DECISION-MAKING Decision Making as a Management Responsibly Wat i Decison Making? “The Decision Making Process “Approaches in Solving Probl uenteative Models for Decision Making Chapter 2 DECISION-MAKING ‘Managers of all kinds and types, including the enginoer manager, are primarily tasked to provide lead- Siphon Sager tion's ‘objectives. Ii isto boeome efective, he mut learn the intrieacies of decision-making Many times, he will be confronted by situations where he willhave to choose from ‘among various options. Whatever his choice, it wll have ‘fects, immediate or otherwiee, in the operations ofthis organization. ‘The engineer manager's decision-making skills will be very erusal to his suseass as a professional major blunder in decision-making may be sufficient to cause the destruction of any organization. Good decisions, on the other hand, will provide the right environment for continuous growth and success of any organized effort. 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. If eertain resources must be used, someone must make u decision authorizing certain persons to appropriate euch resources Decision-making is 4 responsibility of the engineer ‘manager, It is understandable for managers to make ‘wrong decisions at times. The wise manager will correct, them as so0n as they are identified. The bigger issue is the manager who cannot or do not want to make deci sions. Delaney concludes that this type of managers aredangerous and “should be removed from their position as soon as possible.” ‘Management must strive to choose a decision option as correctly as possible. Since they have that power, they fare responsible for whatever outcome their decisions ‘An example may be provided as follows: ‘The production manager of a vertain company thas received a written request from a section head regarding the prehaso of an airconditioning unit. ‘Almost simultaneously, another request from another section was forwarded to him requiring the purehase Gf a forklif. The production manager was informed by his superior that of the two requested items ‘bu ns ‘The production manages mut now mule “however, nents for he will be hold responsible, later on, if he had mado the wrong choice, ES Eee Decisions are made ut various management levels Ge, top, middlo, and lower levels) and at various man- ‘agement functions (.e., planning, organizing, directing, "Wl A Dla, The 30st Canman Probleme in Moscgement nd oe Sate ham Sen Yo’ AMACOM 180 88. ect BOX and controlling). Decision-making, according to Nickels ‘and others, "is the heart ofall the management unctions."> THE DECISION-MAKING PROCESS Rational decision-making, according to David H. ‘Holt, is a process involving the following steps: 1. diagnose. problem 2. analyze environment 8. articulate problem or opportunity 4. develop: viable:altermatives: 5. evaluate alternatives 6. make « choice 7. implement decision 8. evaluate and adapt decision results Diagnose Problem Ifa manager wants to make an intelligent decision, his first move must be to identify the problem. If the ‘manager fails in this aspect, itis almost impossible to succeed! in the subsequent stops. An expert once said “identification of the problem is tantamount to having ‘hate von octane sed tached tee ie ceraces tos anangecen ofa crancucion ‘company entered into a contract with another party for the construction of a 25-storey building on a certain site, ‘liam G. Nit anther Understanding Bains Sand ie ured Moke rn, 195 9-2 nd H, Hal, Managment Prisiat and Prastie(lored Ci, New Jem roan ae 1007 pT at Sheet Maan Pray, Sed on ‘vers Way ta an 1a p60‘The actual situation of the firm is that it has not yet con- structed the building. The desired situation is the finished 25-storey building. In this case, the actual situation is different from the desired situation, The company, there- fore, has a problem and that is, the construction of the 25.slorey building. ‘Analyze the Environment ‘The environment where the organization is situated plays a very significant role in the success or failure of ‘such an organization. Ibis, therefore, very important that fan analysis of the environment bo undertaken, al imitations are a folom: 1. Limited funds available for the purchase of equipment 2. Limited training on the part of employees, 3. Tkdesigned fciities Examples of external imitations are as follows: 1. Patents are controlled by other organizations. 