DECISION-MAKING
ES003 – Engineering Management
OBJECTIVES:
At the end of the session, students are expected to:
▪ Define decision-making and its importance in engineering
management.
▪ Appreciate the importance of critical thinking and problem-
solving skills in decision making.
DECISION-MAKING
▪ Defined as "the process of identifying and choosing alternative
courses of action in a manner appropriate to the demands of the
situation.
▪ Engineer manager must adapt a certain procedure designed to
determine the best option available to solve certain problems.
▪ Decision-making skills will be very crucial to his success.
▪ Good decisions will provide the right environment for continuous
growth and success of any organized effort.
THE DECISION-MAKING PROCESS
Rational decision-making, according to David H. Holt,' is a process
involving the following steps:
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
1. DIAGNOSE PROBLEM
▪ If a manager wants to make an intelligent decision, his first move
must be to identify the problem. If the manager fails in this aspect, it
is almost impossible to succeed in the subsequent steps.
▪ "identification of the problem is tantamount to having the problem
half-solved.”
▪ Problem – exist when there is a difference between an actual
situation and a desired situation
2. ANALYZE PROBLEM
▪ The objective of environmental analysis is the identification of
constraints, which may be spelled out as either internal or external
limitations.
▪ Example of internal limitations are as follows: limited funds, limited
training, ill-designed facilities.
▪ Example of external limitations are as follows: limited market, strict
enforcement of local zoning regulations.
▪ Components of Environment: Internal Environment (organizational
activities within a firm) & External Environment (variables that are
outside the organization and typically within the short-run control of
top management)
3. ARTICULATE PROBLEM OR OPPORTUNITY
▪ Articulating the problem or opportunity is a crucial step in the
decision-making process, as it sets the foundation for subsequent
actions.
▪ This step involves clearly defining what the issue is or identifying a
potential opportunity that needs to be addressed.
▪ Clearly defining the problem allows decision-makers to concentrate
their efforts on relevant factors and avoid distractions.
4. DEVELOP VIABLE ALTERNATIVES
▪ Oftentimes, problems may be solved by any of the solutions
offered. The best among the alternative solutions must be
considered by management. This is made possible by using a
procedure with the following steps:
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.
5. EVALUATE ALTERNATIVES
▪ Proper evaluation makes choosing the right solution less difficult.
▪ How the alternatives will be evaluated will depend on the following:
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 (benefits that can pe expected), cost
(out-of-pocket costs), and risk characteristics (likelihood of
achieving the goals).”
6. MAKE A CHOICE
▪ Choice-making refers to the process of selecting among
alternatives representing potential solutions to a problem.
▪ Webber advises that effort should be made to identify all significant
consequences of each choice.
7. IMPLEMENT DECISION
▪ Implementation refers to carrying out the decision so that the
objectives sought will be achieved.
▪ To make implementation effective, a plan must be devised.
▪ The resources must be made available so that the decision may be
properly implemented.
8. EVALUATE AND ADAPT DECISION RESULTS
▪ The results expected may or may not happen. It is, therefore,
important to use control and feedback mechanisms to ensure
results and to provide information for future decisions.
▪ Feedback refers to the 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 objectives
originally specified.
▪ 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 simple or complex. To provide
him with some guide, he must be familiar with the following
approaches:
▪ Qualitative evaluation
▪ Quantitative evaluation
1. QUALITATIVE EVALUATION
This term refers to evaluation of alternatives using intuition and
subjective judgment. Stevenson states that managers tend to use the
qualitative approach when:
▪ The problem is fairly simple.
▪ The problem is familiar.
▪ The costs involved are not great. (low cost)
▪ Immediate decisions are needed.
2. QUANTITATIVE EVALUATION
This term refers to the evaluation of alternatives using any technique in a group
classified as rational and analytical. The types of quantitative techniques which may be
useful in decision-making are as follows:
a) inventory models
b) queuing theory
c) network models
d) forecasting
e) regression analysis
f) simulation
g) linear programming
h) sampling theory
i) statistical decision theory
A. INVENTORY MODELS
Inventory models consist of several types all designed to help the engineer
manager make decisions regarding inventory. They are as follows:
▪ Economic Order Quantity Model – 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.
▪ Production Order Quantity Model – this is an economic order quantity
technique applied to production orders.
▪ Back Order Inventory Model – this is an inventory model used for
planned shortages.
▪ Quantity Discount Model – an inventory model used to minimize the
total cost when quantity discounts are offered by suppliers.
B. QUEUING THEORY
▪ The queuing theory is one that describes how to determine
the number of service units that will minimize both
customer waiting time and cost of service.
▪ The queuing theory is applicable to companies where
waiting lines are a common situation.
C. NETWORK MODELS
These are models where large complex tasks are broken into smaller
segments that can be managed independently. The two most prominent
network models are:
▪ The Program Evaluation Review Technique (PERT) – a technique
which enables engineer managers to schedule, monitor, and control
large and complex projects by employing three time estimates for each
activity.
▪ 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.
D. FORECASTING
Forecasting may be defined as "the collection of past and current
information to make predictions about the future.”
E. REGRESSION ANALYSIS
▪ The regression model is a forecasting method that examines the
association between two or more variables. It uses data from
previous periods to predict future events.
▪ Regression analysis may be simple or multiple depending on the
number of independent variables present. When one independent
variable is involved, it is called simple regression; when two or more
independent variables are involved, it is called multiple regression.
F. SIMULATION
▪ Simulation is a model constructed to represent reality, on which
conclusions about real-life problems can be used. It is a highly
sophisticated tool by means of which the decision maker develops
a mathematical model of the system under consideration.
▪ Simulation does not guarantee an optimum solution, but it can
evaluate the alternatives fed into the process by the decision-
maker.
G. LINEAR PROGRAMMING
▪ Linear programming is a quantitative technique that is used to
produce an optimum solution within the bounds imposed by
constraints upon the decision.
▪ It is very useful as a decision-making tool when supply and demand
limitations at plants, warehouse, or market areas are constraints
upon the system.
H. SAMPLING THEORY
▪ Sampling theory is a 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.
I. STATISTICAL DECISION-THEORY
▪ Decision theory refers to the "rational way to conceptualize,
analyze, and solve problems in situations involving limited, or partial
information about the decision environment.
