consider a retail clothing shop that carries a line of men’s shirts. The
top sells 1000 shirts each year. It costs the company 5 dollars per year to hold a
single shirt in inventory and the fixed cost to place an order is 2 dollars.

2. Production Order Quantity Model (EPQ) – This is an economic order quantity

technique applied to production orders

3. Back Order Inventory Model – This is an inventory model used for planned
1. Inventory Models shortages

4. Quantity Discount Model – An inventory model used to minimize the total cost
when quantity discounts are offered by suppliers

- Determines the number of service units that will minimize both customer waiting
2. Queuing Theory
time and cost of service
- Large complex tasks are broken into smaller segments that can be managed
independently
1. The Program Evaluation Review Technique (PERT) – a technique which enables
engineer managers to schedule, monitor and control large and complex projects
3. Network Models
by employing three time estimates for each activity
2. The Critical Path Method (CPM) – this is a network technique using only one time
factor per activity that enables engineer managers to schedule, monitor and
control large and complex projects
 - Forecasting may defined as “the collection of past and current information to
make predictions about the future”
- For example, a manufacturing firm, must put up a capacity which is sufficient to
produce the demand requirements of customers within the next 12 months. As
such, manpower and facilities must be procured before the start or operations. To
make decisions on capacity more effective, the engineer manager must be
4. Forecasting provided with data on demand requirements for the next 12 months.

- The regression model is forecasting method that examines the association

between two or more variables. It uses data from previous periods to predict
future events.
- When one independent variable is involved, it is called regression. When two or
more independent variables are involved, it is called multiple regression.

5. Regression Analysis

- Simulation is a model constructed to represent reality, on which conclusions

about real-life problems can be used.
- It is highly sophisticated tool by means of which the decision maker develops a
mathematical model of the system under consideration.

6. Simulation

- Linear Programming is a quantitative technique that is used to produce optimum

solution within the bounds imposed by constraints upon the decision.
- Linear Programming is very useful as a decision-making tool when supply and
demand limitations at plants, warehouse, or market areas are constraints upon the
system.