2 Avery limited imarkt forthe company’s produets and services exists 3. Strict enforcement of loal zoning regulations When decisions are to be made, the internal and external limitations most be considered, It may be coat, later on, to alter a decision because ofa constraint that has not been previously identified. ‘An illustration of failure to analyze the environment is a8 follows ‘The president of a new chemical manufacturing * ‘company made a decision to Jocate his factory in a place adjacent to a thickly populated area. Con- struction ofthe building was made with procision and ‘was finished in a short period. When the clearance for the commencement of operation was sought from Jocal authorities, this could not be given. It tumed ‘out that the rosidents opposed the operation of the firm and made sure that no clearance ia given. ‘The president decided to relocate the factory but not after much time and money has been lost. This is a clear example of the cost associated with man- agement disregarding the environment when decisions are made. In this ease, the president did not consider what the residents could do. Components of the Environment. The environment consists of two major concerns: 1. internal and 2 yen ‘The internal envionment refers to organizational scttiierWa thl furvunce desl oreatng* Shown in Figure 21 are the imporiant aspects of the internal envirenment. ieee eran tiveua nas Develop Viable Alternatives — Oftentimes, problems may be solved by any of the solutions offered. The best among the alternative solutions Pek nl orld Ziman, Merhating Monagenen (Cnn The rode Pres 36?) 9 “Thonat 1. Whale aed 3. David Honan, Statere Management and ‘Busines Ply Nor Ye hase Wesiey Pblohing Ga, 1000 pTmust bo considered by management. Thi ix made po ble by using a procedure wath the following steps: 1. Prepare alist of alternative solutions 2 Determine the viability of each solutions 3, Revise the list by atriking out those which are not viable ‘To ilustrate: | ‘An engineering firm has a problem of incre sing its output by 30%. This is the result of a new ‘agreement bobwoon the firm and one of its clients. Figure 2.1 The Engineering Firm and the Internal Environment in Decision-Making ‘THE ENGINEERING FIRM INTERNAL ENVIRONMENT ‘Organizational Aspocts Tike 079. stucturg, poletos, procedures, rules, ability of mranagemet, et EXTERNAL PH shy ENVIRONMENT The procuet sategy, T frematonsaogy ok Prsonnot Aspects ————?P. We vectra precios T foomenyenr EXTERNAL Prost ae eyeaeen Teo nt ay layout Preven cate Fania aspects ‘eo auld, probity, te, Figure 22 The Engineering Firm and Its External Environment ‘Govornment Engineers, Labor Unions See caine ENGINEERING es Rede Competitors Banks‘The list of solutions prepared by the engineering manager shows the following alternative courses of action: 1. improve the capacity ofthe firm by hiring more workers and building additional facilities; 2 secure the serviras of subcontractors, Duy the needed additional output from another firm; 4. stop serving some of the comipany/s customers; and 5, delay servicing some clients. ‘The list was revised and only the first three were deemed to be viable. The last two were deloted because of adverse effects in the long-run profitability of the frm, Evaluate Alternatives ‘After determining the viability of the alternatives and a revise lt has boon made, an evaloation of the fein aration acon. Tai porta Seca the rt stop iarelven mating a choice, ropa alti rakes choosing the right slation lens fc How tho alternatives wil be evaluated wil depend on tho uatue of the problem, the objectives of the Sm on eae i mative must be analyzed and ova- eee ‘The value of the alternatives refers to benefits that cat ele a nae nyt dere on SOLS ete or P10 milion por yuri the sltrneie oat ‘The costo the alternative refors to out-of-pocket casts _ ike 100 milion for construction of facilities), opportunity Ti Sir Monogr Dn Methadar Maragr of Eainring ont Rusch Now York Yu Nace Banhld Co, 1980). 