CHAPTER 4 SLIDE 1 BUSINESS ORGANIZAT! Philippine Copyright 2013 Rex Book Store, Inc. Al Rights Reserved, No part ofthis Learning Device may be reproduced or ditbuted in any form or by any means, of sored ina database retreval system without prior emission from Rex Book Store, Inc REXCHAPTER 4 SLIDE 3 Decision-Making as a Management Responsibility * Decisions must be made at various levels in the workplace. ¢ They are also made at the various stages in the management process. * Management must strive to learn how to choose a decision option as correctly as possible. Philippine Copyright 2013 Rex Book Sor. Inc. ll Rghts Reserved. No prof his Leaming Device may be ‘eprediced of itrbuted in any form or by any means, or stored na databace rtieal system shout prior, permission from Rex Book Store, Inc fey(CHAPTER 4 SLIDE 4 * Since they have that power to decide, they are responsible for whatever outcomes their decisions bring. * The higher the management level is, the bigger and more complicated decision-making becomes. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc By(CHAPTER 4 SLIDES What is Decision-Making * Decision-making may be defined as the process of defining the problem and identifying and choosing alternative courses of action ina manner appropriate to the demands of the situation. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without priorCHAPTER 4 SLIDE 6 The Decision-Making Process * Rational decision-making is a process involving the following steps: . diagnosing the problem; . analyzing the environment; . articulating the problem or opportunity; . developing viable alternatives; . evaluating the alternatives; . making a choice; . implementing the decision; and . evaluating and adapting the decision results. ONDHO PWN PB Philippine Copyright 2013 Rex Book Sor. Inc. ll Rghts Reserved. No prof his Leaming Device may be ‘eprediced of itrbuted in any form or by any means, or stored na databace rtieal system shout prior, permission from Rex Book Store, Inc feyCHAPTER 4 SLIDE 7 Diagnosing the Problem * If the manager wants to make an intelligent decision, his first move must be to identify the problem. * Being able to identify the real problem is tantamount to having the problem half-solved. What is a Problem. A problem exists when there is a difference between the actual situation and the desired situation. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 8 Analyzing the Environment * The environment where the organization is situated plays a very significant role in the success or failure of such an organization. * The objective of environmental analysis is the identification of constraints, which may be spelled out as either internal or external limitations. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 9 * Examples of internal limitations are as follows: 1. limited funds available for the purchase of equipment; 2. limited training on the part of the employees; 3. ill designed facilities; and 4. irrelevant organization structure. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc REXCHAPTER 4 SLIDE 10 * Examples of external limitations are as follows: 1. product patents are controlled by other organizations; 2. avery limited market for the company’s products and services exists; and 3. strict enforcement of local zoning regulations. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 11. Components of the Environment * The environment consists of two major concerns: 1. internal; and 2. external. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc PBCHAPTER 4 SLIDE 12 * The internal environment consists of organizational activities within a firm that surrounds decision-making. * The external environment refers to variables that are outside the organization and not typically within the short-run control of top management. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 13 Articulating the Problem or Opportunity * A problem is really an opportunity to improve one’s standing. * If one wants to benefit from solving a problem or exploiting an opportunity, a solution that will effectively address the situation is required. * Agood solution must be chosen from among several alternatives. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 14 Tike organizational structure, pol Marketing Aspects like product strategy and Promotion stratess practices and Panes eyetecne: Production Aspect: Like plant facility layout and inventory control Financial Aspects Like liquidity and profitability EXTERNAL eer ENVIRONMENT Figure 10. The Firm and the Internal Environment in Decision-Making EXTERNAL ENVIRONMENT Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 15, Government Professional Labor Managers Unions Climate —————_» +<—_—— Suppliers N Competitors Banks Public Figure 11. The Firm and Its External Environment Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 16 Develop Viable Alternatives * In solving a problem, the best among the alternative solutions must be considered by management. * This is made possible by using a procedure with the following steps: 1. prepare a list of alternative solutions; determine the viability of each solution; and 3. revise the list by striking out those which are not viable. i Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 17 Evaluate Alternatives After determining the viability of the alternatives and a revised list is made, an evaluation of the remaining alternatives is necessary. This is important because the next step involves making a choice. Proper evaluation makes choosing the right solution less difficult. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 18. Make a Choice * After the alternatives have been evaluated, the decision-maker must now be ready to make a choice. * This is the point where he must be convinced that all the previous steps were correctly undertaken. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 19 Choice-making refers to the process of selecting among alternatives representing potential solutions to a problem. To make the selection process easier, the alternatives can be ranked from the best to worst on the basis of some factors like benefit, cost, and risk. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 20 Implement Decision After a decision has been made, implementation follows. This is necessary, or decision-making will be an exercise in futility. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc 2 BCHAPTER 4 SLIDE 21. Implementation refers to carrying out the decision so that the objectives sought will be achieved At this stage, the resources must be made available so that the decision may be properly implemented. