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DECISION MAKING

EMGN0IA – Engineering Management Ch2

Althea Mendoza, CIE, AAE


Lyceum of the Philippines - Laguna
Decision Making
-The process of identifying and choosing alternative
courses of action in a manner appropriate to the demands
of the situation.
-“heart of all management function”
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
“A problem well defined and recognized is 80% solved”

• What is a problem?
- It is when there is a difference between an actual situation and
desired situation
Analyze the environment
Objective: Identify constraints.
• Internal – within the firm

• External – outside the


organization
Develop Viable Alternatives
1. Prepare list of alternative solutions
2. Determine viability of each solution
3. Review the list by striking out those which are not
viable
Develop Viable Alternatives
Case:
An Engineering firm has a problem of increasing its
output by 30%.
Evaluate Alternatives
“Proper evaluation makes choosing the right solution less
difficult”
Each alternative must be analyzed and evaluated in terms
of its value, cost, and risk characteristics.

• Value of alternative – refers to benefits that can be


expected
• Cost of alternative – refers to out of pocket costs
• Risk Characteristics – refer to likelihood of achieving
goals of alternatives
Make a choice
• Process of selecting alternatives representing potential
solution to a problem

KEY:
Rank alternatives from best to worst
Evaluate and Adopt Decision results
*evaluate whether or not the desired result is achieved

Implement Decision

Implementation refers to carrying out the decision so


that the objective sought would be achieved
Approaches to Solving Problems
• Qualitative evaluation
• Quantitative evaluation
Qualitative evaluation
Uses intuition and subjective judgement

It is used when:
 The problem is fairly simple
 The problem is familiar
 The costs involved are not great
 Immediate decisions are needed
Quantitative Models
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 – calculate number of
items to be ordered ONE AT A TIME to minimize total
yearly cost
2. Production Order Quantity – economic order quantity
technique applied to Production Orders
3. Back order inventory model – used for planned
shortage
4. Quantity discount model – used to minimize total cost
when quantity discounts are offered
Queuing Theory
• Describes how to determine the number of service units
that will minimize both customer waiting time and cost of
service
Network Models
- Large complex tasks are broken into smaller segments
that can be managed independently
1. Program Evaluation Review Technique (PERT)- a
technique which enables engineer managers to
schedule, monitor and control large and complex
projects by employing THREE TIME estimates for each
activity
2. Critical Path Method (CPM) – network using only ONE
TIME factor per activity
Forecasting
• Collection of past and current information to make
predictions about the future
Regression Analysis
• Examines association between two or more variables
Simulation
• Is where a manager does a mathematical model of
system under consideration
Linear Programming
• Used to produce optimum solution within the bounds
imposed by constraints upon the decision.
Sampling Theory
• Where samples of populations are statistically determined
to be used for a number of processes, such as QA and
market research
Statistical Decision Theory
• Rational way of conceptualize, analyze and solve
problems involving limited, or partial information about the
decision environment
END OF CHAPTER 2
EMGN0IA – Engineering Management Ch2
EM Homework no. 2 – Decision Making
Handwritten, Short Bond paper, Bordered Red 0.50” all sides