ENGG 406

Engineering Management

Mr. Josue O. Mirabite,

Lecturer/Professor
Environmental Planner (EnP)
PhD(can)Urban and Regional Planning
MA Urban and Regional Planning
Industrial Engineer
GPPB-Recognized Trainer

College of Engineering, Architecture and Fine Arts (CEAFA)

Batangas State University (BSU)
Alangilan Campus
 DECISION MAKING

1. understand different types of decisions.

2. explain the process of decision making.
3. demonstrate problem-solving abilities and
rational effective decision making to address
organization challenges.
NATURE OF DECISION MAKING
 Nature of Decision Making
Decision-Making is one of the most important aspects in an organization.

 made in the best interest of the organization and to support organizational growth,

 However, the process of arriving at a decision continues to become more complex. It is

something that every engineer manager strives to do since the overall quality of
managerial decisions has a major influence on organizational success or failure

 In this chapter, students will learn the nature of decision making, how decisions are made,
and rational behind decision making
 Nature of Decision Making
Decision Making -“the process of identifying and choosing alternative courses of action in a manner
appropriate to the demands of the situation”.

Decision-making, according to Nickels and others, “is the heart of all the management functions”.

According to the Oxford advanced learner’s dictionary the term decision making means - the process of
deciding about something important, especially in a group of people or in an organization .

Managerial decision making is the process of making a conscious choice between two or more rational
alternatives in order to select the one that will produce the most desirable consequences (benefits)
relative to unwanted consequences (costs).
 Nature of Decision Making
Decision Making - a check and balance system that keeps the organization growing both
in vertical and linear directions.

 it seeks a goal.
 goals are pre-set business objectives, company missions and its vision.
 companies may face a lot of obstacles in administrative, operational, marketing wings
and operational domains.

 such problems are sorted out through a comprehensive decision making process.
 no decision comes as an end in itself, since it may evolve new problems to solve.
when one problem is solved another arises and so on, such that the decision making
process, as said earlier, is continuous and dynamic.
TYPES OF PROBLEMS AND
DECISIONS
 Types of Problems and Decisions

1. WELL-STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS

2. POORLY STRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS

 Types of Problems and Decisions
1. WELL-STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS -

* some problems are straightforward, familiar, and that the information about the
problem is easily defined and complete.
* goal of the decision maker is clear
* solution is usually self-evident or at least reduced to very few alternatives, familiar
and have proved successful in the past.
* various types of programmed decisions are:
- organizational decisions - taken in interest of the organization
- operational decisions - taken as a matter of routine

- research decisions - involves regular survey and made under situations of

crisis or emergency— intuitive decisions
- opportunity decisions - reflect foresightedness (forecasting)
 Types of Problems and Decisions
2. POORLY STRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS
* problems are new or unusual, non-recurring and for which information is
ambiguous or incomplete, high uncertainty,
* decisions are unprogrammed as taken in unstructured situations which reflect novel,
ill-defined and complex problems; and use of subjective judgment or even intuition
* there is no cut and-dried solution, thus, it requires a custom-made response through
nonprogrammed decision making.
DECISION MAKING PROCESS
Decision Making Process
 Decision Making Process
RATIONAL DECISION-MAKING DESCRIBES A SERIES OF STEPS THAT DECISION MAKERS SHOULD
CONSIDER
 Decision Making Process
Rational decision-making describes a series of steps that decision makers should
consider
1. identify the problem or diagnose the problem
2. analyze the 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
 Decision Making Process
RATIONAL DECISION-MAKING
 Decision Making Process
DECISION-MAKING FOR ECOSYSTEM SERVICE MANAGEMENT (According to Louise Willemen)
DECISION MAKING CONDITIONS
 Decision Making Conditions
Decisions may also be classified as being made under conditions of certainty, risk, or
uncertainty, depending on the degree with which the future environment determining the
outcome of these decisions is known.
CERTAINTY

 the ideal situation for making decisions is one of certainty, that is, a situation in which a
manager can make accurate decisions because the outcome of every alternative is known

 linear programming.