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc REXCHAPTER 4 SLIDE 22 Evaluate and Adapt Decision Results * In implementing the decision, the results expected may or may not happen. * Itis, therefore, important for the manager to use control and feedback mechanisms to ensure results and to provide information for future decisions. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 23 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. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 24 * Control refers to actions made to ensure that activities performed match the desired activities, or goals, that have been set. * In this last stage of the decision-making process, the manager will find out whether or not the desired result is achieved. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 25, Approaches in Solving Problems * In decision-making the manager is faced with problems which may either be simple or complex. To provide him with some guide, he must be familiar with the following approaches: 1. qualitative evaluation; and 2. quantitative evaluation. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncStep CHAPTER 4 SLIDE 26 diagnose = problem 1 analyze 1 articulate problem oF opportunity 1 Gevelop viable Sitematves, 4 evaluate: alternatives: 4 en a choice 4 implement 7 decision 4 evaluate: if results are determine ste; ae ee ee 1 made a Af results are achieved adapt decision = results Figure 12. Feedback as a Control Mechanism in the Decision-Making Process Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 27 Qualitative Evaluation ¢ This term refers to evaluation of alternatives using intuition and subjective judgment. 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. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 28. Quantitative Evaluation * This term refers to the evaluation of alternatives using any technique in a group classified as rational and analytical. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc PBCHAPTER 4 SLIDE 29 Quantitative Models for Decision-Making * The types of quantitative techniques which may be useful in decision-making are as follows: 1. inventory models 2. queuing theory 3. network models 4. forecasting 5. regression analysis 6. simulation 7. linear programming 8. sampling theory 9. statistical decision Philippine Copyright 2013 Rex Book Sor. Inc. ll Rghts Reserved. No prof his Leaming Device may be ‘eprediced of itrbuted in any form or by any means, or stored na databace rtieal system shout prior, permission from Rex Book Store, Inc feyCHAPTER 4 SLIDE 30 Inventory Models 1. 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. 2. Production order quantity model — an economic order quantity technique applied to production orders. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 31. Back order inventory model — an inventory model used to minimize the total cost when quantity discounts are offered by suppliers. Quantity discount model — an inventory model used to minimize the total cost when quantity discounts are offered by suppliers. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 32. Queuing Theory The queuing theory is one that describes how to determine the number of service units that will minimize both customer waiting time and cost of service. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 33 Network Models * These are models where large complex tasks are broken into smaller segments that can be managed independently. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 34 The two most prominent network models are: 1. Program Evaluation Review Technique (PERT). This is a technique which enables managers to schedule, monitor, and control large and complex projects by employing three time estimates for each activity. 2. Critical Path Method (CPM). This is a network technique using only one time factor per activity that enables managers to schedule, monitor, and control large and complex projects. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 35, Forecasting Forecasting is actually collecting past and current information to make predictions about the future. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 36 Regression Analysis The regression model is a forecasting method that examines the association between two or more variables. It uses data from previous periods to predict future events. Regression analysis may be simple or multiple depending on the number of independent variables present. When one independent variable is involved, it is called simple regression; when two or more independent variables are involved, it is called multiple regression. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, IncCHAPTER 4 SLIDE 37 Simulation Simulation is a model constructed to represent reality, on which conclusions about real-life problems can be based It is a highly sophisticated tool by means of which the decision maker develops a mathematical model of the system under consideration. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 38. 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. Linear programming is very useful as a decision- making tool when supply and demand limitations at plants, warehouse, or market areas are constraints upon the system. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 39 Sampling Theory Sampling theory is a quantitative technique where sample of populations are statistically determined to be used for a number of processes, such as quality control and marketing research. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 40 Statistical Decision Theory * Decision theory is the rational way to conceptualize, analyze, and solve problems in situations involving limited, or partial, information about the decision environment. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 41. * The purpose of Bayesian analysis is to revise and update the initial assessments of the event probabilities generated by the alternative solutions. * This is achieved by the use of additional information. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc ByCHAPTER 4 SLIDE 42 * When the decision maker is able to assign probabilities to the various events, the use of probabilistic decision rule, called the Bayes criterion, becomes possible. * The Bayes criterion selects the decision alternative having the maximum expected payoff, or the minimum expected loss if he is working with a loss table. Philippine Copyright 2013 Rex Book Store. Inc.All Rights Reserved. No part of this Leaming Device may be reproduced or distrbuted in any form or by any means, or stored ina database retrieval system without prior permission from Rex Book Store, Inc