DECISION MAKING
WHAT IS DECISION MAKING?
It may be defined as “the process of identifying
and choosing alternative courses action in a manner
appropriate to the demands of the situation”.
The Decision-making Process
1. Diagnose problem
2. Analyze environment
3. Articulate problem or opportunity
4. Develop viable alternatives
5. Evaluate alternatives
6. Make a choice
7. Implement decision
8. Evaluate and adapt decision results
Diagnose Problem
If a manager wants to make intelligent decision,
his first move must be to identify the problem. If the
manager fails in this aspect, it is almost impossible to
succeed in the subsequent steps. An expert once said
“identification of the problem is tantamount to having
the problem half-solved.”
What is a Problem? A problem exists when there
is a difference between an actual situation and a desired
situation.
Analyze 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 the constraints, which may be spelled out
as either internal or external limitations
 Example of internal limitations
1. Limited funds available for the purchase of equipment.
2. Limited training on the part of employee.
3. Ill-designed facilities.
 Example of external limitations
1. Patents are controlled by other organizations.
2. A very limited market for the company’s products and
services exists
3. Strict enforcement of local zoning regulations
Develop viable alternatives
Oftentimes, problems may be solved by any of
the solutions offered. The best among the alternative
solutions must be considered by management. This is
made possible by using a procedure w/ the following
steps
1. Prepare a list of alternative solutions.
2. Determine the viability of each solution.
3. Revise the list by striking out those which are
not viable
Develop 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. Proper
evaluation makes choosing the right solution less difficult.
Make a Choice
Choice-making refers to the process of selecting
among alternatives representing potential solutions to a
problem. At this point, Webber advices that “. . .
particular effort should be made to identify all significant
consequences of each choice.”
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 results
In implementing the decision, the results
expected may or may not happen. It is, therefore,
important for the manager to use control or 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 have been set.
APPROACHES IN SOLVING PROBLEMS
 Qualitative evaluation – evaluation of alternatives
using intuition and subjective judgement.
 Quantitative evaluation – evaluation of alternatives
using any technique in a group classified as rational and
analytical
Quantitative Models for Decision Making
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 theory
Inventory models
1. Economic order quantity model
2. Production order quantity model
3. Back order inventory model
4. Quantity discount model
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
Network models
The two prominent network models are:
1. The Program Evaluation Review Technique (PERT) – a
technique that 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 (CPM) – this is a network
technique using only one time factor per activity that
enables engineer managers to schedule, monitor, and
control large and complex projects.
Forecasting
It may be defined as “the collection of past and
current information to make predictions about the
future.”
Simulation
Simulation is a model constructed to represent
reality, on which conclusions about real-life problems can
be used
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.
Sampling theory
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.
Statistical Decision-Theory
Decision-Theory refers to the “rational way to
conceptualize, analyze, and solve problems in situations
involving limited, or partial information about the
decision environment.