28 costs (ike the opportunity to earn interest of P2 million per year if money is invested elsewhere), and follow-on ‘costs (like P3 million per year for maintenance of facilities, ‘constructed, ‘The risk characteristics refer to the likelihood of achieving the goals ofthe alternatives Ifthe probability of a net profit of P10 million is only 10 perceat, then tho Aecision-maker may opt to consider an alternative with 495 million profit hut with an 80 percont probability of Another example of an evaluation of alternatives is shown below: An engineer manager is faced with a problem of choosing between three applicants toil up «lone vacaney fora junior engineer. He will have to sot up cettain criteria for evaluating the applicants, Ifthe evaluation is not done by a professional human recources officer, then the engineer manager will be forcod to use a predetermined eriterin. A typical evaluation of job appliante will appear as follows: EVALUATION SHEET ‘Title of Vacant Position: JUNIOR ENGINEER Date of Evaluation: December 28, 1996 Applicant alucation. "Training Experience Age Total Points| 1. dose Sibayan, Je 405 4 0 8 2. Menandre Rilo 4036 Bieucapan) my 3. Duntedda cuz 40 Evaluator Edgardo J. Viloria Manager Engineering Division IL‘Make a Choice ‘Aftor the alternatives have boon evaluated, the decision-maker must now be ready to make a choice. This jo tho point where he must be convineed that all the previous steps were correctly undertaken. “Chotce-making refers to the problem. At this pint, divises that”... particular fffort should be made to identify all significant comse- {quences of each ehcice."” ‘To make the selection process easier, the alternatives can bo ranked from best to worst on the basis of some factors like bene, cost, oF risk. Implement Decision ‘After a decision has been made, implementation follows. This is necessary, or decision-making will be an exercise in futility impleznentation effect " [At this stago, the resources must be made avail- “able so that the decision may be properly implementsd. ‘Those who will be involved in implementation, accord ing to Aldag and Stearns, must understand and aceept ‘tho solution." Evaluate and Adapt Decision Results In implementing the decision, the results expocted may or may not happen. Itis, therefore, important forthe Rebernehos Jes p88. ‘tao A Wb 7s Be Manager Bouts of Monagest emewcd ‘Minis chard Dt, te 880 p18 en Sag ud diy M Sara, Managenent Cock Suthe ‘wos Fahing Co, 99D p67 ‘manager to use control and feedback isms to hast soul ono evdertematon wee: decisions. Feedback refers to the process which requires checking at each stage sto assure that the starve gmetad the er ued in eveluaton and tha solution alee ft mplomentatinarein keep: ing goals and objectives originally specified.” Control refers to acti @ to ensure that aetivi- ties performed mateh the desired activities or goals, that hhave been set, In this last stage of the decision-making process, the ‘engineer manager will find out whether or not the desired result is achieved. Ifthe desired result is achieved, one may assume that the decision made was good. If it was pot achieved, Ferrell and Hirt suggest that further analysis is necessary." Figure 23 presents an elaboration of this last. step, APPROACHES IN SOLVING PROBLEMS In decision-making, the engineer 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, Qualitative Evaluation. This term refers to evaluation of alternatives using intuition and subjective judgment. Stovenson states that managers tend tose the qualitative approach when: sin ett okFigure 2:3 Feedback aa Control Mechanism inthe Decision- Making Pree: step1 [Gagnose | problem + 2 [analyze nvtonmant T a [ariouate problem or ‘opportunity r 4 [cevetop viable ternative. t 5. [ovate alternatives ¥ 6. [mare a hole L 7 [Fieri eecision | t 8 [orauaie eas not] __, [carne ms chives stop ware y mage eau ‘adapt decision actioved _| | rosuns ‘The problem is fiely simple ‘The problem in familiar: The costs involved are not great. Plow cost “Immediate decisions are needed. ‘An example of an evaluation using the qualitative approach is as follows ‘A factory operates on threo shifts with the following schedule First shift 600 AM. to 200 PM. Second shift— 2:00 PM. to 10.00 PM. ‘Third shift ~ 10.00 PM, to 6:00 A.M. Each shift consists of 200 workers manning 200 machines, On September 16, 1996, the operations ‘went smoothly wntil the factory manager, an indus- trial engineer, was notified at 100 BM. that five of the workers assigned to the second shit could not report for work because of injuries sustained in a traffic accident while they were on their way to the factory Because of ime constraints, the manager made an instant decision on who among the frat hi? work: rn would work overtime to man the five machines, Quantitative