7. Linear Programming

8. Sampling Theory
9. Statistical Decision Theory
Staffing
1. Human Resource Planning
A. Time Series Methods
B. Explanatory or Causal
Models
C. Monitoring Methods
2. Recruitment
- Sampling Theory is a quantitative technique where samples of populations are
statistically determined to be used for a number of processes, such quality and
control and marketing research
- Decision Theory refers to the “rational way to conceptualize, analyze and solve
problems in situations involving limited or partial information about the decision
environment.
- The purpose of Bayesian analysis is to update the initial assessments of the event
probabilities generated by the alternative solutions.
- The Bayesian criterion selects the decision alternative having the maximum
expected payoff of the minimum expected loss if he is working with a loss table.
MODULE 6: Human Resources
- It may be defined as “the management function that determines human
resource needs, recruits, selects, trains and develops human resources for jobs
created by organization”
- It is undertaken to match people with jobs so that the realization of the
organization’s objectives will be facilitated.
THE STAFFING PROCEDURE
(The staffing procedure consists of the following series of steps:)
- Human resource planning may involve three activities, as follows:
1. Forecasting – which is an assessment of future human resource needs in relation
to the current capabilities of the organization
2. Programming – which means translating the forecasted human resource need
to personnel objectives and goals
3. Evaluation and Control – which refers to monitoring human resource action
plans and evaluating their success
METHODS OF FORECASTING
(The forecasting of manpower need to be undertaken using any of the following
quantitative methods:)
- which use historical data to develop forecasts of the future
- which are attempts to identify the major variables that are related to or have
caused particular past conditions and then use current measures of these
variables to predict future conditions.
 Regression Models – Examines the association between two or more
variables
 Econometric Models – A system of regression equations estimated from
past time-series data and used to show the effect of various independent
variables on various dependent variables
 Leading Indicators – Refers to time series that anticipate business cycle
turns
- Are those that provide early warning signals of significant changes in established
patterns and relationships so that the engineer manager can assess the likely
impact and plan responses if required.
- It refers to attracting qualified persons to apply for vacant positions in the
company so that those who are best suited to serve the company may be
selected.
SOURCE OF APPLICANTS
1. The organization’s current employees
2. Newspaper advertising
3. Schools
4. Referrals from employees
5. Recruitment firms
6. Competitors
 - It refers to the act of choosing from those that are available individuals most likely
to succeed on the job.
- A requisite for effective selection is the preparation of a list indicating that an
3. Selection
adequate pool of candidates is available.
- The purpose of selection is to evaluate each candidate and to pick the most
suited for the position available.
- Companies use any of the following in determining the qualifications of a
candidate:
WAYS OF DETERMINING THE
1. Application Banks
QUALIFICATIONS OF A JOB
2. References
CANDIDATE
3. Interviews
4. Testing
TYPES OF TESTS
1. Aptitude Test – Used to measure a person’s capacity or potential ability to learn
2. Performance Test – One used to measure a person’s current knowledge of a
A. Psychological Tests subject
3. Personality Test – One used to measure personality traits as dominance,
sociability and conformity
4. Interest Test – One used to measure a person’s interest in various field of work
- A type of test given to assess the physical health of an applicant. It is given to
B. Physical Examination
assure that the health of the applicant is adequate to meet the job requirements.
- In induction, the new employee is provided with the necessary information about
the company. His duties and responsibilities and benefits are relayed to him.
4. Induction and Orientation - In orientation, the new employee is introduced to the immediate working
environment and co-workers. The following are discussed: location, rules,
equipment, procedures, and training plans.
- Training refers to the “learning that is provided in order to improve performance
on the present job.
5. Training and Development - Training program consists of two general types:
1. Training programs for non-managers
2. Training and educational programs for executives
TRAINING PROGRAM FOR NON-MANAGERS
(This type of training is directed to non-managers for specific increases in skill and
A. On-the-job Training knowledge to perform particular job. The four methods under this type are:)
- Where the trainer is placed in an actual work situation under the direction of his
immediate supervisor.
- Where the trainee is placed in a situation almost exactly the same as the
B. Vestibule School
workplace where machines, materials and time constraints are present.
- Where a combination of on-the-job- training and experiences with classroom
C. Apprenticeship Program
instruction in particular subjects are provided to trainees.
D. Special Courses - Are those taken which provide more emphasis on education rather than training.
TRAINING PROGRAMS FOR MANAGERS
- The training need of managers may be classified into four areas: decision-
making skill, interpersonal skills, job knowledge and organizational knowledge
A. In-Basket which may be enhanced through any of the following methods of training
- Where the trainee is provided with set of notes, messages, telephone calls, all
pertaining to a certain company situation
- It is a training method where “trainees are faced with a simulated situation and
B. Management Games
are required to make an on-going series of decisions about the situation.”
- This method presents actual situations in organizations and enable one to
C. Case Studies
examine successful and unsuccessful operations.
- The interpersonal competence of the manager may be develop through any of
the following methods:
I. Role-playing
- It is a method by which the trainees are assigned roles to play in a given case
incident.
- This method attempts to influence the trainee by “showing model persons
II. Behavior Modeling
behaving effectively in a problem situation.
- Under this method, awareness and sensitivity to behavioral patterns of oneself
III. Sensitivity Training
and others are developed.
- This training method intended to help individuals not only understand themselves
IV. Transactional Analysis
and others but also improve their interpersonal communication skills.
- In acquiring knowledge about the actual job, the manager is currently holding,
the following methods are useful:
A. On-the-job Experience
- This method provides valuable opportunities for the trainee to learn various skills
while actually engaged in the performance of a job.
- This method requires a senior manager to assist a lower-level manager by
B. Coaching teaching him the needed skills and generally providing directions, advise, and
helpful criticisms.
- Under this method, a manager works as assistant to a higher-level manager and
C. Understudy participates in planning and other managerial functions until he is ready to
assume such position himself.

I. Position Rotation
II. Multiple Management
6. Performance Appraisal
WAYS OF APPRAISING
PERFORMANCE
7. Employment Decisions
(monetary rewards, transfers,
promotions and demotions)
8. Separations
- In the attempt to increase the trainee’s knowledge of the total organization,
exposure to information and events outside of his immediate job is made. In this
regard, the following methods are useful:
- Under this method, the manager is given assignments in a variety of departments
where the purpose is expose him to different functions of the organization.
- This method is premised on the idea that junior executive must be provided with
means to prepare them for higher management positions.
- Performance appraisal is the measurement of employee performance. This
purposes for which performance appraisal is made are as follows:
1. To influence, in a positive manner, employee performance and development
2. To determine merit pay increases
3. To determine training and development needs
4. To assess the promotional potential of employees
1. Rating Scale Method
2. Essay Method
3. Management by Objectives Method
4. Assessment Center Method
5. Checklist Method
6. Work Standards Method
7. Ranking Method
8. Critical-Incident Method
- After evaluating the performance of the employees, the management will now
be ready to make employment decisions. These may consist of the following:
1. Monetary Rewards
2. Promotion
3. Transfer
4. Demotion
- Separation is either a voluntary or involuntary termination of an employee.
- When made voluntary, the organization’s management must find out the real
reason.
- When separation is involuntary, an employee’s performance may be poor or
committed an act of violating the company rules and regulations.