DECISION-MAKING

DECISION DEFINITION
(Based on dictionaries)

• Something somebody has chosen: something that somebody chooses or makes up his or her
mind about, after considering it and other possible choices
• firmness in choosing something: the ability to choose or decide about things in a clear and
definite way without too much hesitation or delay
• process of choosing: the process of coming to a conclusion or determination about something

WHAT IS DECISION MAKING?

• Decision-making may be defined as “the process of identifying and choosing alternative

courses of action in a manner appropriate to the demands of the situation”.
• Decisions are made at various management levels (top, middle and lower levels) and at various
management functions (planning, organizing, directing and controlling)
• According to Nickels and others:
• “is the heart of all management functions”

CONDITIONS FOR MAKING A DECISION

In order to make a decision you:

• MUST have at least two (2) choices from which to choose (to do or not to do)
• MUST involve something that is achievable
• MUST have the POWER to decide

APPLYING DECISION MAKING CONDITIONS FROM A PERSONAL PERSPECTIVE.

CAN YOU:
• decide when you are born?
• decide who your parents are?
• decide the color of your eyes?
• decide to be bald headed?
• decide your name?
• decide whether or not to follow your supervisor’s instructions?
• decide what grade you are if Government or pay level you are if Private Industry?
• decide how much education you get?

Decision-Making as A Management Responsibility

• Decision-Making is a responsibility of the engineer manager.

• Managers who cannot or do not want to make decisions.
• Delaney said “Should be removed from their positions as soon as possible”
• The higher the management level is, the bigger and the more complicated decision-making
becomes.
THE DECISION-MAKING PROCESS

• According to David H. Holt:

1. diagnose, problem
2. Analyze environment
3. Articulate problem or opportunity
4. Develop Viable alternatives
5. Evaluate alternatives
6. Make a choice
7. Implement decision
8. Evaluate and adapt decision results

 DIAGNOSE PROBLEM
• Identify the problem. If the manager fails in this aspect, it is impossible to succeed in the
subsequent steps.
• An expert once said, “Identification of the problem is tantamount to having the problem
half-solved.”

 WHAT IS A PROBLEM?
• A problem exists when there is a difference between an actual situation and a desired
situation.
• For instance, the management of a construction company entered into a contract with
another party for the construction of a 25-storey building on a certain site.
• The actual situation of the firm is that it has not yet constructed the building. The desired
situation is the finished 25-storey building.

 ANALYZE THE ENVIRONMENT

• The environment plays a very significant role in the success or failure of such an
organization.

• Objective of environmental analysis is the identification of constraints: either internal or

external limitations.

 Internal Limitations:

1. Limited funds available for the purchase of equipment.

2. Limited training on the part of employees.

3. Designed facilities.

 External Limitations:

a. Patents are controlled by other organizations.

b. A very limited market for the company’s products and services exists.
c. Strict enforcement of local zoning regulations.
 COMPONENTS OF THE ENVIRONMENT

1. Internal Environment – refers to organizational activities within a firm

2. External Environment – refers to the variables that are outside the

organization and not typically within the short-run control of top
management.

 DEVELOP VIABLE ALTERNATIVES

• Using a Procedure:
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.

To illustrate:

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.
THE ENGINEERING FIRM AND ITS EXTERNAL ENVIRONMENT

LIST OF SOLUTIONS PREPARED

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
4. Stop serving some of the company’s customers, and
5. Delay servicing some clients.

 EVALUATE ALTERNATIVES
• Proper evaluation makes choosing the right solution less difficult.
• How the alternatives will be evaluated:
a. nature of the problem
b. objectives of the firm
c. nature of alternatives presented
• Soulder suggests that “each alternative must be analyzed and evaluated in terms of its
value, cost, and risk characteristics.”
 MAKE A CHOICE
• The point where he must be convinced that all the previous steps were correctly
undertaken.

