Decision Making

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 (i.e. top, middle,

and lower levels) and at various management function (I.e. planning,
organizing, directing and controlling). According to Nickel and others “it
is the heart of all the management functions.
Decision-making is a responsibility of the engineer. It is

understandable for managers to make wrong decisions at times. The wise
manager will correct them as soon as they identified. The bigger issue is
the manager who cannot or do not want to make decisions.
Management must strive to choose a decision option as correctly as

possible. Since they have that power, they are responsible for whatever
outcome their decisions bring. The higher the management level is, the
bigger and the more complicated decision-making becomes.
THE DECION-MAKING PROCESS
1. DIAGNOSE THE PROBLEM
 An expert once said “identification of the problem is
tantamount to having the problem halved-solved”.
 What is a problem? A problem exists when there is a
difference an actual situation and a desired situation.
2. ANALYZE THE ENVIRONMENT
 The environment is where the organization plays a very
significant role in success or failure of such an organization.
 The environment analysis is the identification of constraints,
which may be spelled out either internal or external
limitations.
Internal Limitations
 Limited fund available for the purchase of equipment
 Limited training on the part of employees.
 Ill-designed facilities
External Limitations
 Patents are controlled by other organizations by other
organizations.
 A very limited market for the company’s products and
services exists.
 Strict enforcement of local zoning regulations.
3. DEVELOP VIABLE ALTERNATIVES
Problems may be solved by any of the solution offered. The best
among alternatives solutions must be considered by the
management.
 Prepare a list of alternatives solutions.
 Determine the viability of each solution.
 Revise the list by striking out those which are not viable
4. EVALUATE ALTERNATIVES
This is important because the next step involves making a choice. A
proper evaluation makes choosing the right decisions less difficult.
THE DECION-MAKING PROCESS
1. DIAGNOSE THE PROBLEM
 An expert once said “identification of the problem is

tantamount to having the problem halved-solved”.
 What is a problem? A problem exists when there is a
difference an actual situation and a desired situation.
2. ANALYZE THE ENVIRONMENT

 The environment is where the organization plays a very
significant role in success or failure of such an organization.
 The environment analysis is the identification of constraints,
which may be spelled out either internal or external
limitations.
Internal Limitations
 Limited fund available for the purchase of equipment
 Limited training on the part of employees.
 Ill-designed facilities
External Limitations
 Patents are controlled by other organizations by other
organizations.
 A very limited market for the company’s products and
services exists.
 Strict enforcement of local zoning regulations.
3. DEVELOP VIABLE ALTERNATIVES

Problems may be solved by any of the solution offered. The best
among alternatives solutions must be considered by the
management.
 Prepare a list of alternatives solutions.
 Determine the viability of each solution.
 Revise the list by striking out those which are not viable
4. EVALUATE ALTERNATIVES
 This is important because the next step involves making a
choice. A proper evaluation makes choosing the right
decisions less difficult.
 Each an alternative must be analyzed and evaluated in terms of
its value, cost, and risk characteristics.

5. MAKE A CHOICE
 After an alternative has been evaluated, the decision-maker
must now be ready to make a choice.
 This is the point where he must be convinced that all
previous steps were correctly undertaken.
 Choice-making refers to the process of selecting among
alternative representing potential solution to a problem. At
this point Webber advises that “particular effort should be
made to identify all significant consequence of each
choice”.
 The make the selection process easier, ranked the best
alternative to worst on the basis of the factors of the
problem.

6. IMPLEMENT DECISION
After a decision has been made, implementation follows; this is
necessary or decision- making will be an exercise in futility.
At this stage the resources must be available so that the decision
may be properly implemented.
7. EVALUATE AND ADAPT DECISION RESULT

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.
Quantitative Models for Decision Making
The types of quantitative techniques which may be useful in
decision-making are as follow:
Inventory Models
Inventory models consist of several types all designed to help the
engineer manager make decisions regarding inventory.
1. Economic order quantity model- 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.
2. Production order quantity model- economic order quantity
technique applied to production orders.
3. Back order inventory model- an inventory model used for
planned shortage.
4. Quantity discount model- an inventory model used to minimize
the total cost when quantity discounts are offered by suppliers.
Queuing Theory
One that describes how to determine the number of service units that
will minimize both customers waiting time and cost of service.
The queuing theory is applicable to companies where waiting lines
are common situation. Examples are cars waiting for service ar a car
service center, ships and barges waiting at the harbour for loading and
unloading by dockworkers, programs to be run in a computer system that
processes jobs, etc.
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:
1. 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.
2. The Critical Path Method (CPM)- technique using only one time
factor per activity that enables engineer managers to schedule,
monitor, and control large and complex projects.
Forecasting
There are instances when engineer managers make decisions that
will have implications in the future. A manufacturing fir, for example,
must put up a capacity which is sufficient to produce the demand
requirements of costumers within 12 months. As such, manpower and
facilities must be procured before the start of operations. To make
decisions on capacity more effective, the engineer manager must be
provided with data on demand requirements for the next 12 months. This
type of information may be derived through forecasting.
Forecasting may be 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. 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 involed, it is called multiple regression.
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 develop 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.
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. 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.
Sampling Theory
Sampling theory is a quantitative technique where samples of
populations are statistically determined to be used for number of
processes, such as quality control and marketing research.
When data gathering is expensive, sampling provides an alternative.
Sampling, in effect, save times and money.
Statistical Decision-Theory
Decision theory refers to the “rational way to conceptualize, analyse,
and solve problems in situations involving limited or partial information
about decision environment.”
The purpose of Bayesian analysis is to revise and update the initial
assessments of the event probabilities generated by the alternative
solutions. This is achieved by the use of additional information.
When the decision-maker is able to assign probabilities to the
various events, the use of probabilistic decision rule, called the Bayes
criterion, become possible. The Bayes criterion selects the decision
alternative having the maximum expected payoff, or the maximum
expected loss if he is working with a loss table.

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DECISION-MAKING

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

Decisions are made at various management levels (i.e. top, middle,

Decision-making is a responsibility of the engineer. It is

Management must strive to choose a decision option as correctly as

 An expert once said “identification of the problem is

2. ANALYZE THE ENVIRONMENT

3. DEVELOP VIABLE ALTERNATIVES

7. EVALUATE AND ADAPT DECISION RESULT

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