CHAPTER II

DECISION-MAKING

REPORTERS:
JEREMY YABUT
RUEL VILLAVICENTE
PAULINE JEAN NOVENO
NICA NANIP
JAMES HARVY TALENS
DANIEL GAMBOA
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 certain
resources must be used, someone
must decide to authorize certain
persons to appropriate such resources.
 Decision-making is the
responsibility of the engineer
manager. It is understandable for
managers to make wrong decisions at
times. The wise manager will correct
them as soon as they are identified.
The bigger issue is the manager who
cannot or do not want to make
decisions.
 Management must strive to choose
a decision option as correctly as
possible. Since they have that power,
they are responsible for whatever
outcome their decisions bring. The
higher the management level is, the
bigger and the more complicated
decision-making becomes.
What is Decision-
making?
• Decision-making may be defined as “the
process of identifying and choosing alternative
courses of action in a manner appropriate to
the demands of the situation”.
• The definition indicates that the engineer
manager must adopt a certain procedure
designed to determine the best option available
to solve certain problems.
• Decisions are made at various
management levels (i.e., top, middle, and
lower levels) and at various management
functions (i.e., planning, organizing,
directing, and controlling). Decision-
making, according to Nickels and others,
“is the heart of all management
functions”.
The Decision-making Process
Rational decision-making, according to David H. Holt,
is a process involving the following steps:
• Diagnose Problem
• Analyze the Environment
• Articulate Problem or Opportunity
• Develop Viable Alternatives
• Evaluate Alternatives
• Make a choice
• Implement Decision
• Evaluate and Adapt Decision Results
Diagnose Problem
If a manager wants to make an intelligent
decision, his fist move must be to identify
the problem. If the manager fails in this
aspect, it is almost impossible to succeed
in the subsequent steps. 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. It is, therefore, very
important that an analysis of the
environment be undertaken. The objective
of environment analysis is the
identification of constraints, which may
be spelled out as either internal or external
limitations.
Articulate Problem or Opportunity
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 with 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
Evaluate Alternatives
After determining the viability of the
alternatives and a revised list has been
made, an evaluation of the remaining
alternatives is necessary.
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. Choice-
making refers to the process of selecting
among alternatives representing potential
solutions to a problem.
Implement Decision
After a decision has been made,
implementation follows. This is necessary,
or decision-making will be an exercise in
futility. Implementation refers to carrying
out the decision so that the objectives
sought will be achieved. To make
implementation effective, a plan must be
devised. At this stage, the resources must
be made available so that the decision may
be properly implemented.
Evaluate and Adapt Decision Results
In implementing the decision, the results as
expected may or may not happen. It is,
therefore, important for the manager to use
control and feedback mechanisms to ensure
results and to provide information for future
decisions.
Evaluate and Adapt Decision Results
• 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.
Evaluate and Adapt Decision Results
In this last stage of the decision-making
process, he engineers manager will find
out whether the desired result is achieved.
If the desired result is achieved, one may
assume that the decision was good. If it
was not achieved, further analysis is
necessary. The figure 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:
Qualitative Evaluation
This term refers to evaluation of alternative
using intuition and subjective judgment.
Managers tend to use the qualitative
approach when:
1. The problem is simple
2. The problem is familiar
3. The costs involved are not great
4. Immediate decisions are needed
Quantitative Evaluation

Quantitative Evaluation refers to the

evaluation of alternatives using any
technique in a group classified as rational
and analytical.
QUANTITATIVE MODELS
FOR DECISION-MAKING
The types of quantitative techniques which may be useful in decision-making are as
follows:
• Inventory Models • Simulation
• Queuing Theory • Linear Programming
• Network Models • Sampling Theory
• Forecasting • Statistical Decision-Theory
• Regression Analysis
Inventory Models
Inventory models consist of several types all designed to
help the engineer manager make decisions regarding
inventory. They are as follows.
1. Economic order quantity model- this one is 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- this is an economic
order quantity technique applied to production orders.
3. Back-order inventory model- this is an inventory model
used for planned shortages.
4. Quantity discount model- an inventory model used to
minimize the total cost when quantity discounts are
offered by suppliers.
Queuing Theory

Is one that describes how to determine the

number of service units that will
minimize both customers waiting time
and cost of service.
Network Models
These are models where large 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 enables engineer managers to
schedule, monitor, and 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 is collection of past and current

information to make predictions about
the future.
Regression Analysis
May be simple or multiple depending on
the number of independent variables
present. The regression model is a
forecasting method that examines the
association between two or more variables.
Simulation
It is a model constructed to represent
reality, on which conclusions about real-
life problems can be used. It is highly
sophisticated tool by means of which the
decision maker develops a mathematical
model of the 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
It is a quantitative technique that is used
to produce an optimum solution within
the bounds imposed by constraints upon
the decision. It 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
It is a quantitative technique where
samples of population are statistically
determined to be used for a number pf
processes, such as quality control and
marketing research. When data gathering
is expensive, sampling provides an
alternative. Sampling, in effect, saves time
and money.
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. For more elaborate and
explanation of decision theory it is about
the evaluation of alternative which is very
important because it is subjecting the
alternatives to Bayesian analysis.
Statistical Decision-Theory
The purpose of Bayesian analysis is to revise
and update the initial assessments of the event
probabilities generated by the alternative
solutions in which can achieve by use of
additional information. When the decision
maker can 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.