DECISION MAKING

CHAPTER 2

DECISION-MAKING AS A
MANAGEMENT
RESPONSIBILITY

Decision-making is a responsibility of
the engineer manager. It is understandable
for managers to make wrong decisions at
times. The wise manager will correct them
as soon as they are identified. The bigger
issue is the manager who cannot or do not
want to make decisions. Delaney
concludes that this type of managers are
dangerous and should be removed from
their position as soon as possible.

Example
The production manager of a certain company
has received a written request from a section head
regarding the purchase of an air conditioning unit.
Almost simultaneously, another request from
another section was forwarded to him requiring the
purchase of a forklift. The production manager was
informed by his superior that he can only buy one of
the two requested items due to budgetary
constraints.
The production manager must now make a
decision. His choice, however, must be based on
sound arguments for he will be held responsible,
later on, if he had made the wrong choice.

WHAT IS DECISIONMAKING?

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

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
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.

Example:
The management of a construction
company entered into a contract with
another party for the construction of a 25storey 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. In
this case, the actual situation is different
from the desired situation. The company,
therefore, has a problem and that is, the
construction of the 25-storey building.

2. Analyze the Environment

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:
1. Limited funds available for the purchase of
equipment.
2. Limited training on the part of employees.
3. Ill-designed facilities.

Example of external limitations:

1. Patents are controlled by other organizations.
2. A very limited market for the companys
products and services exists.
3. Strict enforcement of local zoning
regulations.

Example:
The president of a new chemical manufacturing company
made a decision to locate his factory in a place adjacent to
a thickly populated area. Construction of the building was
made with precision and was finished in a short period.
When the clearance for the commencement of operation
was sought from local authorities, this could not be given. It
turned out that the residents opposed the operation of the
firm and made sure that no clearance is given.
The president decided to relocate the factory but not after
much time and money has been lost. This is a clear example
of the cost associated with management disregarding the
environment when decisions are made. In this case, the
president did not consider what the residents could do.

Components of the Environment. The environment

consists of two major concerns:
1. internal and
2. external
The internal environment refers to organizational
activities within a firm that surrounds decision-making.
Shown in figure 2.1 are the important aspects of the
internal environment.
The external environment refers to variables that
are outside the organization and not typically within
the short-run control of top management. Figure 2.2
shows the forces comprising the external environment
of the firm.

THE ENGINEERING FIRM

Fig. 2.1

3. Articulate Problem or Opportunity

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.

Example
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 list of solutions prepared by the engineering manager
shows the following alternative courses of action:
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 companys customers; and
5. Delay servicing some clients.
The list was revised and only the first three were deemed
to be viable. The last two were deleted because of adverse
effects in the long-run profitability of the firm.

5. EVALUATE ALTERNATIVES
Evaluation sheet

6. MAKE A CHOICE
Choice-making refers to the process of
selecting among alternatives representing
potential solutions to a problem. At this
point , Webber advises that particular
effort should be made to identify all
significant consequences of each choice.

7. IMPLEMENT DECISION

Implementation refers to carrying

out he decision so that the
objectives sought will be achieved.
To make implementation effective,
a plan must be devised.

8. 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 originally specified.
Controls refers to actions made to ensure that
activities performed match the desired activities or
goals, that have been set.

Seatwork: June 30, 2015

1. Why are engineers considered an important

segment of the society?
2. What qualifications must an engineer manager
have?
3. When a problem becomes apparent and the
engineer manager chooses to ignore it, is he making a
decision? Explain your answer.
4. Can the engineer manager avoid making
management decision? Why or why not?

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

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:

1.
2.
3.
4.

The problem is fairly simple.

The problem is familiar.
The cost involve are not great.
Immediate decisions are needed.

An example of an evaluation using the

qualitative approach is as follows:
A factory operates on three shifts with the
following schedule:
First shift
- 6:00 A.M. to 2:00 P.M.
Second shift 2:00 P.M. to 10:00 P.M.
Third shift - 10:00 P.M. to 6:00 A.M.

Each shift consists of 200 workers manning 200

machines. On September 16, 1996, the
operations went smoothly until the factory
manager, as industrial engineer, was notified at
1:00 P.M. that five of the workers assigned to
the second shift could not report for work
because of injuries sustained in a traffic
accident while they were on their way to the
factory.
Because of time constraints, the manager
made an instant decision on who among the
first shift workers would work overtime to man
the five machines.

Quantitative Evaluation

This term refers to the evaluation of

alternatives using any technique in a
group classified as rational and
analytical.

QUANTITATIVE
MODEL FOR
DECISION MAKING

Inventory Model
Mathematicalequation or
formula that helps a firm in
determining theeconomic order
quantity, and thefrequency of
ordering, to
keepgoodsorservicesflowing to
thecustomerwithout interruption
ordelay.

 Economic order quantity

model
Production order quantity
model
Back order inventory model
Quantity discount model

QUEUING THEORY
It describes how to determine
the number of services units
that will minimize both
customer waiting time and cost
of service.

NETWORK MODELS
Models where large complex tasks are
broken into smaller segments that can be
managed independently.

The Program Evaluation Review

Technique (PERT)
The Critical Path Method (CPM)

FORECASTING
Aplanning toolthat helps
management in itsattemptsto
cope with theuncertainty of the
future, relying mainly ondatafrom
the past and present
andanalysisoftrends.

REGRESSION ANALYSIS
Forecasting method that examines
the association between two or
more variables. It uses data from
previous periods to predict future.

SIMULATION
A model constructed to represent
reality on which conclusions about
real-life problems can be used.

LINEAR PROGRAMMING
A quantitative technique that is
used to produce an optimum solution
within the bounds imposed by the
constraints about the decision.

SAMPLING THEORY
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.

STATISTICAL DECISIONTHEORY
It defines as Rational way to
conceptualize, analyse, and solve
problems in situations involving
limited or partial information about
the decision environment.