DECISION MAKING

Decision Making- the process of identifying and choosing alternative

courses of action in a manner appropriate to the demands of the situation. - the heart of all the management function.

Decision are at various management levels. TOP , MIDDLE and LOWER LEVELS

Decision are made at various management functions. PLANNING, ORGANIZING, DIRECTING, and CONTROLLING.

THE DECISION MAKING PROCESS Diagnose Problem Analyze environment Articulate problem or opportunity Develop viable alternatives Evaluate alternatives Make a choice Implement decision Evaluate and adapt decision results

DIAGNOSE PROBLEM If a manager wants to make an

intelligent decision, his 1st move must be to identify the problem.

A problem exist when there is a difference between an actual situation and desired situation.

Example : the actual situation of the firm is that it has not yet constructed the building

Example: the desired situation is the finished 25-storey building.

In this case, the actual situation is different from the desired situation

ANALYZE THE ENVIRONMENT The objective of environmental analysis

is the identification of constraints, which may be spelled out as either internal or external limitation.* Internal limitation 1. limited funds available for the purchase of equipment. 2. limited training on the part of employees. 3. ill-designed facilities.

• External limitation:1. Patents are controlled by other organization.2. A very limited market for the company’s products and services exists.3.Strict enforcement of local zoning regulation.

COMPONENTS OF THE ENVIRONMENT

Internal Environment – refers to the organizational

activities within a firm that surrounds decision-making.

External Environment – refers to variables that are outside the organization and not typically within the short-run control of top management.

DEVELOP VIABLE ALTERNATIVES The best among the alternative

solutions must be considered by management using a procedure with the ff. 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.

THE ENGINEERING FIRM AND ITS EXTERNAL ENVIRONMENT

GovernmentEngineers Labor Unions

ClientsSuppliers

Competitors Banks

Public

ENGINEERING FIRM

The list of solutions prepared by the engineering manager shows 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 company’s customers;5. Delay servicing some clients.

EVALUATE ALTERNATIVE How the alternatives will be evaluated

1. Depend on the nature of the problem2. The objectives of the firm3. The nature of the alternatives presented.

• Each alternative must be analyzed and evaluated in terms of its value, cost, and risk characteristics.*

• The value of the alternatives refers to benefit that can be expected

MAKE A CHOICE Choice – Making – refers to the

process of selecting among alternatives representing potential solutions to a problem.

* To make 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.

EVALUATE AND ADAPT DECISION RESULT

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.Control – refers to the actions made to ensure that activities performed match the desired activities or goals, that have been set.

APPROACHES IN SOLVING PROBLEMS

Qualitative evaluation – refers to the evaluation of alternatives using intuition and subjective judgement. Stevenson states that managers tend to use the qualitative approach when:1. The problem is fairly simple.2. The problem is familiar.3. The costs involved are not great.4. Immediate decisions are needed.

Example of an evaluation using the qualitative approach:A factory operates on 3 shifts with the ff. schedule:First shift - 6:00A.M. to 2:00P.M.Second shift - 2:00 P.M. to 10:00 P.M.Third shift - 10:00 P.M.to 6:00 P.M.Because of time constraints, the manager made an instant decision on who among the 1st shift workers would work overtime to man the five machines.

Each shift consist of 200 workers/200 machines. That day the operations went smoothly until the factory manager, an industrial engineer, was notified at 1:00 P.M. that 5 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.

APPROACHES IN SOLVING PROBLEM

Quatitative evaluation - this term refers to the

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

QUANTITATIVE MODELS FOR DECISION MAKING Types of quantitative techniques:

1. Inventory Models2. Queuing Theory3. Network models4. Forecasting5. Regression analysis6. Simulation7. Linear programming8. Sampling Theory9. Statistical decision theory

QUANTITATIVE MODELS FOR DECISION MAKING

Inventory Models :1. Economic order quantity model – this one is used to calculate the number of items that should be ordered at one time.

2. Production order quantity model – this is an economic order quantity technique applied to production orders.

QUANTITATIVE MODELS FOR DECISION MAKING* Inventory Models

3. Back order inventory model – this is an inventory model used for planned shortages.

4. Quantity discount model – an inventory model used to minimize the total cost when quantity discounts are offered by suppliers.

QUANTITATIVE MODELS FOR DECISION MAKING

Queuing Theory – is one that describes how to determine the number of service units that will minimize both customers waiting time and cost of service.

- applicable to companies where waiting lines are a common situation.

QUANTITATIVE MODELS FOR DECISION MAKING Network Models – these are models where

large complex tasks are broken into smaller segments that can be managed independently.

The 2 most prominent network models are:1. The Program Evaluation Review

Technique – a technique w/c 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 – this is a network technique using only one time factor per activity that enables engineer managers to schedule,

QUANTITATIVE MODELS FOR DECISION MAKING

Forecasting - the collection of past and current information to make predictions about the future

Regression Analysis– examines the association between 2 or more variables. It uses data from previous periods to predict future events.

Simulation – is a model constructed to represent reality, on w/c conclusions

about real-life problems can be used.

QUANTITATIVE MODELS FOR DECISION MAKING

Linear Programming – is a quantitative technique that is used to produce an optimum solution within the bounds imposed by constraints upon the decision.

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.

QUANTITATIVE MODELS FOR DECISION MAKING

Statistical Decision-Theory- rational way to

conceptualize, analyze, and solve problems in situations involving limited, or partial information about the decision environment.