Roaluation. This term refers to the evaluation of alternatives using any technique in a gromp classified as rational and analytic} QUANTITATIVE MODELS FOR DECISION MAKING ‘The types of quantitative techniques which may be ‘useful in decision-making are as follows "lin 1. Seecnn, abduct Margen! Sine omemes, oie, 1888) p'inventory models ‘queuing theory nnetvrork models forecasting regression analysis simulation Jinear programming ‘sampling theory statistical decision theory" Inventory Models Inventory models consist of several types all designed ‘to help the engineer manager make decisions regarding inventory, They are a follows:* toot of placing orders and carrying ame inventory.!”, 2 seiSerealy— ie on pose tantly techn apie to ‘production 2): BWR aRRAvaRtoryornoll— this io om inveolory medal toed eoHaerlsheetagis 4 @ disc | — an inventory model tonne al ewe Gan discounts are offered by eupples. (icing Hee) ‘The queuing theory is one that describes how to ‘nore rout cub i rseate by Hots nd Render, pp 562 ou in ec ers merpietieterpacia yee waing linear conan totic, Bamps areas ‘ing se ut ear ro cnr ship and rps See ra ‘orem, progenies at eee ‘Network Models ‘These are models where largo complex tasks are broken into smaller segments that can be managed independently, ‘The two most prominent network models are: 1. The Program Evaluation Review Technique (PERT) — a technique which h enables engineer 2. "Ta Goiteal Pree |— this is anet~ ‘work technique using only one time factor per activity that enables engineer managers to Schedule, monitor, and eontrl large and complex projects Forecasting There are instances when engineer managers make decisions that will have implications in the future. A 2nanufacturig firm, for example, must put up a capacity which is suficient to produce the demand requirements ot customers within tho next 12 months, As such, mane power and fuciltios must be procured before the start of ‘operations. T make decisions on capacity more efetive, the engineer manager must be provided with data on demand requirements fr the uuxt 12 months, This typo of information may be derived through forecasting.‘Forecasting may be defined as “the collection of past and eurrent formation to make predictions about the eet Regression Analysis ‘ho ragrssion model i. frecsting method that ‘examines the anociation betwen two o more variables omni as Gen previ erie fo pred femare enta™ Regresion analy ibe simple ormultinedepen- ding on number of independent nab present. ‘When ne independant variable i invalved it called (ple eerie! when 6 ea terinaeoh ee IMbls ae invaved, eal malls ragreaion”™ Simulation. ‘Simulation is a model constructed to representreality, i which eonelunlons about real-ife problems can be lused.#It is a highly sophisticated tool by means of which the docision maker develops a mathematical model ofthe system under consideration. Simulation does not guarantee an optimum solution, but it can evaluate the alternatives fed into the process by the decision-maker. Linear Programming Linear programming is a quantitative technique that is used to produce an optimum solution within the pick ieee sells tatietilam” Leet sua tii ote Marctng enact Sr tin ghd, en aaah in ri ane Monsen Set si ‘seh J Cl and tora The Nona of Basins Listy, Porth ‘aslo IN Me Wit Pung Go ie) 38 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. ‘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, ‘When data gathering is expensive, sampling provides an alternative. Sampling, in eect, saves time and money. Statistical Decision-Theory Decision theory refers tothe rational way to ennodpt- ualize, analyze, and acive problema in situations in- “Jolving limited, or partial information sbout tho detsion covironment™ ‘A moro claborate explanation of decision theory ia ‘he dteision making process presented atthe beginning aithis chapter Whathas not ben included n the discus Son on the evaluation of alternatives, but is very impor- tant is subjecting the alternatives to Bayesian analeis “The porpone of Bayesian analysis i to revise and update the init inu of the event probabilities SEiaensaty ip vant eles Tun sewed Sy the se of additonal information. ‘When the decision-maker is nble to assign probabil- ‘tes lo the various events, the use of probablietle dac sion rule, called the Bayes eniterion, becomes possible. The Bayes criterion selects the decision alternative having ‘the maximum expected payoff, or the expected loss if he is working with a lose table. SGlnsapi A. Forgionns, Quantitative Deion Mading (Belmont, ‘cvs Watowerth Pasatng Ca, 1988p a “iiige © Andere and 9. Lara, Quanto Managers, An Indra (onto Hest Pabhing Cn, 1680 pA aSUMMARY _ Decision-making is a very important function of the ‘engineer manager. His organization will rise or fall. depending on the outcomes of his decisions. Its, therefore, necessary for the engineer manager to develop some skills in decision-making. ‘The process of identifying and choosing alternative ‘courses of action in » manner appropriate to the demands of the situation is called decision-making. Tt is done at ‘various management levels and functions, ‘The decision-making process consists of various steps, namely: diagnose problem, analyze environment, articulate problem or opportunity, develop viable alter. natives, evaluate alternatives, mako a choiee, implement decision, and evaluate and adapt decision results ‘There are two approaches in solving problems, ‘aamely: qualitative ovaluation and quantitative evalua. tion, Qualitative evaluation is used for solving fairly sim- Ble problems, while qanttative evaluations aplidto QUESTIONS FOR REVIEW AND DISCUSSION. 1. Can the engineer manager avoid making manage- ment decision? Why or why not? 2, When a problom becomes apparent and the engineer ‘manager chooses to jgnore it, is he making a decision? Explain your answer. 8. Why is proper diagnosis of the problem important? 4. What are the components of the environment from, the point of view ofthe decision-maker? Whatdo they consist of? How may one develop viable alternatives in problem solving? ted? 6. How may alteraative solutions be evah Why is it important for those who will be invalved in implementation to understand and accept the solution to the problem? 8, What are the approaches in solving problems? 9, What quantitative techniques are useful in decision- making? 10, What is the purpose of Bayesian analysis? SUGGESTED ITEM FOR RESEARCH 1. Provide an illustration of how Bayesian analysis is used.Case 2. R, E. CONSTRUCTION: W's Now or Ne - ‘When Engineer Romeo Estabillo finished his Civil Engineering course at Mapua Institute of Technology, he ‘took the board examination and passed: in 1981. Wanting ‘to start independently, he went back to his hometown (Bantiago City) to organize his own construction firm. Tn his first few years of operation, he accepted contracts for tho construction of residential houses, As he gained ‘experience, his clients grew in number, and even the most prominent persons in the provines of Isabela availed of his services Ax the start, he hired two assistants to help him in his daily routine as a contractor. One ofthe two assistanta, Mr. Silvino Santiago, was a third year eivil engineering student who had stopped schooling due to financial difficulties. His main task was as draftsman. His duty was to produce all documents relating to the physical requirements of the various contracts entered into by his boss. Among these documents are the building plan, specifications, bill of materials, building permit, ete His additional duty was to assist Engineer Estabillo in supervising the foremen and workers at the various construction sites, ‘The second assistant, Mr. Romulo Mamaril, was ‘assigned (0 coordinate purchasing, bookkeeping, and other related administrative activities, At the third year of operations, Engineer Estabillo was already directing operations in his newly constructed office inside his residential compound. By this time, two more female employeos were hired to assist in the various tasks performed in the office. By 1994, Engineer Eetabillo reviewed his company’s payroll. It indicated that he has in his employ six full- time civil engineers, two draftsmen, ton administrative Personnel, one messenger and one security guard, The ry toemen and laborers working tthe vations projet ware conical jane 1986, Engineer Hatabilo fe hat sins vrs eomoudy rowing oe wll hae oor te Service of hur adaonal dul engineers on a fllstine feels Ashe was iret supervntny all operating be nom fs that he may nl bo slo peor his functons ttetcly ithe wl ph hrangh with he plat He wants th conte‘ dein, but help epprohenatv, He tke Operations ae now more empl tat deen making shasta ilescnlie With thie choughts, he pondered tn how he wil go about solving the problem a