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Lecture 02

The document discusses decision-making for managers. It outlines that decision-making is a key responsibility of managers to help the organization achieve its goals. There are various approaches and processes involved in decision-making. The primary steps in the decision-making process are to identify the problem, analyze alternatives, evaluate alternatives, make a choice, implement the decision, and evaluate the results. Quantitative models that can also aid decision-making include inventory models, queuing theory, network models, forecasting, regression analysis, simulation, linear programming, and sampling theory. Effective decision-making relies on systematically working through this process.

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36 views4 pages

Lecture 02

The document discusses decision-making for managers. It outlines that decision-making is a key responsibility of managers to help the organization achieve its goals. There are various approaches and processes involved in decision-making. The primary steps in the decision-making process are to identify the problem, analyze alternatives, evaluate alternatives, make a choice, implement the decision, and evaluate the results. Quantitative models that can also aid decision-making include inventory models, queuing theory, network models, forecasting, regression analysis, simulation, linear programming, and sampling theory. Effective decision-making relies on systematically working through this process.

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Chapter 2

DECISION-MAKING

The primary responsibility of managers is to lead the organization in achieving its goals. He
needs to understand the complexities of decision-making if he wants to be productive. He will
encounter circumstances when he must make decisions from a range of possibilities. Regardless of
his decision, it will impact how the corporation operates.

Decision-Making as a Management Responsibility

Decision-making is a responsibility of the engineer manager; hence, he must strive to choose


a decision option as correctly as possible. Since they have the power, they are responsible for
whatever outcome their decisions bring. The wise manager will correct wrong decisions as soon as
they identified. The higher the management level is, the bigger and the more complicated decision-
making becomes.

What is Decision-Making?

Decision is a judgement. It is a choice between alternatives. It is rarely a choice between right


or wrong. It is at best a choice between almost right and probably wrong. Right decisions grow out
of the clash and conflict if divergent opinions and competing alternatives. Effective managers,
encourages opinions. But he insists that people who voice out an opinion must also take
responsibility for defining what factual findings can be expected and should be looked for.
The first rule in decision-making is that one does not decide unless there is disagreement.
Right decision demands adequate disagreement first.

The Decision-Making Process


Effective decisions are made through a systematic process clearly defining the elements in a
distinct sequence of steps. Most successful decision making follows a process that consists of the
following steps:
1. Identify the problem – the focal point of the process. Solutions must address the basic
problems not the symptoms. A problem exists when there is a difference between an actual situation
and a desired situation.
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.
3. Articulate problem
4. Develop viable alternatives - problems can frequently be resolved by any of the solutions
offered. Management must consider the greatest option out of all the alternatives.
5. Evaluate alternatives – proper evaluation makes choosing the right solution less difficult.
The evaluation of the alternatives will depend on the nature of the problem, the objectives of the
firm, and the nature of alternatives presented.
6. Make a choice – this is the point where he must convince that all the previous steps were
correctly undertaken. To make the selection process easier, the alternatives can be ranked from
best to worst based on some factors like benefit, cost, or risk.
7. Implement decision – this is necessary, or decision-making will be an exercise in futility. It
refers to carrying out the decision so that the objectives sought will be achieved. To make an
implementation effective, a plan must be devised, and resources must be made available.
8. Evaluate and adapt decision results – in implementing the decision, the expected results
may or may not happen. Thus, it is 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 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 has been set.

The success or failure in making decisions often depends on how well each of these steps is
handled.

Approaches in Solving Problems

In decision-making, the engineer manager is faced with problems which may either be simple
or complex. The following approaches will serve some guide:

1. Qualitative Evaluation – it refers to the evaluation of alternatives using intuition and


subjective judgement. Usually, this approach is used when:
a. The problem is simple.
b. The problem is familiar.
c. The cost involved are not great.
d. Immediate decisions are needed.

2. Quantitative Evaluation – it refers to the evaluation of alternatives using any technique in


a group classified as rational and analytical.

Quantitative Models for Decision-Making

The types of quantitative techniques which may be useful in decision-making are as follows:

a. Inventory Models – it consists of several types that are all designed to help the engineer
manager make decisions. They are as follows:
i. 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.
ii. Production order quantity model – this is an economic order quantity technique
applied to production orders.
iii. Back-order inventory model – this is an inventory model used for planned
shortages.
iv. Quantity discount model – an inventory model used to minimize the total cost when
quantity discounts are offered by suppliers.

b. Queuing Theory – it describes how to determine the number of service units that will
minimize both customers waiting time and cost of service. It is applicable to companies where
waiting lines are a common situation.
c. Network Models – it is where large complex tasks are broken into smaller segments that
can be managed independently. The two most prominent network models are :
i. The Program Evaluation Review Technique (PERT) – a technique which enables the
engineer manager to schedule, monitor and control large and complex projects by employing
three-time estimates for each activity.
ii. The Critical Path Method (CPM) – this is a network technique using only one time
factor per activity that enables engineer manager to schedule, monitor, and control large and
complex projects.

d. Forecasting – it is the collection of past and current information to make predictions about
the future because there will be instances that the engineer managers make decisions that will have
implications in the future.

e. Regression Analysis – it is a forecasting method that examines the association between


two or more variables. It uses data from previous periods to predict future events. It may be simple
or multiple depending on the number of independent variables present. When one independent
variable is involved, it is called simple regression but when to or more variables are involved, it is
called multiple regression.

f. Simulation – it 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. However, it does not guarantee
an optimum solution, but it can evaluate alternatives fed into the process by the decision-maker.

g. Linear Programming – it 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 – it is where samples of populations are statistically determined to be


used for several processes, such as quality control and marketing research. When data gathering
is expensive, sampling provides an alternative because it can save time and money.

i. Statistical Decision Theory – it refers to the rational way to conceptualize, analyze and solve
problems in situations involving limited or partial information about the decision environment.

References :
• Medina, Roberto. Engineering Management. Rex Publishing
RESEARCH WORK 02

1. What are the common problems that your company might encounter?
2. When the problem becomes apparent and the engineer manager chooses to ignore it, is he
making a decision? Explain your answer.
3. Why is proper diagnosis of the problem important?
4. What are the components of the environment from the point of view of the decision-maker? What
do they consist of?
5. Why is it important for those who will be involved in the implementation to understand and accept
the solution to the problem?
6. What is the purpose of Bayesian analysis?

PREPARATIONS FOR WORKSHOP 02

• From RW02 item 1, identify one common problem in your company.


• Apply the Decision-Making Process. Make sure that each step is specifically defined.
• Decide what approach are you going to utilize in solving problems.
• If your approach is quantitative, choose a model and illustrate your process which may be
useful in decision-making.

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