RISK

 conditions in which the decision maker is able to estimate the likelihood of certain
alternatives or outcomes.

 the ability to assign probabilities to outcomes may be the result of personal experiences or
secondary information. Under the conditions of risk, managers have historical data that allow
them to assign probabilities to different alternatives.
 Decision Making Conditions
UNCERTAINTY

 decision maker cannot assess the probability of occurrence for the various states of
nature.

 influenced by the limited amount of information available

 Decision Making Conditions
UNCERTAINTY

 different approaches to decision making under uncertainty include the following:

● the optimistic manager will follow a maximax choice, an alternative that offers the highest possible
outcome (maximizing the maximum possible payoff),
● the pessimist will follow a maximin choice, the alternative whose worst outcome is “least bad” (maximizing
the minimum possible payoff), and
● the decision maker may simply assume that all states of nature are equally likely (the so-called “principle
of insufficient reason”). This method finds the alternative with the highest average outcome. It calculates
the average outcome for every alternative, which is the sum of all outcomes divided by the number of
outcomes, then pick the alternative with the maximum number. The equally likely approach assumes that
each state of nature is equally likely to occur.
● the manager who desires to minimize his maximum "regret" will opt for a minimax choice, the alternative
that has the smallest difference between the best and worst outcomes, (the “minimax regret” solution).
Regret here is understood as proportional to the difference between what we actually get, and the better
position that we could have received if a different course of action had been chosen. Regret is sometimes
also called “opportunity loss.” The minimax regret rule captures the behavior of individuals who spend their
post-decision time regretting their choices.
 Decision Making Conditions
UNCERTAINTY
TOOLS AND TECHNIQUES FOR
MAKING BETTER DECISIONS
 Tools and Techniques for Making
Better Decisions
 DECISION TREES
DELPHI TECHNIQUE
NOMINAL GROUP TECHNIQUE (NGT)
PAYBACK ANALYSIS
MARGINAL ANALYSIS
SWOT DIAGRAM
DECISION MATRIX
PARETO ANALYSIS
 Tools and Techniques for Making Better
Decisions
 DECISION TREES - tools that help choose between several courses of action or
alternatives. They are represented as tree-shaped diagram used to determine a course of
action or show a statistical probability.
 Tools and Techniques for Making Better
Decisions
 DECISION TREES
 Tools and Techniques for Making Better
Decisions
 DELPHI TECHNIQUE is a method used to estimate the likelihood and outcome of future
events. It is a group process using written responses to a series of questionnaires instead
of physically bringing individuals together to make a decision.
 Tools and Techniques for Making Better
Decisions
NOMINAL GROUP TECHNIQUE (NGT).

 It was developed to help with group decision making by ensuring that all members participate fully; and
avoid group decision-making problems such as groupthink.

 NGT is not a technique to be used at all meetings routinely.

 used to structure group meetings when members are grappling with problem solving or idea generation.
 it follows four steps.
1. first, each member of the group engages in a period of independently and silently writing

down ideas.
2. second, the group goes in order around the room to gather all the ideas that were
generated; until all the ideas are shared.
3. third, a discussion takes place around each idea and members are asked for to give
clarification and make evaluative statements.

4. finally, individuals vote for their favorite ideas by using either ranking or rating techniques.
 Tools and Techniques for Making Better
Decisions
PAYBACK ANALYSIS.

 a technique generally used in

financial management.

 it refers to the period of time

required to recoup the funds
expended in an investment, or to
reach the break-even point.

 it is generally used to evaluate

capital-purchasing alternatives.
Tools and Techniques for Making Better
Decisions
 Tools and Techniques for Making Better
Decisions
MARGINAL ANALYSIS.

 weighs the benefits of an input or activity against the costs.

 helps managers determine whether an activity or input is providing the maximum return-on-
investment (ROI).

 to conduct a marginal analysis, you need to change a variable, such as the quantity of an
input you use, or the volume of output you produce.

 once you’ve identified that variable, determine what the increase in total benefits would be if
one more unit of the control variable were added. This is considered the marginal benefit of
the added unit.

 likewise, the marginal cost of the added good should also be calculated. The marginal cost is
the increase in total cost if one more unit of the control variable were added.

 if the marginal benefit outweighs the marginal cost, then there is a “net benefit” and the
marginal unit of the variable should be added.
Tools and Techniques for Making Better
Decisions
Tools and Techniques for Making Better
Decisions
 Tools and Techniques for Making Better
Decisions
SWOT DIAGRAM.

 when organization is planning to make a significant change in their business. SWOT

analysis can help manager identify the forces that influence a strategy, action, or initiative.

