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Decision Making

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Joemarc Dionela
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27 views

Decision Making

Uploaded by

Joemarc Dionela
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Decision-Making

What is Decision-Making

“the process of identifying and choosing


alternative courses of action in a manner
appropriate to the demands of the situation.”

Itis the heart of all management functions


(Nickels and others).
Decision-Making Process
 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 result
Diagnose Problem

 “Anidentification of the problem is tantamount


to having the problem half-solved”

A problem exists when there is a difference


between the actual situation and a desired
situation.
Analyze 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 are as follows:
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 company’s products and services
exists.
3. Strict enforcement of local zoning regulations
Components of Environment

1. Internal
environment - refers to
organizational activities within a firm that
surrounds decision-making.
2. External Environment – refers to variables
that are outside the organization and not
typically within the short-run control of top
management.
Develop Viable Alternatives

Procedure
1. Prepare a list of alternative
solutions.
2. Determine the viability of each
solutions.
3. Revise the list striking out those
which are not viable.
Evaluate alternatives
After determining the viability of the alternatives
and a revised list has been made, an evaluation of the
remaining alternatives is necessary. Proper evaluation
makes choosing the right solution less difficult.
How the alternatives will be evaluated will depend
on the nature of the problem, the objectives of the firm,
and the nature of alternatives presented. Sounder
suggests that “each alternatives must be analyzed and
evaluated in terms of its value, cost , and risk
characteristics.
Make a Choice

Choice – making refers to the process of


selecting among alternatives representing potential
solutions to a problem. Webber advises that
“particular effort should be made to identify all
significant consequences of each choice.”
To make the selection process easier, the
alternatives can be ranked from best to worst on
the basis of some factors like benefit, cost, or risk.
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.
Implementation is necessary, or
decision-making will be an exercise in futility.
Evaluate and Adapt Decision Results
In implementation the decision, the results
expected may or may not happen. It is, therefore,
important for the manager 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 ensure 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 has been set.
In this Last stage of the decision-making
process, the engineer manager will find out whether
or not the desired result is achieved. If the desired
result is achieved, one may assume that the
decision made was good. If it was not achieved,
Ferreil and Hirt suggest that further analysis is
necessary.
Approaches in Problem Solving
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:
a. The problem is fairly simple.
b. The problem is familiar.
c. The cost involved are not great.
d. 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.
Qualitative Models for Decision Making
1. INVENTORY MODELS
Types:
a. 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
b. Production order quantity model
- is an economic order quantity technique applied to production
orders
c. Back order inventory model
- is an inventory model used for planned shortages
d. Quantity discount model
- an inventory model used to minimize the total cost when quantity
discounts are offered by suppliers
2. Queuing Theory
Queuing theory describes how to determine
the number of service units that will minimize both
customer waiting time and cost of service. It is
applicable to companies where waiting lines are a
common situation.
3. Network Model
Two most prominent network models

a. The Program Evaluation Review Technique (PERT)


techniques which enables engineer managers to schedule ,
monitor, and control large and complex projects by employing three time
estimates for each activity

b. The Critical Path Method (CPM)


Is a network technique using only one time factor per activity that
enables engineer managers to schedule , monitor, and control large and
complex projects
4. Forecasting
Forecasting is defined as ‘the collection of past and current information to make
predictions about the future.

5. Regression Analysis
The regression model is forecasting method that examines the association
between two or more variables. It uses data from previous periods to predict
future events.

6. Simulation
Simulation is a model constructed to represent reality on which conclusions
about real-life problems can be used. It is highly sophisticated tool by means of
which the decision maker develops a mathematical model of the system under
consideration.
7. 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.

8. 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.

9. Statistical Decision-Theory
Decision Theory refers to the ‘rational way of conceptualize, analyze, and
solve problems in situations involving limited, or partial information about
decision environment.

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