• Choice-making – process of selecting among alternatives representing potential solutions to

a problem.

• Webber advises, “particular effort should be made to identify all significant consequences of
each choice.”

• Best to worst: factors like benefit, cost or risk.

 IMPLEMENT DECISION
• Implementation – carrying out the decision so that the objectives sought will be achieved.

• To make it effective, a plan must be devised.

• The resources must be made available.

• According to Aldag and Stearns:

- Must understand and accept the solution.

 EVALUATE AND ADAPT DECISION RESULTS

• It is important to use CONTROL and FEEDBACK mechanisms to ensure results and to provide
information for future decisions.
• FEEDBACK – process which requires checking at each stage of the process to assure that the
alternatives generated, the criteria used in evaluation, and the solution selected for
implementation are in keeping with the goals and objective originally specified.
• CONTROL – actions made to ensure that activities performed match the desired activities or
goals, that have been set.
• If the desired result is achieves, one may assume that the decision made was good.
• It it was not achieved, further analysis is necessary.
APPROACHES IN SOLVING PROBLEMS
1. Qualitative Evaluation – evaluation of alternatives using intuition and subjective judgment.
according to Stevenson:
a. The problem is fairly simple.
b. The problem is familiar
c. The costs involved are not great.
d. Immediate decisions are needed.

2. Quantitative Evaluation – refers to the evaluation of alternatives using any technique in a group
classified as rational and analytical.

QUANTITATIVE MODELS FOR DECISION MAKING

• Types of quantitative techniques:

1. Inventory models
2. queing theory
3. network models
4. forecasting
5. regression analysis
6. simulation
7. linear programming
8. sampling theory
9. statistical decision theory

 INVENTORY MODELS
• Inventory models consist of several types all designed to help the engineer manager
make decisions regarding inventory. They are as follows:
1. Economic Order Quantity Model – 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.
2. Production Order Quantity Model – economic order quantity
technique applied to production orders.
3. Back Order Inventory Model – used for planed shortages.
4. Quantity Discount Model – used to minimize the total cost when quantity
discounts are offered by suppliers.

 QUEING THEORY
• Describes how to determine the number of service units that will minimize both
customer waiting time and cost of service.

• Applicable to companies where waiting lines are a common situation.

 NETWORK MODELS
• Where large complex tasks are broken into smaller segments that can be managed
independently.
Two Most prominent network models:
1. The Program Evaluation Review Technique (PERT) – which enables engineer
 managers to schedule, monitor and control large and complex projects by employing
three time estimates for each activity.
2. The Critical Path Method (CPM) – network technique using only one time factor per
activity that enables engineer managers to schedule, monitor, and control large and
complex projects.

 FORECASTING
• Defined as “the collection of past and current information to make predictions about the
future.”

 REGRESSION ANALYSIS
• The regression model is a forecasting method that examines the association between
two or more variables.

• Uses data from previous periods to predict future events.

• Regression Analysis may be Simple or Multiple.

- Simple Regression – one independent variable is involved
- Multiple Regression – two or more independent variables are involved.

 SIMULATION
• Model constructed to represent reality, on which conclusions about real – life problems
can be used.

• Does not guarantee an optimum solution but it can evaluate the alternatives fed into
the process by the decision-maker.

 LINEAR PROGRAMMING
• Quantitative technique that is used to produce an optimum solution within the bounds
imposed by constraints upon the decision.

• Very useful as a decision making tool when supply and demand limitations at plants,
warehouse or market areas are constraints upon the system.

 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.

• When data gathering is expensive, sampling provides an alternative. Sampling, in effect,

saves time and money.

 STATISTICAL DECISION THEORY

• Decision Theory – rational way to conceptualize, analyze, and solve problems in
situations involving limited or partial information about decision environment.

• Purpose of Bayesian Analysis – revise and update the initial assessments of the event
probabilities generated by the alternative solutions.

• Bayes Criterion – Probabilistic decision rule.