Engineering Management

DECISION-MAKING

Decision Making as a Management

Responsibility
What is Decision Making?
The Decision Making Process
Approaches in Solving Problems
Quantitative Models for Decision-Making

Decision-Making as a
Management Responsibility

decision making is a responsibility of the

engineer-manager.
The bigger issue is the engineer-manager who
cannot or do want to make decisions.
Managers must strive to choose or make a
decision as correctly as possible

What is Decision Making?

Decision Making Defined:
The process of identifying and choosing
alternative courses of action in a manner
appropriate to the demands of the situation.

What is Decision Making?

Decision Making Explained:
the engineer-manager must adapt a certain
procedure designed to determine the best
option available to solve certain problems.

Decision Making

the selection of a course of action from among

alternatives; it is at the core of planning.
A plan cannot be said to exist unless a decisiona commitment of resources, direction, or
reputation - has been made.
Engineer-Managers sometime see decision
making as their central job because they must
constantly choose what is to be done, who is to
do it, and when, where, and occasionally even
how it will be done.

The Decision-Making Process

Diagnose the problem - best diagnosis; series

of questions
Analyze the environment - points and ends of
the problem
Articulate problem opportunity - view problem
as an opportunity for improvement

The Decision-Making Process (cont)

Develop viable alternatives - cause and effect

analysis
Evaluate alternatives - SWOT analysis in the
developed alternatives
Make a choice
Implement decision
Evaluate and adapt decision results

Decision-Making Process: Expound

What is a Problem?
A problem exist when there is a difference
between an actual situation and a desired
situation.
Analyze the Environment
Identify the constraints in both external and
internal Environments.

Decision-Making Process: Expound (cont)

Examples of Internal Limitations: Limited

funds available for the purchases of equipment,
Limited training on the part of employees and
ill-designed facilities

Decision-Making Process: Expound (cont)

Components of the Environment

Internal Environment - refers to organizational
activities within a firm that surrounds decisionmaking
External Environment - refers to variables that
are outside the organization and not typically
within the short-run control of top management.

Decision-Making Process: Expound (cont)

Develop Viable Alternatives

The best among the alternative solutions must
be considered by management. This is made
possible by using a procedure with the
following steps:

Decision-Making Process: Expound (cont)

Develop Viable Alternatives

- Prepare a list of alternative solution
- Determine the viability of each solutions.
- Revise the list by striking out those which are
not viable

Decision-Making Process: Expound (cont)

Evaluate Alternatives
After determining the viability of the alternatives
and a revised list has been made, an
evaluation of the remaining alternatives is
necessary. This is important because the next
step involves making a choice.

Decision-Making Process: Expound (cont)

Evaluate Alternatives
- 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.
- The value of the alternatives refers to
benefits that can be expected.

Decision-Making Process: Expound (cont)

Make a Choice
- Choice making refers to the process of
selecting among alternatives representing
potential solutions to a problem.
- Rank alternatives from best to worst on the
basis of some factors like benefit, cost or risk.

Decision-Making Process: Expound (cont)

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.

Decision-Making Process: Expound (cont)

Evaluate and Adapt Decision Results

- Feed back 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.

Approaches in Solving Problems

Qualitative Evaluation refers to evaluation

of alternatives using intuition and subjective
judgment.
Quantitative Evaluation refers to the
evaluation of alternatives using any technique
in a group classified as rational and analytical.

Approaches in Solving Problems

When to use Qualitative Evaluation?

- The problem is simple
- The problem is familiar
- The cost involved are not great
- Immediate decisions are needed

Approaches in Solving Problems

Quantitative Techniques which may be

useful in decision-making are as follows:
- Inventory Models
- Simulation
- Queuing Theory
- Network models
- Forecasting
- Regression Analysis
- Linear Programming
- Sampling Theory
- Statistical Decision Theory

Quantitative Models for Decision-Making

Inventory Models
Queuing Theory
Network models
Forecasting
Regression Analysis
Simulation
Linear Programming
Sampling Theory
Statistical Decision Theory

Quantitative Models for Decision-Making

Inventory Models

Help a firm in determining the economic order

quantity (EOQ) and the frequency of order, to
keep the availability of goods and services to the
customers without interruption or delay.
EOQ the size of an order which the total
procurement or purchasing cost and inventory
carrying cost is at the minimum.

Quantitative Models for Decision-Making

Queuing Theory
Mathematical modelling of waiting lines, whether of
people or things. It aims to estimate if the available
resources is sufficient to meet the anticipated
demand over a given period.

Quantitative Models for Decision-Making

Network Models
Breaking down a complex project into its
components (activities, events, durations, etc.) and
plotting them to show their interdependencies and
inter-relationships.

Quantitative Models for Decision-Making

Network Models

Program Evaluation Review Technique (PERT)

o

enables the engineer managers to schedule, monitor,

and control large and complex projects by time
estimates

Critical Path Method (CPM)

o

the longest-path in the network diagram is the critical

path. It is 'critical' because all activities on it must
be completed in the designated time, otherwise the
whole project will be delayed.

Quantitative Models for Decision-Making

Forecasting

a planning tool that helps management in its

attempts to cope with the uncertainty, relying mainly
on data from the past and analysis of trends.
starts with certain assumptions based on
managements experience, knowledge and
judgment.
usual forecasting techniques are moving averages,
regression analysis, exponential smoothing, deplhi
method, etc.

Quantitative Models for Decision-Making

Regression Analysis

forecasting method that examines the association

between two or more variables
uses data from previous periods to predict future events

Quantitative Models for Decision-Making

Simulation

model constructed to represent reality, on

which conclusions about real-life problems can
be used.
Does not guarantee an optimum solution, but it
can evaluate the alternatives fed into the
process by the decision-maker

Quantitative Models for Decision-Making

Linear Programming

quantitative technique that is used to produce an

optimum solution within the bounds imposed by
constraints upon the decision
very useful decision-making tool when supply and
demand limitations at plants, warehouse, or market
areas are constraints upon the system.

Quantitative Models for Decision-Making

Sampling Theory

limited number of observations or samples from a

population on a systematic or random basis, which
(upon statistical manpulation) yields generalization
about the population.

Quantitative Models for Decision-Making

Statistical Decision Theory

refers to the rational way to conceptualize, analyze

and solve problems in situations involving limited, or
partial information about decision environment
mathematical concepts aimed at helping managers
in formulating rules that may lead to a most
advantageous course of action under the given
circumstances.

Quantitative Models for Decision-Making

Statistical Decision Theory

Decision theory divides decisions into three classes:

o

Decision under certainty

Decision under uncertainty

The engineer-manager has too much reliable information

to choose the best alterative
The engineer-manager has to dig-up a lot of data to make
sense of what is going on and what it is leading to

Decision under conflict or risk

The engineer-manager has to anticipate moves and

counter moves of one or more competitors