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 decision-
a 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 (con’t)
• 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 (con’t)
• 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 (con’t)
• Components of the Environment
Internal Environment - refers to 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.
Decision-Making Process: Expound (con’t)
• 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 (con’t)
• 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 (con’t)
• 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 (con’t)
• 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 (con’t)
• 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 (con’t)
• 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 (con’t)
• 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
management’s 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
 The engineer-manager has too much reliable information
to choose the best alterative
o Decision under uncertainty
 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
o Decision under conflict or risk
 The engineer-manager has to anticipate moves and
counter moves of one or more competitors