 SWOT diagrams can break down the situation into four distinct quadrants:
a. strengths: what does your company do better than its competitors? think of both internal
and external strengths that you possess.
b. weaknesses: where can your company improve? try to take a neutral approach and consider
what factors may be hurting your business.
c. opportunities: look at your strengths and think of how you can leverage them to create new
openings for your business. Also consider how eliminating a specific weakness could open you
up to a new opportunity.
d. threats: determine what challenges stand in the way of achieving your goals. Identify the
primary threats to your organization.
Tools and Techniques for Making Better
Decisions
 Tools and Techniques for Making Better
Decisions
SWOT DIAGRAM.
 Tools and Techniques for Making Better
Decisions
SWOT DIAGRAM.
 Tools and Techniques for Making Better
Decisions
DECISION MATRIX. When dealing with multiple choices and variables, a decision matrix can
bring clarity to the disarray. A decision matrix is similar to a pros/cons list, but it allows decision
maker to place a level of importance on each factor. That way, decision maker can more
accurately weigh the different options against each other. the following are the steps to create
decision matrix:
1. list decision alternatives as rows
2. list relevant factors as columns
3. establish a consistent scale to assess the value of each combination of alternatives and factors
4. determine how important each factor is towards making your final decision and assign weights
accordingly
5. multiply your original ratings by the weighted rankings
6. add up the factors under each decision alternative
7. the option that scores the highest wins
 Tools and Techniques for Making Better
Decisions
DECISION MATRIX
 Tools and Techniques for Making Better
Decisions
DECISION MATRIX
 Tools and Techniques for Making Better
Decisions
PARETO ANALYSIS.

 is a statistical technique in decision making that

is used for the selection of a limited number of
tasks that produce significant overall effect.

 it uses the pareto principle (also known as the

80/20 rule)

 the idea that by doing 20% of the work you can

generate 80% of the benefit of doing the whole
job; or in terms of quality improvement, a large
majority of problems (80%) are produced by a
few key causes (20%). This is also known as
the vital few and the trivial many.
 Tools and Techniques for Making Better
Decisions
Pareto Analysis
 Summing Up
 A DECISION MAKER WHO WAS PERFECTLY RATIONAL WOULD BE FULLY OBJECTIVE AND
LOGICAL.

 THE PROBLEM WOULD BE CLEAR AND UNAMBIGUOUS AND THE DECISION MAKER
WOULD HAVE A CLEAR AND SPECIFIC GOAL AND KNOW ALL POSSIBLE ALTERNATIVES
AND CONSEQUENCES.

 RATIONAL MANAGERIAL DECISION MAKING ASSUMES THAT DECISIONS ARE MADE IN

THE BEST INTEREST OF THE ORGANIZATION USING DIFFERENT STRATEGIES AND
TECHNIQUES, THUS, MAXIMIZING THE ORGANIZATION’S INTERESTS AND NOT THE
MANAGER’S OWN INTEREST.
Thank you
and
stay safe
 EXERCISES
2-1. You operate a small wooden toy company making two products: alphabet blocks and
wooden trucks. Your profit is $30.00 per box of blocks and $40.00 per box of trucks.
Producing a box of blocks requires one hour of woodworking and two hours of painting;
producing a box of trucks takes three hours of woodworking, but only one hour of painting.
You employ three woodworkers and two painters, each working 40 hours a week. How many
boxes of blocks (b) and trucks (t) should you make each week to maximize profit? Solve
graphically as a linear program and confirm analytically. .
 EXERCISES
2-2. Use the following questions as your guide to solve the following problem:
● what is the problem?
● what are the choices you have?
● what do you think the consequences of these choices will be for yourself and others
who are involved?
● what is your decision?
● do you think you made the right decision? why?
a. An engineer notices a fine white powder covers everything in a room that has a laminating press.
She asks the operator how long he has been working in this room. He replies that he has been
working there for over ten years. The engineer is concerned that the health of this operator may
be at risk from inhaling this powder for so long. What should she (the manager) do?
b. Your company has recently entered into a cooperative venture with a Japanese firm. A team of
Japanese engineers has come to your plant to teach your engineers a new manufacturing
process. However, the senior member of this team, a Japanese engineer with very traditional
cultural views, refuses to work with a female member of your team despite the fact that she is a
highly qualified engineer. What should you do?
 EXERCISES
2-1. ANSWER/SOLUTION